funding innovation - what will it take to grow impact

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Journal of Jewish Communal Service, Volume 86, Nos. 1/2, Winter/Spring 2011162

Funding InnovationWhat Will It Take to Grow Impact?

AdeneSacks

The Jewish philanthropic community is engaged in significant discussions about

the health of the innovation ecosystem and funders ability to grow and support

creative enterprise. These discussions are important in a time where resources

are scarce and creative enterprise seems to be at an all-time high.

Looking over a longer periodsay the last decadethe Jewish funder com-

munity seems to be more adept at identifying promising early-stage ventures.

Few would debate the success of the first-generation Joshua Venture alumni in

making their mark on the Jewish community, and local efforts to identify and

incubate Jewish entrepreneurs have grown in both number and sophistication.1

Yet, as many entrepreneurs toiling in early-stage nonprofit ventures will tell

you, funder interest in promising innovations rarely translates into predictable,

long-term sources of capital support. Many of the organizations that have come

into existence in the last 10 years are currently engaged in a fight for subsistence,

not growth. Of the remaining 10 stand-alone Joshua Ventures (5 are now embed-

ded elsewhere), all are struggling to identify funders that will help them grow

into sustainable organizations.

Depending on your viewpoint, the experience of these entrepreneurs is ei-

ther a Jewish form of natural selection or a collective failure of the Jewish philan-thropic sector to create a rational capital structure that nurtures worthy, early-stage

ventures into maturity. While failure is a necessary part of any innovation ecosys-

tem, this struggle to advance appears to be systemic, afflicting a wide range of

organizations.

It is time for funders to reflect on the impact that their specific contributions

have on the uneasy state of the innovation ecosystem (Jumpstart et al., 2009).

Largely, the broad community of funders has not developed a longitudinal view

of organizational growth that can reliably foster entrepreneurs and organizations

through the realities of the organizational life-cycle.

The Jim Joseph Foundations (JJF) mission is to foster compelling Jewishlearning for youth and young adults. Only in its fifth year of existence, the foun-

dation funds Jewish education, exclusively. JJF has grounded its grantmaking

practices in the research and experience embedded in the philanthropic ecosys-

tem, both secular and Jewish. In doing its work, it has also been instructive to

consider the models offered by venture capital. Venture capital makes up a small

portion of all equity funding (less than 25% of all U.S. private equity funding),

yet it plays an outsized role in identifying and nurturing emerging businesses

that define the future of the business world. Foundation giving is also small

Adene Sacks, Program Director at the Jim Joseph Foundation, has been at JJF since 2007. Her portfolio includes foundation

grants to Hillel, Repair the World, BBYO, Reboot, Mechon Hadar and the Foundation for Jewish Camp.1Examples of programs that are engaged in supporting early-stage entrepreneurs include UpStart, Bikkurim,

Joshua Venture, PresenTense, Jumpstart, Six Points Fellowship, and programs of the Center for Leadership Initiatives

(ROI and others).


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VENTURE STRATEGIES FOR FOUNDATIONS

Journal of Jewish Communal Service, Volume 86, Nos. 1/2, Winter/Spring 2011 163

(12% of overall philanthropic giving), but it should and does play a similar role

in defining new solutions and directions (Gair, n.d.). While analogies to the busi-

ness sector are always imperfect, there are obvious similarities to the philan-

thropic world, especially in regard to the early life-cycle of organizations.

For-profit venture investors, unlike their philanthropic counterparts, are equally

rigorous in considering how they fund as in considering what they fund. Adopting

this discipline in the Jewish funder community would represent a significant steptoward creating a more functional innovation ecosystem. But it requires funders to

adopt a level of coordination that goes well beyond current practice.

A FOR-PROFIT APPROACH TO THE INNOVATION

ECOSYSTEM

In the world of venture capital, the path to investment for business entrepre-

neurs is better articulated and the rules of engagement are more explicit than in

the philanthropic world. Moreover, coordination and co-funding among for-

profit funders are a norm. Venture investors are transparent about their fundinggoals and strategies, yielding a clear roadmap for a given sector. This section

describes the impact that articulation of the funding pipeline has on entrepre-

neurs.

A venture investment firm is typically defined by both market sector (bio-

tech, greentech, software, etc.) and investment strategy (early stage, expansion,

and mezzanine). This dual definition provides entrepreneurs and partners in-

sight into the fund partners skill set, investment size, and focus. It also enables

the sector as a whole to envision the entire pipeline of fundingmaking trans-

parent the opportunity for partnerships and potential handoffs between funds.

As illustrated in Figure 1, three growth stages loosely characterize a start-upventure: early, expansion, and mezzanine. Each stage is defined by investment

size, an investors contributions, and key benchmarks that signal readiness to

advance to the next stage of growth. Certain traits are common across all the

2This figure is adapted from a back of the napkin drawing done by Eric Benhamou in early 2007 shortly after

I began working for the Jim Joseph Foundation. It is his idea that venture investors have a skill set that should be

mimicked by philanthropic investors; I worked for Eric in establishing the Israel Venture Network in Silicon Valley

from 2000 to 2006. Erics years leading large-scale companies (3COM and Palm) and seeding companies at all

stages gave him a different perspective on the role of the philanthropic funder that he put this into practice with the

Israel Venture Network and a number of other nonprofit ventures.

Figure 1. The for-profit investors role in the lifecycle of an early-stage investment2


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growth stages, most notably, a commitment to benchmarking, measuring suc-

cess, and the active involvement of funders in fundraising and networking with

other funders.

At the early stage, investments are typically smaller in size, and investor port-

folios include numerous early-stage investments. This is driven by the high failure

rate typical in the start-up space. Early-stage investors tend to focus on internal

activities: working with the founding team on a core product and defining whatwill be achieved if successful. As that company matures, investor activities shift

from inside the company to more external roles. The focus of this expansion

funder becomes soliciting the first round of customers and networking on behalf

of the company with other funders. If a company successfully completes this

growth phase, the final phase of the companys maturity requires yet another set of

skills. The mezzanine investor typically has a systems focus that will enable the

company to both scale its impact and begin to think about a financial exit.

A NEEDED SHIFT IN THE PHILANTHROPIC APPROACH

TO THE INNOVATION ECOSYSTEM

The focus on investment strategy and life-cycle is largely missing in the innova-

tion discourse in the foundation world. Across the Jewish philanthropic sector, it

is fairly common for a foundation to identify itself by what it fundsbe it Israel,

Jewish education, or peoplehood. But private foundations do not typically offer

potential grantees or partners a clear map of how they fund: their investment

strategy. Funders tend not to be explicit about the path into or out of a grant. The

result is that grantees struggle to identify their investor base, remain in the dark

about the basis by which they will be considered for funding support, and are

unclear about the parameters around exit. This occurs across the organizationalspectrum, but is especially critical to early-stage organizations that do not have

the resources (capital and human) to absorb the ebbs and flows of inconsistent

support.

If funders were more explicit about their roadmap to funding, tailored the

funding timeline to growth, and from the outset defined their role in both achiev-

ing deliverables and designing a mutually beneficial exit strategy, the innovation

ecosystem would be healthier. As funders work with entrepreneurs, a clear focus

on investment strategy and life-cycle offers the field the following benefits:

It signals to the field what a funder is best at and what skills the funder brings tothe table.

It allows entrepreneurs to set realistic funding targets, potentially throughout the

start-up life-cycle.

It provides funders in overlapping market segments an ability to identify the

status of different organizations in the pipeline and to find opportunities for col-

laboration and handoff.

Yet, despite these benefits, adding investment strategy to a funders self-definition

is not a simple proposition. There are significant barriers to collaboration that

stem from the limits of applying the venture model to the nonprofit sector, in

addition to the barriers inherent to the field of philanthropy. In a recent paper

published by the Monitor Institute, Barbara Kibbe, Gabriel Kasper, and Katherine

Fulton (2010) articulated those barriers to collaboration:

If funders were more

explicit about their

roadmap to

funding,and from

the outset defined

their role in both

achieving deliver-

ables and designing

a mutually beneficial

exit strategy, the

innovation ecosystem

would be healthier.


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Funders are used to acting independently and having control.

Philanthropy is too often an expression of values rather than effectiveness. This

results in an insularity and inward focus that resist feedback and cooperation.

Philanthropy is often risk-averse and short-sighted. Small grants, short-term

grants, and a focus on small measurable outcomes limit the potential of any en-

terprise.

Funders like to lead, not to follow. This thins the pipeline of later stage invest-ment, which can impede the cause or organization that may have the most im-

pact.

Despite these obstacles, several promising practices can create greater clarity in

the funding pipeline.

EARLY LESSONS AT THE JIM JOSEPH FOUNDATION

In its early years, the Jim Joseph Foundation (JJF) has attempted to adapt some

of the practices observed in the venture model into its grantmaking and to incor-

porate learning from the likes of Lucy Bernholz of Blueprint R&D, the MonitorGroup, the NonProfit Finance Fund, LaPiana Associates, and Cynthia Gair of

REDF. JJF takes seriously the need to increase transparency about process and

priorities because of its commitment to its own effectiveness as well as its under-

standing that, despite the resources at our disposal, JJF needs funding partners

to effect real change.

JJF is very much in a learning mode regarding these ideas and, like many

foundations in the nonprofit funding sphere, does not fit neatly into any of the

venture models. Still, we have begun to integrate grantmaking practices that

center on organizational life-cycle and investment strategy. Our early lessons in-

clude the following.

View Organizations Holistically and With a Field Perspective

Before making an investment, a venture capitalist will conduct rigorous due dili-

gence on the company under consideration. A venture investor looks carefully

at the abilities of the lead entrepreneur, the depth of the overall management

team, and the viability of the anticipated outcome, given the current state of the

target market. Once the determination to invest has been made, a venture capi-

talist commits to the development of the entire enterprise and its entrepreneur

through a stage of growth.2

In philanthropy, while the social entrepreneur has celebrated status, philan-

thropic investors rarely undertake the degree of field mapping or capacity assess-

ment to determine the likelihood of that entrepreneurs ultimate success. In the

for profit sector, funders do not invest in the entrepreneur until after due dili-

gence is done. In the philanthropic sector, funders often skip the due diligence

and just bet on the entrepreneur. Ideally, the path to investment in any new en-

terprise should include a map of the field coupled with an internal assessment of

an entrepreneurs leadership and organizational growth potentialand the in-

vestment should be tied to the life-cycle stage of investment rather than the

grantmaking calendar.

2Both Vincent Worms of Partech International and Alan Feld of Vintage Ventures described to me this path to

investment.

In the philanthropic

sector, funders often

skip the due dili-

gence and just bet on

the entrepreneur.


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The philanthropic sector certainly offers examples of foundations that fol-

low this ideal (Edna McConnel Clark Foundation is a primary example), and

there are examples of this clarity on the Jewish landscape as well,3 but it is far

from the norm. Due diligence is nonstandard across foundations, and funding

decisions are often based on anecdotal evidence or the persuasiveness of a char-

ismatic entrepreneur. Such decisions are problematic for entrepreneurs and

funders because they do not translate into a realistic view of what it will take forearly-stage ventures to succeed.

At JJF, we make an effort to assess the impact of any potential grant on the

organization itself and its contribution to the field of Jewish education. As a part

of our due diligence process, JJF professionals take into account the life stage of

the organization. We also assess a potential grantees role in the Jewish educa-

tional landscape. While JJF does make restricted grants, we consider seriously

whether what is proposed for funding is core to mission for the grantee; that is,

whether it is fundamental to the primary growth strategies of the organization in

question and not just a specific program, and to JJFs mission as well. These met-

rics play a part in our ultimate determination of whether an investment will

achieve impact in our market of Jewish education.

During the process of consideration, JJF professionals attempt to identify

and articulate to both members of our board and grantee stakeholders the areas

of shared values and the role that JJF will play in the life-cycle of that organiza-

tion. In a grant to Reboot, for example, JJF played a role akin to a mezzanine

funder by enabling Reboot to build the systems it needs to successfully embed its

activities in a structure that better supports its constituency and target market.

This grant was built on the early-stage support of both the Andrea and Charles

Bronfman Philanthropies and the Righteous Persons Foundation. This role canbe contrasted to that JJF plays with grantees Moishe House or Mechon Hadar,

both of which are at an earlier point in their life-cycle. In those cases, JJF is more

actively involved with the expansion strategy of those organizations.

Coordinate and Co-Fund

Venture investors tend to be explicit about the terms of engagement in managing

a start-up through a specific stage of growth and actively working with prior and

replacement investors to ensure the move to the next growth phase. Achieving

these milestones reflects positively on both the start-up and the investor.

In the foundation world, the drive for independence and creative control

can inhibit this level of collaboration and transparency. But, this pattern may be

changing. In a recent speech, Bill Gates (2010) said that one of the key lessons

learned by the Gates Foundation is the need to partner to leverage learning and

dollars; this lesson applies all the more to smaller foundations. To achieve this

level of coordination, funders need to be better networked and more actively

engaged with one another.

3Natan invests in innovative organizations defined by budget size (http://www.natan.org/html/about.html), and

the Covenant Foundation has a fund dedicated to ignition of new Jewish ideas that need seed support (http://

www.covenantfn.org/grants/apply-for-a-grant/apply-for-a-grant-1).The Lippman Kanfer Family Foundation has re-

cently begun to research how to support organizations approaching the mezzanine stage of growth (Lippman

Kanfer Family Foundation RFP for Research Solutions, Delivery Models and Business Modesl for Increasing Effec-

tiveness for Early Stage NonProfit Organizations. April 2010.).


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For the JJF, coordination of effort and aggregation of funds are often viewed as

an incentive for investment. Most of our grants include some form of funder partner-

shipespecially for early-stage efforts. In many grants, JJF has elected to follow

another investor, especially when the grantee organization has demonstrated early

results and the potential for wide-scale impact. This was true of our grant to Pardes,

which followed a long-time investment of the Avi Chai Foundation. It was also a

major factor in our decision to invest in Moishe House following both seed funderMorris B. Squire and the expansion investment of the Charles and Lynn Schuster-

man Family Foundation. JJFs investment also enabled Moishe House to leverage and

solidify the longer term commitment of the Schusterman Family Foundation.

It is also common practice for venture investors to aggregate different fund-

ing sources at the same growth stage, especially when the project is too big to

tackle alone or the problem needs a more systemic focus. Cynthia Gair of REDF

uses the term strategic co-funding to describe how foundations can mimic the

coordination evident in venture investing. She points to the need for shared

goals, agreement on the scale of the intervention, and aligned measures of suc-

cess as key to deploying more capital more efficiently (Gair, n.d., pp. 2, 5).

In addition to realizing the efficiency of shared risk, co-funding also has the

potential to mitigate funder fatigue. One of the key misperceptions in both the

private and for-profit sectors is underestimating the time it takes for a good idea

to become a great company or, in the philanthropic world, an effective nonprofit

(Chabot, 2009). Organizational growth, especially in the nonprofit sector, is a

long process. Co-funding and collaborative funding distribute the weight among

many responsible parties rather than just one.4

In its early years, JJF has participated in several co-funded ventures from

their inception, including Birthright NEXT, the iCenter, and Repair the World. Inthe case of Repair the World, three funding partners (the Nathan Cummings,

Schusterman Family, and Jim Joseph Foundations) spent more than a year study-

ing the realities, possibilities, and challenges facing the growth of Jewish service

as both a learning strategy for young adults and an enabler for social impact on

communities (Blair & Irie, 2008). This early work aligned the three foundations

despite different motivations and ultimately added a fourth trustee, the Ein-

horn Family Charitable Trust. Eventually, aggregation of funds and an alignment

of goals led to the establishment of Repair the World, an organization whose

scale has positioned it to make a significant shift in how Jewish service is experi-

enced across the Jewish landscape and beyond.

View Impact Broadly but Measure the Specifics

Venture investors have a single universal goal: return on investment. That said,

investors are often in uncharted waters when they try to determine success mea-

sures for industries in their infancy. They often use a diversity of indicators (qual-

ity of the leadership team, visibility, sales volume, etc.) to chart early-stage

progress (Gair, n.d., p. 17). Early on, multiple investors may debate the choice of

metrics as much as the measurements themselves.

Return on investment in the philanthropic sector is a concept that is sub-ject to relativistic concernssuccess to one foundation board may not be viewed

4An observation made to me by Alan Feld of Vintage Investment Partners based in Israel.

In addition to

realizing the

efficiency of shared

risk, co-funding also

has the potential to

mitigate funder

fatigue.


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as such by another. The Jim Joseph Foundations executive director, Dr Chip

Edelsberg, recently stated that performance should be the end-game for any in-

novative enterprise rather than, as he describes, innovators who actually possess

the rare blend of personal charisma, insider interpersonal relationships and ser-

endipity that can lead to prosperity (Edelsberg, 2010). A performance orienta-

tion to innovation can only be achieved if the sector, as a whole, defines success

measures that have relevance beyond any foundations individual concerns. Todate, there has not been a collective effort to accomplish this important goal.

At JJF, evaluation is a cornerstone of grantmaking. The majority of grants

include funding for an independently contracted evaluation (this currently

constitutes 4% of total grant dollars awarded). The process of evaluation in-

cludes the establishment of explicitly stated goals and objectives to which the

grantee and JJF will be held accountable. In addition to grant monitoring, the

evaluation consultant works with both the JJF professionals and the grantees

professionals to ensure that early lessons are integrated into grant implementa-

tion. On more than one occasion, an early report has allowed important course

corrections to occur.

Our assessment of organizational impact is gradually moving beyond pro-

gram evaluation. There is a growing interest in a network approach to evaluat-

ing impact. JJF professionals recognize that the work of our grantees and JJF

itself happens within a highly interdependent system that includes nonprofits,

government, business, culture, and, increasingly, any individual with a cause and

an internet connection.

The pervasiveness of technology has made apparent the interdependence of

all the players at the table and forces social actors (be they nonprofits or founda-

tions) into new methods of delivering on their mission (Scearce, Kasper, & Grant,2009). JJF has begun to view the ability of grantees to be active networkers

cognizant of their role in various networks and field of thoughtas key to their

success.

Further, JJF professionals believe that JJF has the potential to play an impor-

tant role in weaving5 grantees together with the intent that knowledge will be

shared and collaboration will lead to greater strides toward field-wide outcomes.

JJF has begun to actively engage a networked approach with its grantees. Re-

cently, it funded Hillel to convene a conference focused on Jewish education and

emerging adulthood. For the first time, this conference brought together educa-

tors across the growing number of organizations focused on young adults to talk

about what Jewish education has to offer those in their odyssey years. In this

case, although JJF made a grant to a single organization, the grant was intended

to lead to a larger sector-wide conversation that has relevance across organiza-

tions and promotes a collective pedagogy.

CONCLUSION: TOWARD GREATER CLARITY OF THE

FUNDING PIPELINE

Innovation is core to the Jewish enterprise. It is not a new phenomenon but it is

essential to our ability to reflect and encourage the vibrancy of our community.

5Network weavers link previously disconnected individuals and groups, surface untapped opportunities for

community members to produce better outcomes, and encourage new relationships and collaborations (https://

networksguide.wikispaces.com/Weave+Community).


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Given todays economic realities, coupled with the immense richness of ideas

embedded in current innovative Jewish enterprise, it feels particularly important

that funders collaborate and foster the growth of innovative enterpriseand ul-

timately the growth of impact.

The articulation of the Jewish funding pipeline will not be neat. The diver-

sity and disagreement of desired outcomes coupled with the barriers to collabo-

ration will always hinder our sectors efficiency and impact. Venture capital offersa powerful model but it needs amending and customization. Given the potential

impact on the innovative ecosystem as well as the sector as a whole, the struggle

to find areas of coordination and clarity feels worthwhile. The reward for greater

transparency and role articulation will be more effective philanthropy.

ACKNOWLEDGMENTS

A word of thanks to a number of people who advised and coached me in the

process of writing this article. First, my sincere thanks to Eric Benhamou, whosework in both the worlds of philanthropy and business has long informed my

professional viewpoint. I want to also thank my boss Chip Edelsberg whose edit-

ing skills are the least of his contributions here. Finally, I want to thank readers

Aaron Bisman, Shifra Bronziak, Brent Copen, Sandy Edwards, Lisa Eisen, Alan

Feld, Aliza Mazor, Josh Miller, Dawne Bear Novicoff, Diana Scearce, Nachman

Shelef, and Vincent Worms.

REFERENCES

Fulton, Katharine, Kasper, Gabriel, & Kibbe, Barbara. (2010, March).Cultivating change through

philanthropy. Available at http://www.futureofphilanthropy.org/files/workingpaper.pdfBlair, Jill, & Irie, Ellen. (2008, May). Jewish service learning: What is and what could be. Available at

http://btw.informingchange.com/uploads/2009/11/Jewish-Service-Learning-What-Is-and-What-

Could-Be.pdf

Chabot, Christian. (2009, August 20). How long does it take to build a technology empire?

Available at http://www.ipo-dashboards.com/wordpress/2009/08/how-long-does-it-take-to-build-a-

technology-empire/

Edelsberg, Charles. (2010, January 28).Innovation is great, but it means nothing without results. Avail-

able at http://www.jta.org/news/article/2010/01/28/1010390/innovation-is-great-but-it-means-nothing-

without-results

Gair, Cynthia.(n.d.).Out of philanthropys funding maze: Roadmap #1: strategic co-funding. San

Francisco: REDF.

Gates, Bill. (2010).Press conference at the World Economic Forum, Davos. Available at http://www.

livestream.com/worldeconomicforum03/video?clipId=pla_0a5ad43d-be31-42e8-b924-79b5fd46885e

Jumpstart, the Natan Fund, and the Samuel Bronfman Foundation. (2009). The innovation ecosystem:

Emergence of a new Jewish landscape. New York: Author.

Scearce, Diana, Kasper, Gabriel, & Grant, Heather McLeod. (2009). Working Wikily 2.0. Monitor

Institute. Available at http://www.workingwikily.net/Working_Wikily_2.0.pdf

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