Five Principles to Maximize Impact Investing

Eye_home_2“Funder collaboration has not yet risen to the challenge before us,” said Chuck Harris of the Edna McConnell Clark Foundation (EMCF), in a recent conversation with Eye on Philanthropy. I connected with Harris recently, to learn more about the role of impact investing in philanthropy, particularly for children. “There isn’t enough partnering, and the amounts being aggregated are nowhere close to meeting the need.”

Capital aggregation, sometimes called impact investing, has been a major focus of EMCF since 2007, when they launched the Growth Capital Aggregation Pilot, a collaborative funding effort to mobilize $120 million in capital to “propel the growth of effective nonprofits poised for scale.”

It has been the sole focus of Harris’s work since he came on board as director of capital aggregation in 2011, bringing with him 23 years of experience in banking from Goldman Sachs, where he had served as a partner and managing director.

Since 2006, EMCF has been leading capital aggregate investing for several successful programs. One of those programs is Citizen Schools, which provides after-school support, preparation for college or career, and hands-on apprenticeship learning experiences for kids between ages nine and 14.

Students at one of the Citizen Schools. Photo: Edna McConnell Clark Foundation.

Students at one of the Citizen Schools. Photo: Edna McConnell Clark Foundation.

Since its inception in 1995, the program has expanded its geographic range widely, and now has locations in the states of California, Illinois, Massachusetts, New Jersey, New York, North Carolina, and Texas. Citizen Schools provides a good case study for five basic principles that we culled from connecting with Harris and learning about impact investing through EMCF.

  1. Give Big, Unrestricted Support

This is key: giving the financial support that allows grantees to “fully execute their growth plans with confidence,” Harris said. “This creates the headroom for nonprofit leaders to focus on getting the job done, and not get distracted from ongoing fundraising for capital needs.”

With Citizens Schools, the support from EMCF began as a $250,000 planning grant in 2000 that quickly mushroomed into a $2.5 million investment in 2001. During this period, Citizen Schools was able to bring its programs to scale in Boston, set up programs in other major cities in Massachusetts, and start satellite branches in California and Texas.

By 2003, Citizen Schools had morphed into a highly regarded local after-school program with a $5.8 million dollar budget, providing services for more than 1,000 students.

In 2006, Citizen Schools came on board with EMCF’s Growth Capital Aggregation Pilot, giving the program access to more large investments that would help with the expansion.

  1. Work with a Nonprofit that Proves its Effectiveness

The Boston site for Citizen Schools needed to “prove its case” in order to show EMCF that this program had the potential to be bigger. Proving the case also involved going through a rigorous evaluation, which in this case was provided by Policy Study Associates, who assessed the impact of the model and documented its components.

Students at one of the Citizen Schools. Photo: Edna McConnell Clark Foundation.

Students at one of the Citizen Schools. Photo: Edna McConnell Clark Foundation.

As the program expanded, there were, of course, growing pains. Academic improvements for students in early evaluations were less than Citizen Schools had anticipated. Leadership in the program responded by convening a group of advisors that included New Profit, Policy Studies Associates, Bridgespan, and Public/Private Ventures to figure out what was effective, better articulate the theory of change, and revise the evaluation plan.

After fine tuning, in-school performance for participating students improved, along with other important measures.

  1. Be Structured AND Flexible to Maximize Impact

In the case of Citizen Schools, the need for structure and flexibility came into play when it was time to replicate the program in other communities. As the programs started to take off, they began collaborating with different partners like YMCAs, and revised and adapted the curriculum to help the program work with these new partnerships. Doing so also allowed Citizen Schools to capitalize on the infrastructure already in place with these partners.

The program needed to grow quickly, so it provided leaders with structured challenging tasks such as setting goals for expansion. In 2004, the program committed to adding one new “franchise” per year in a new city, which made significant demands on staff but helped structure the goals for the organization clearly.

Like many nonprofits, Citizen Schools faced difficulties in the Great Recession, finding that its revenues were falling short of expectations. To respond to this, leaders of Citizen Schools developed a new model of service in which they would provide Extended Learning Time (ELT) to entire school systems, rather than to a group of participating students. This shift proved important for tapping into other revenue sources and positioning the program inside the school community, giving more impact and deepening relationships.

  1. Foster Strong Leadership Both Locally and Centrally

Which brings us right to the next big point of EMCF’s approach to impact investing: leadership. “In my experience, the highest performing nonprofits blend strong central and local leadership with sophisticated performance tracking in order to manage fidelity and innovation,” Harris said.

In other words, you want leaders who will push the boundaries to what is possible for the program. For Citizen Schools, this meant engaging with leadership in the community, such as a Boston program that worked with a school principal to pilot a version of the program at the school.

Also, strong leadership means strong performance tracking. The metrics shouldn’t be too cumbersome, as documentation in social services can sometimes be, but good leadership requires knowing specifically what is being done by direct care practitioners on the ground. It’s the only way to figure out what works and what doesn’t.

  1. Develop the Public Policy Environment
Students at one of the Citizen Schools. Photo: Edna McConnell Clark Foundation.

Students at one of the Citizen Schools. Photo: Edna McConnell Clark Foundation.

Harris noted the basic reality that philanthropy can’t shift public policy by itself. The public policy environment needs to be cultivated so that successful projects get sustained long-term. For EMCF and Citizen Schools, the end of big investing came in July 2014, after EMCF provided $6 million in 2011 as part of a $20 million anticipated capital grant need.

Citizen Schools had been preparing itself for this inevitable change, and had been working the public policy sphere with evidence-based outcome data about its programs. In 2012, Citizen Schools received its first federal grant of $3 million, which led to a further collaboration with the White House on a mentoring initiative called US2020.

In all, Citizen Schools is now up to $10 million dollars in government support, which accounts for a third of the organization’s goal of $30 million in funding to become a fully sustainable organization.

What’s Next

Harris wants to see more happen in philanthropy to mobilize capital for impact. “While I think philanthropy is doing more to help grow innovative programs, we’re not doing enough,” Harris said. “The social sector is still learning about what it takes to spread and scale the most worthy innovations.”

A strong leader dedicated to his cause, Harris is pushing for more of what he sees working well: collaborative funding. As more data substantiates the benefits of impact investing for social change, EMCF has provided groundbreaking examples, particularly for efforts focused on children.

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New York wants to use a fund for #FamilyFirst Act prep to prevent youth from aging out of #fostercare, but some counties say the money is already spent or earmarked #childwelfare