As I've learned over the last few days, the Clinton Global Initiative is all about partnerships, hybrid funding models, and blurring of lines. One such model, SeaChange Capital Partners, is being developed by Charles Harris, a former managing director at Goldman Sachs. I met Harris on the first day of the conference, and we spent ten minutes chatting about his new venture.
Philanthropy News Digest: How did you got interested in the nonprofit sector?
Chuck Harris: Well, the first thing I would say is that education opened up a world of opportunities for me. So I come to this with a deep appreciation of what educational opportunity can do for somebody.
But as I was getting to the end of my banking career, I became more active philanthropically, mostly giving to educational programs and schools. After I left Goldman Sachs, I decided to put my time where my money had been going and started to become more engaged in organizations I’d been supporting, attending conferences, joining a number of boards and, in the process, seeing at closer hand the funding dilemma that a number of fine, growing organizations faced. It was that experience that led me to search for some alternatives.
PND: What do you mean by “funding dilemma”?
CH: I was involved with a couple of nonprofit organizations that had fantastic management, good results, a fair amount of financial discipline, and were ambitious. And if they had been for-profit businesses at a similar stage of development, they would have gone out and raised a multi-million-dollar, multi-year round of funding tied to their business plan. Instead, they were sending out scattershot proposals for relatively small amounts of money over short periods of time. In other words, there was no financial certainty in the system -– not to mention that the most senior people in the organization were spending a disproportionate amount of their time fundraising.as opposed to driving the ship. It seemed to me to be a very ad hoc, inefficient, and restrictive way to grow an organization.
PND: What was the mechanism you came up with to address the problem?
CH: The fundamental piece of the mechanism is to seek to fund the business plans of these nonprofits rather than fund a piece of their program. We plan to do that by going out to high-net-worth individuals and family foundations with a well-crafted story and growth possibilities, with detailed modeling of future possibilities for the organization and lots of disclosure about what they’ve done in the past. We plan to conduct the financing much like a private placement in the business sector, with the goal of raising $5 million, $10 million, $15 million for organizations on the threshold of a growth phase. As I say, what we hope to do is most closely analogous to an equity private placement where you do a document, you take the management on the road, you meet with philanthropists, either individually or in groups, and you ask for significant contributions to fund the business model.
PND: How will you identify the nonprofits you plan to help?
CH: We’ve done two pilot projects -– one for College Summit and one for Teach For America. In both cases we’re looking at K-12 education reform interventions. That’s really the sector I’m focused on. Once we get ourselves funded and appropriately staffed, we’ll proactively seek out the best managed educational reform and youth development nonprofits we can find who also have an aspiration to scale, and we’ll try to help them do that.
PND: Will you do the due diligence piece, or do you plan to contract that out?
CH: We’ll do that. We’ll also try to take advantage of good due diligence that others have already done.
PND: Obviously, in the business world profit is the primary driver of most investments. What’s the equivalent in your model?
CH: Creating tangible social change is the primary return from the kinds of activity we want to fund. There are other motivations, of course. We’ll be able to offer donors personal engagement opportunities with the nonprofits they choose to fund. And we also hope to build a spirit of membership among our donor network so that there’s the additional attraction of coming together as a group and learning from each other. Hopefully, they’ll learn a few things from what we’ve done, as well.
PND: How does your model differ from the Social Venture Partners model?
CH: I think there are a lot of similarities between the two. The principle difference, however, is that we hope to build a single nationwide donor network that focuses its resources on bringing good organizations and.programs to national scale. So rather than being focused on a donor’s own community, we’re going to try to find folks who want to take the best programs, regardless of where they originated, to as many other cities as makes sense.
PND: Have you been surprised at how hard this work is?
CH: Not surprised. But it is really hard. As you alluded to a minute ago, in the absence of financial returns, one of the big paybacks for folks who are active philanthropically is a sense of ownership and connection to a great project. And I think that drives both individual philanthropists and foundations to want their own projects. It’s the exact opposite of the co-investment model that’s popular in the business sector. What we need to do is to get people, at least some of the time, to think about doing things differently. Take Teach for America; it’s in twenty-two cities and would like to be in thirty. No one of us alone can do that for them, but together we can do it.
PND: Is what we’re seeing here at CGI philanthropy?
CH: Oh, I think it’s a mix. But I’m very encouraged by the blurring of the lines, because in the end what I care about, and what most folks at this conference care about, is creating social change. I think it’s pretty well accepted at this point that there are for-profit and nonprofit ways to do that, and the more we talk to each other, and work with each other, the better off we’ll all be.
-- Mitch Nauffts