A pilot to significantly expand the scale and effectiveness of selected US non-profits has been undertaken by major US foundations while, closer to home, a local philanthropist raises funds to house children in need. SIMON MUMME and CATHERINE JAMES report.

US philanthropic grantmaker The Edna McConnell Clark Foundation (EMCF) is leading a co-investment effort with 19 other funders to commit $US120 million to build the capacity of its three top-performing grantee organisations.

The Growth Capital Aggregation Pilot (GCAP) aims to provide the non-profits with the immediate funds required to fuel their expansion, build capacity and achieve long-term financial sustainability. The EMCF believes that significant, long-term investments in proven organisations that exhibit growth potential is an efficient and effective way to meet urgent social needs.

Woody McCutchen, portfolio manager of the $US900 million foundation based in New York, says that that while many non-profits can raise money to roll out specific programs, securing money to enhance capacity is more challenging. “Foundations have been very slow to fund operating expenses and overheads. If [non-profits] are always chasing money, then you’re not going to see the organisation growing,” he says. “We understand that non-profits need serious help with building capacity and not just delivering programs.”

The EMCF focuses on improving opportunities for low-income youth. The five-year pilot focuses on three long-term EMCF grantees: the Nurse-Family Partnership, which develops self-sufficiency among children born into first-time low-income families, will receive $US50 million; Youth Villages, which intervenes to help youth in juvenile justice and foster care systems stay in or return to their homes, will be granted $US40 million; and Citizen Schools, which provides after-school tuition and support to students, will gain $US30 million.

Four of the largest US foundations – the Bill & Melinda Gates Foundation, Robert Wood Johnson Foundation, W.K. Kellogg Foundation and the Kresge Foundation – are among the grantmakers. “We consider the investments as final investments,” McCutchen says. “The organisations are basically saying to us and Gates: ‘If you fund us for this we will never have to come back to you again to pitch for capacity-building funding’.”

The non-profits were chosen for their past performance, histories of consistently attracting program funding, sustainable operating models, excellent governance and potential for growth. “These non-profits are taking on some really tough work,” McCutchen says.

On a growth trajectory that could propel their organisations from being $2 million to $30 million in size, chief executives and boards must be prepared to manage this rapid increase in scale, which could entail hiring specialist operations and financial officers and buying more equipment.

Among the pages of progress reports, and during the quarterly conference calls and annual site visits that the non-profits will host with the GCAP co-investors, such developments will be monitored by the funders. “The biggest question is: what is the board doing?” Co-investors and grantees are committed to the same protocol: to fund defined business plans that involve performance metrics and measure the use of capital while other reliable sources of funding are secured, enabling co-investors to exit responsibly.

McCutchen was in Australia last month to speak at the 2008 Social Innovation Summit, which was held in the Hunter Valley and hosted by the Macquarie Group Foundation.

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