By Todd Cohen
The double-barrelled entrepreneurial effort that New York-based Flatiron Partners launched in April 2000 to encourage social entrepreneurship has hit the same bump that the sluggish economy has thrown up for other venture capitalists.
Now, Flatiron’s social-venture initiative is regrouping and taking a hard look at what to do next.
“We definitely have less than we thought we would have because the stock market has affected all of our donors,” says Cathy Clark, president of the Flatiron Foundation, a public charity, and managing director of the Flatiron Future Fund, a venture fund with a social focus.
Individual partners in Flatiron Partners, a technology-focused venture firm, agreed to contribute a total of $2 million for use by either the new foundation or social venture fund.
“We said we want to encourage social entrepreneurs and we don’t care if they’re nonprofit or for-profit,” says Clark.
The idea was find early-stage nonprofit or for-profit groups with a focus in any of three areas — children, entrepreneurship among minorities and women, or helping entrepreneurs turn their attention to social problems – and then provide the type of support that a venture capital funds typically provide.
In addition to money, that support includes hands-on help in launching and starting an organization, and in sustaining it over the long term, including the securing of funding from other investors or donors.
The two funds also were set up to help the groups in which they invested measure their impact and make better use of technology.
The foundation reviewed nearly 2,000 proposals and funded five.
The social-venture fund reviewed 2,000 to 3,000 business plans – with analysts at Flatiron Partners screening the financial aspects of the plans — but funded none of them.
The fund, Clark says, did not want to be the sole funder, and the economic downturn made it tough for startups to find other funders.
“You don’t want to bear all the risk of every investment,” Clark says, “and it’s always better to have more experienced investors at the table as the company is making strategic decisions.”
All told, the foundation has contributed $300,000 in traditional grants to the five groups:
* Springboard Enterprises, a new nonprofit in Washington, D.C., that helps female entrepreneurs raise money.
* MOUSE, which aims to help build technology into learning for the New York City public schools.
* One Economy Corp., a new nonprofit in Washington, D.C. that tries to connect people living in government-support housing to technology and the New Economy.
Grantees said the foundation’s support – financial and strategic – had been critical.
Rey Ramsey, chief executive officer of One Economy, says the foundation’s grant of $100,000 came at a crucial time during the nonprofit’s startup.
Equally valuable, he says, were the credibility of Flatiron Partners as a tech-based venture fund and the hands-on business assistance the foundation provided.
“They came into our lives at the perfect time in our early stages, and when you’re an early-stage organization, everything you can get that can help lend credibility to your organization is vital, and they provided that to us,” he says. “And they also provided good counsel.”
With the foundation’s help, One Economy pursued a “venture process” that was important both internally and externally, Ramsey says
“Although we all like to thing we bring discipline,” he say, “having somebody say I need a business plan by a certain date helps supply that discipline.”
The business approach encouraged by the foundation also helped show other potential investors that “we were going through an orderly process and we were able to produce for them a business plan and strategy,” Ramsey says.
The foundation also helped open doors to other prospective backers, including San Jose-based Cisco Systems, which is considering a funding request from One Economy, and which has provided the nonprofit with 13 Cisco Fellows – employees who otherwise would have lost their jobs as part of the company’s recent layoffs.
The year-long fellows – the most Cisco has provided to any nonprofit – will work to help speed the use of technology by One Economy’s nonprofit partners.
Ramsey saus that agreeing to work with a venture philanthropy is a big commitment – and worth it.
“You have to make up your mind early that you’re going to make this kind of time investment,” he says. “It takes up time. You’re engaged in a lot of sessions of thinking and planning and budgeting.”
Barbara Chang, executive director of NpowerNY, says the foundation had helped her recognize that her organization is a startup business.
“They are helpful in focusing me on the business aspects of a startup and giving me the context in which to make decisions from a business perspective while I focus my staff on accomplishing the mission of NPower,” says Chang, who previously worked for 15 years as a senior manager at a number of New York nonprofits.
“Nonprofits usually start very small and are incredibly focused on their mission, but they tend to lose the business perspective,” she says.
Noting that NPowerNY’s board includes Jerry Colonna, a managing partner at Flatiron Partners and a member of the Flatiron Foundation’s board, Chang says Colanna and the foundation helped her pay close attention to “metrics,” or ways of measuring NPowerNY’s performance.
“As a nonprofit executive, I might not necessarily have focused on that,” she said, adding that investors increasingly expect nonprofits to be able to measure their performance.
Now, the Flatiron Foundation is trying to measure its own impact.
In June, when Flatiron Partners moved back into the offices of J.P. Morgan Partners – Flatiron’s sole limited partner — the foundation moved out of Flatiron’s Manhattan office and into an office in Brooklyn.
The foundation now plans to focus its non-monetary resources on the five groups it has funded while it studies its future, Clark says.
“The game plan is to concentrate our attention on the grantees we already have, at least through the summer and
possibly through the end of the year, and after that we’ll see,” she says.
Any future grants, she said, “will depend on how successful we are at raising money in the future.”
Options include trying to raise more money, folding the operation into other foundations or merging it with other venture philanthropies.
The foundation also has prepared a report on social enterprise and the Internet.
The report, by consultant Jason Scott, examines how commercial firms and nonprofits use the Internet to generate revenue.
Clark, formerly a vice president for seven years at the Markle Foundation in New York, says she was disappointed that Flatiron’s social-venture initiative had collided with the downturn in the economy.
“We weren’t able to have the resources we thought we would have,” said Clark, who this fall will teach a course at the business school at Columbia University in New York on nonprofit and for-profit social entrepreneurship.
“We were trying to hitch ourselves to the commercial marketplace and help generate more money and expertise for people,” she says. “But the market goes down as well as up.”
Tom Reis, a program officer at the W.K. Kellogg Foundation in Battle Creek, Mich., who tracks venture philanthropy, says that while it is too early to assess its philanthropic impact, Flatiron has been innovative in assessing groups in which it might invest.
“They really required organizations to take a look at their goals and objectives, what did they really want to do and how could they measure that,” he says. “And they were not swayed by personality and passion. If they did not have solid strategy and implementation, they did not fund it.”