Venture Philanthropy

Venture Philanthropy and Entrepreneurial Nonprofits:
Transformational Change Agents Business Tools and Social Goals



Moderator:
    John Abele, Cofounder and Director of Boston Scientific Corporation

Panelists:
    Jesse Fink, Cofounder and Managing Director of MissionPoint Capital Partners
    Bill Joy, Limited Partner at Kleiner Perkins Caufield & Byer
    Julia Novy-Hildesley, Executive Director of The Lemelson Foundation
    Michael Potts, Chief Executive Officer of Rocky Mountain Institute
    Andrew Winston, Founder of Winston Eco-Strategies


Date: August 10, 2007

Location: Aspen, Colorado

Description:
This panel discussion, titled "Venture Philanthropy and Entrepreneurial Nonprofits: Transformational Change Agents Business Tools and Social Goals," explores thought leadership, social-focused business, and culture change as a means as attaining goals. The members discuss the complications of proven technology and systems and their connection with financial infrastructure.

Running Time: 1 hour, 27 minutes

Venture Philanthropy:
Transformational Change Agents Business Tools and Social Goals

The Symposium's second panel discussion got underway around 11 a.m. I didn't think this would be as interesting as the first panel, but I was pleasantly surprised. This discussion reinforced my own views that society is still in the early stages of development. Why?

Well, when moderator John Abele of Boston Scientific kicked off the discussion by describing the myriad philanthropy models in the world — giving, mission giving ("venture giving"), loans, program-related investment, etc. — it was instantly apparent that much of what we want in the world (new technologies, research, efficient homes, safe neighborhoods, clean air, etc.), we seem to really want. Our government doesn't invest in it (much), we personally don't invest in it, and most businesses don't invest in it. It's the philanthropic types who are filling this void in many creative ways that, frankly, most of us might never hear about. When society is actually organized around investing in things we really want, we'll be on our way.

The panelists included Jesse Fink, Bill Joy, Julia Novy-Hildesley, Michael Potts, and Andrew Winston.

The panelists began by describing what they do, and, where relevant, their connections to RMI. This might sound like a Buddha-like examination of our own navels, but the significance of the RMI link (I think) is that most of the world's really big challenges have attracted some of the most forward-thinking philanthropists to the Institute.

Jesse Fink
After leaving Priceline.com (where he was a cofounder), Jesse Fink began studying philanthropy and what he calls the "X Space," which sits between giving money away and making investments. He also pointed out that at this point in history — just as there were 10–12 years ago during the digital revolution — there are many investment opportunities in the coming low-carbon economy. It's crucial, he said, that we harness power of capital markets in the transition to this new economy. "I think the time has really changed [from the 1970s, when Jesse was trying to reconcile his business and environmental goals] now where no longer are we looking at environmental solutions and economic growth as enemies but recognizing the environmental solutions will lead to econ growth and sustainability," Jesse noted.

Julia Novy-Hildesley
Julia Novy-Hildesley got interested in economic development and the preservation of forests, notably while doing research in Madagascar. Slash and burn agriculture was common, and, with the locals, Julia began looking at a variety of other crops that were more sustainable.

She also said that humans need a more empathic approach to all our neighbors to spur new mindsets. She described the Lemelson Foundation (www.lemelson.org) and threw out this nugget: "We believe that innovations are evenly distributed throughout the world, we believe inventors are evenly distributed throughout the world." In other words, the Lemelson Foundation is in the business of brainpower, regardless of political, ideological, ethnic, and cultural boundaries. She also threw a challenging question out to the audience: "What is the purpose of financial capital?" (She gave us one answer later…scroll down.)

Andrew Winston
Andrew Winston explained his journey from business to a degree in environmental management to his exploration of the connections (and disconnections) between the two. He pointed out that society has entered a new age in which we have things like "venture philanthropy" and "entrepreneurial non-profits" — unheard of just as few years ago. A number of years back, Andrew coauthored Green to Gold (www.eco-advantage.com), which describes what companies are doing to go green — what's working, what's not, etc. Andrew has a little more interest in what public companies can do to go green versus what private companies can do and has great interest in what middle management folks face when implementing sustainability measures in their companies. Check out his blog at www.andrewwinston.com/blog.

Bill Joy
Computer guru Bill Joy met Amory 20 years ago and has been involved with RMI ever since. He invested in Hypercar and even hired RMI for a "green sailboat" charrette (See: RMI Solutions, spring 2005 PDF-900kb).

Now a partner at Kleiner, Perkins, Caufield & Byers (www.kpcb.com), a venture capital firm, Bill has made about 25 investments in energy-related technologies. "We tend to invest in smart people with good ideas," he said. He said he believes government does matter "because it sets the rules," and that we need more investment in education. And, if you've got a good idea, he said his organization even invests in people even if all they have is a really sharp mind.

Michael Potts
Michael Potts, a high-tech industry veteran, described his path from being an RMI Trustee to CEO because he "just fell in love with the mission." The organization has been growing in recent months and steering that growth is challenging, he said, because "we're looking for off-the-charts brilliance. And those people are not common. And we're a non-profit. RMI employees shouldn't be penalized for saving the world; they should get a bonus."

He's used to raising money with venture capitalists, but he's learning a lot about philanthropy and RMI: "The cool thing at RMI is that when people give us their money, we don't have to give it back," he said, smiling. Michael also spoke of the importance of partnering. "Our challenge is to find the companies that are so committed to transformation that we know we can work with them and really drive change that's an example," he said.

We've all donated to something in our lives, be it the local chapter of the Sierra Club or the Red Cross, but John posited a great question regarding getting value (to society) out of philanthropic dollars.

Bill Joy had an interesting take on this. At Kleiner, Perkins, Caufield & Byers, he has been involved with what he called a "pandemic bio defense fund," that has been used to invest in "detection, diagnostics, therapeutics, and vaccine" for things like pandemic influenza. He said his group used a simple spreadsheet and added a "double bottom line" to it.

One line was profitability.

The other line was the number of lives saved.

That makes it a pretty easy way to see the value of something, he noted. (No kidding!)

He also said that you can't look at things simply. Philanthropists have to look very far ahead to things that might leapfrog ahead (he used the analogy of a tree crowning in a forest fire) and cause other desired effects.

"Once you learn where that frontier is and you can see the thing that's farther out, you can say, 'Well, okay, that one's going to make a real difference if I can make that into a great durable enterprise'," he said.

Julia Novy-Hildesley had a great story regarding Lemelson Foundation's support of entrepreneurial product development at universities. It centered on a man who got a grant from the University of Portland. He was born with no legs and one arm, which was severely deformed. He wanted mobility very badly, and managed okay on crutches. By the time he got to university, his doctor told him he could not maintain his upright position (it was damaging his body) and that he would have start using a wheelchair. He heard about the university's product development grant-making program and formed a team that designed a new crutch with a pivotal ankle joint, better support cushioning, and lightweight materials. He launched his own company, got the crutch onto the market, and now he has a $3 million a year company with 20 employees.

"It's a small enterprise, but we can seed a lot of these ideas," Julia said. "And I think we also have to remember the power of small and medium enterprises in our economies and certainly the economies of the developing world."

Oh, I forgot to mention: the fellow who invented the new crutch started with a grant of just $15,000. Boy, I wish I'd run into him first….

I'm going to pop this in here because I thought it was an important observation. Bill Joy said the three biggest energy challenges are: cleaning up coal, transportation-related energy, and building efficiency. He also (later) listed three examples of leapfrogging technologies that would be outside the "financing envelope":

1. Energy storage (e.g., batteries). "If we could have electron storage technology that was ten times better than batteries, it would change the renewable landscape," he noted. (RMI's working on it.)


2. "Another example would be solar panels," he said. "If we could have inexpensive — made from just sand, without a lot of energy input — 50 percent-efficient solar panels, that would change the energy landscape in the world very dramatically."


3. "A third example," he added, "is if we had some way to convert coal to electricity without burning it like a direct coal fuel cell, which if co-located with a source of waste heat could be more than 100 percent efficient in recovering the energy that's in the coal and you wouldn't have all these NOx and SOx and all these other problems that you have from combustion."

John asked about unintended consequences. "If something goes awry is that part of the externalities [of the investment]?" he asked.

Bill used his example of the solar panels. They might be a good investment for someone, but if they're made with some rare metal so they can't go to scale, he's not interested.

"We want to fund the ones that are more risky longer term and that will really solve the longer-term problems," he said.

Jesse pointed out that policy (capital P) can derail or direct well-intentioned capital. This example drew a nice round of applause: "Corn-based ethanol is the probably poster child for unintended consequences — an example where policy is laid out and capital will follow the policy. It shows that capitalists are smart and if there's policy there goes the money. It's just unfortunate that it's the wrong policy. People will make a lot of money in Corn-based ethanol. The farmers won't and it's changed the whole dynamic of land use. More land is going into corn production, it's not being used for conservation, and at the end of the day it'll be musical chairs and the farmers will be left holding the bag. That is, to me, an example of unintended consequences of what is a very bad policy."

"[Sometimes] we subsidize thins without understanding the full impact," John noted.

We've all heard the term, and a lot of folks advertise it, but one of the major discussion points (read frustration points) was the way foundations do philanthropy.

Michael Potts observed that foundations are reluctant to fund breakthrough work. "Foundations have gone to such a cause and effect, outcome-measurement model that its hard to break new ground," he said.

From the audience, Amory Lovins seconded that, noting that foundations are very uncreative in their funding these days. He asked how to educate philanthropists about entrepreneurial non-profits. Julia had a bright response. She said she felt that foundations were starting to get more and more clued in to alternative ways of invest.

Jesse Fink, though, might be on the right track. Earlier he described what his organization does, which is essentially "take a look at proven system and see what we can do to structure the capital and strip out some of that uncertainty so it becomes risk. And once you get to risk people can sit there and do their spreadsheets and their models and make an investment on the risk."

Good to hear. With only 3 percent of philanthropy dollars going to the environment initiatives, we need all the help we can get.

And, finally, the answer to Julia's question: "What is the purpose of financial capital?"…

One audience member suggested: "Sustainable enterprise that will benefit the society for the future." Not bad, I'd say. But Julia repeated her version, which she got from a Morgan Stanley banker: "The purpose of capital is sustaining life."

This ends the lesson on philanthropy. Oh, yeah, and if you're so inclined, I know a great website (www.rmi.org/sitepages/pid133.php).

—Cam Burns, RMI