Venture Philanthropists

By Karl Taro Greenfeld and David S. Jackson

The anxious promoters of a start-up company, wearing their Sears suits and begging for an investment from clench-jawed venture capitalists wearing Brioni: there is a version of this scene in the founding myth of almost every tech firm from Sun Microsystems to eBay. Venture-capital financing is as embedded in the culture of Silicon Valley as integrated circuits and $750,000 tract houses. So perhaps it's not surprising that this form of financing--and its results-oriented assessment of potential investments--has made its way to the nonprofit sector.

This morning's nervous executives are from TeachScape, a company that thinks it has found a more efficient way to train teachers. And the venture capitalists are actually philanthropists with the New Schools Venture Fund, a group that believes it has come up with a better way to give away millions of dollars.

The premise is that it is not just money that makes a nonprofit foundation succeed or fail; it is also talent, expertise and creative ideas--the same attributes that make a profitable business. This is the sort of thinking that is "breathing fresh air into the whole world of philanthropy," says Lester Saloman, director of Johns Hopkins Center of Civil Society Studies. The venture-capital community--especially blue-chip firms like Kleiner Perkins Caufield & Byers, which has funded Google and Amazon.com among others--believes it has honed its skills at picking winners to a point where it can apply them to philanthropic work.

Kleiner Perkins founding partner John Doerr leads the $20 million New Schools Ventures Fund, a foundation dedicated to educational causes, which gets its money from venture capitalists and CEOs. Doerr says he looks for the same attributes in his philanthropic projects as he does in his tech investments. "I like to see a passionate founding entrepreneur, strategic focus on a large underserved need, scalability and the ability to become a freestanding venture," he explains during a break between pitches.

Doerr is a man whose ear thousands of start-up entrepreneurs vie for, yet he spends a few hours each week seeking to improve public education. "The one thing we know about this new economy," he says, "is that if you can't do algebra, if you can't do symbolic reasoning, you are going to get left behind forever."

He criticizes the nonprofit "industry" as being too fragmented, with only 28% of the 600,000 U.S. charitable organizations having budgets of more than $500,000. By Doerr's reasoning, too much money is being spent on overhead, with too little going to the intended beneficiaries. He would like to see some rugged capitalism applied to weed out inefficient organizations so that more money would flow to those that are really maximizing their results--say, by improving math scores.

That means sitting down at 10 a.m. to pitch meetings like this one with his VC partners and competitors--Brook Byers of Kleiner Perkins, Steven Merrill of Benchmark Capital and CEOs Matt Glickman of BabyCenter.com and Dave Whorton of Springthings.com--to listen to the latest ideas from the world of philanthropy and interrogate the presenters, picking apart their Powerpoint presentations as aggressively as they would a B2B start-up.

TeachScape CEO Mark Atkinson, a former network-TV producer, launches into his pitch. Teacher training is critical to improving education, he tells the dozen partners sitting around the conference table. Teachers need to update their skills constantly. "It's a $12 billion market," he says, "but the current state of play is awful: ad hoc on-site visits with no follow-up."

This is the kind of opportunity perfectly suited to the transformational power of the Internet, he explains. These days teachers travel an average of 25 miles for training. TeachScape will be a Web-based teacher-development system that allows them to train from home.

As Atkinson gets to the meat of his pitch--pricing, revenue assumptions and sustainability--Doerr asks, "How will we, or a third party, measure how this works?" Soon there is a fusillade of questions. Can you judge the teacher's work by the students' progress? How do you get the bandwidth to make this a high-quality experience, say, with lessons on video? If teachers are accessing the site from home, won't that tie up their phone lines?

With the TeachScape crew gone, the partners mull the firm's prospects. Is this really where they want to put their millions? Or are other philanthropic start-ups more deserving, better prepared, addressing a more urgent need? Doerr and the others decide to study TeachScape further with a view eventually to providing some funding. They break for coffee. And wait for the next pitch.

--By Karl Taro Greenfeld and David S. Jackson