When Kiva approached the Draper Richards Foundation for a grant in 2006, the fledgling, all-volunteer organization looked very different than the Internet giant it is today.
At the time, the group was working with pastors in Kenya, Tanzania, and Uganda who would identify candidates for small loans to start businesses in their congregations and then post their parishioners’ information on Kiva’s site. During six months of discussions, as the foundation considered whether to make the grant, its staff members asked Kiva tough questions about how the group planned to grow and helped the nonprofit connect with traditional microfinance organizations, says Matt Flannery, Kiva’s co-founder.
“They actually helped us shape our model,” he says. “They did a lot of work with us. They were just really, really involved and engaged.”
Kiva won the grant—its first—and the group’s decision to work with established microfinance institutions helped the organization take off. To date, people from 210 countries have made more than $310-million in loans to entrepreneurs in developing countries through Kiva’s Web site.
Groundbreaking Growth
Since Draper Richards was founded here 10 years ago by two longtime venture capitalists, it has made early bets on groups that, like Kiva, have grown quickly and shot to prominence in the nonprofit world, including Room to Read and the One Acre Fund. Its rigorous process for finding talented social entrepreneurs and nurturing them with three-year grants and extensive coaching is considered among the most successful in the United States.
But for most of the fund’s history, the money and attention could be lavished on just a handful of entrepreneurs.
Now the foundation has adopted a groundbreaking growth strategy of its own, raising nearly $30-million from the fund’s founders and 15 new donors, including heavy hitters like Robert Kaplan, former vice chairman of the Goldman Sachs Group, and Reid Hoffman, co-founder of LinkedIn. With Mr. Kaplan’s $6-million gift, the philanthropy rechristened itself the Draper Richards Kaplan Foundation.
Adding new donors to an existing foundation is far from standard practice, but some experts think it’s an approach more grant makers should consider.
“One of the challenges for philanthropy, broadly, is it’s so fragmented,” says Stuart Davidson, a managing partner at Labrador Ventures, a venture-capital firm in Palo Alto, Calif., and longtime supporter of social entrepreneurship. Too often aspiring philanthropists simply take the path of least resistance. Creating a new foundation, he says, “is much easier than doing the homework of trying to figure out how can you team up with other people to do funding.”
Meaningful Grants
When William H. Draper III and Robin Richards Donohoe created the foundation in 2002, they set out to adapt the hands-on approach of their day jobs in venture capital to philanthropy.
“Bill is one of a handful of venture capitalists who built the industry in Silicon Valley,” says Mr. Davidson. “At a time when it was really a nascent industry, he helped pioneer some of the legal structures and the investment structures and made some very successful investments in early-stage companies.”
Mr. Draper left venture capital in the 1980s for a career in government, which included a stint as head of the United Nations Development Program. When he returned to Silicon Valley a decade later, he and Ms. Richards Donohoe started one of the first venture-capital funds to invest in companies in India and a fund that focuses on early-stage technology companies in the United States.
The business partners created the foundation with proceeds from the sale to Microsoft of several companies in which their firm had invested at the height of the Internet bubble. They decided to focus their philanthropy on new organizations—in part because of their professional background helping for-profit companies grow and because they wanted the fund’s grants and management assistance to have the biggest possible payoff.
Several years ago, Mr. Draper recalls, just as the fund was about to award a grant to an entrepreneur seeking to develop new drugs to treat neglected diseases in developing countries, her group won a $6-million grant from the Bill & Melinda Gates Foundation.
“So we put our checkbook back in our pocket, because she didn’t need us,” says Mr. Draper. “We want our $300,000 to be important.”
Doubling Profits
For an emerging nonprofit, a grant from Draper Richards Kaplan can be the difference between just getting by and building an organization that has the capacity to thrive and make a significant impact.
When the One Acre Fund, a charity that helps farmers in sub-Saharan Africa improve crop yields, was getting started, its co-founder Andrew Youn had to rely on bicycle taxis to get around. “That’s how basic and desperate things were at the beginning,” recalls Mr. Youn.
When the organization won a grant from the foundation, it spent part of the money on a used white minivan, which is still on the road after five years of rough rural driving. Today the One Acre Fund has an annual budget of $19-million and serves 130,000 farm families in Kenya, Rwanda, and Burundi. Farmers who participate in the program are able to double the profitability of every acre they plant compared with a control group.
In-Depth Vetting
The decision whether to award a grant is a lengthy one. The vetting process, which can last for up to a year, includes a series of discussions with the entrepreneurs about their goals and how they plan to achieve them. At the final stage, the foundation asks the applicant to develop a business plan.
At the same time, Draper Richards Kaplan staff members grill grant candidates’ former bosses, the organization’s donors and board members, other charities, and subject-area experts.
“I remember joking, wondering if they were really interviewing me for the CIA,” says Jordan Kassalow, founder of VisionSpring, a charity that seeks to make eyeglasses more available in developing countries by helping people set up small businesses to sell them. During six months of discussion with the foundation, Mr. Kassalow says, he had reservations about the amount of time he was putting in. “It was early in our life, so we were extremely busy just making things work,” he says. “Every hour I spent answering their questions was an hour I couldn’t spend doing something else that was essential.”
What kept him going, he says, was the prospect of a grant three times as big as the largest the group had received at that point and the fact that the discussions he had with the foundation, while time-consuming, were helping him chart his organization’s future, “making me think in ways that were pushing my personal envelope.”
The most important factor when deciding to invest in a new organization, either nonprofit or for-profit, is its leadership, which is why the foundation spends so much time on the entrepreneur’s past, says Ms. Richards Donohoe.
“What their résumé shows is their story,” she says. “You want to figure out if this story is one of good decisions through the years or poor decisions.”
The in-depth research is about more than just evaluating potential grantees, says Jenny Shilling Stein, executive director of the Draper Richards Kaplan Foundation. It’s also about getting ready to coach the nonprofit, including placing someone from the foundation on each grantee’s board.
“We’re also arming ourselves with a ton of information,” she says, “so that if and when we make the grant and take the board seat, we are hopefully the most informed board member, the most helpful board member, and the biggest ally to the entrepreneur.”
Grants That Fail
As thorough as the foundation is in its vetting, not every grant succeeds. In four cases, say officials, the fund ended grants early. The reasons varied: For example, one organization wasn’t able to raise money from other sources, while another realized it couldn’t achieve its goals. One entrepreneur gave up on her project.
When a grant fails, it never comes as a complete surprise, says Anne Marie Burgoyne, a director at the foundation who works with grantees and helps evaluate applicants. Staff members compile a list of risk factors for every grant. Most times, she says, the organizations can overcome their challenges but not always: “It’s not like you hit your head against the wall and say, ‘I never saw this coming.’”
Striking the right balance is hard, says Ms. Shilling Stein, as grant makers weigh whether they’ve taken enough risks or done enough due diligence: “You literally can feel both ways in the same day.”
Advice From Peers
As the foundation has developed its grant-making approach, the biggest surprise has been the interaction among grantees, say fund officials.
Getting to know other entrepreneurs who share similar challenges and being able to turn to them for advice has been invaluable, says David Wish, executive director of Little Kids Rock, which provide music-education classes in large urban school districts. This spring, representatives from his organization spent time at Room to Read, another grantee, learning about that group’s regional fundraising bodies.
“When I’m grappling with my model, who am I going to turn to, a consultant or a peer?” says Mr. Wish. “There’s real value in both, I suppose. But, boy, I like to go to a peer first.”
The expertise and assistance that Draper Richards Kaplan provides sets it apart from other foundations but might not work if the foundation focused on more mature nonprofits, says Mr. Kassalow, of VisionSpring.
If his organization received the grant today, he says, it would probably chafe at the foundation’s level of involvement. But coming when it did, soon after the charity was formed, the relationship was one of the most important things to happen to the young nonprofit.
Says Mr. Kassalow: “At that time, when we were still teetering on existence or not, having people who are as thoughtful as they were supporting us was really instrumental.”
