March 26, 2012
Kiki Tidwell (Class 15)|Kiki Tidwell (Class 15)
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Venture Investment's Potential to Further Mission Impact for Charitable Foundations

Kiki Tidwell, Class 15

No matter what size the foundation, there are always too many grant requests, too much need, and too little grant money to give to the problems a charitable foundation would like to address. Venture capital investment has resulted in mission impacts that many charitable foundations would like to achieve, including sustainable economic growth, jobs and employment, and new medical breakthroughs that have saved lives or improved quality of life for large numbers of people. Yet at best, only 2.5 percent1 of the $590 billion2 of U.S. charitable foundation assets are estimated to be invested in the venture asset class today.3 This disconnect has developed because venture capitalists do not understand the unique pressures under which charitable foundation trustees and management operate, and in turn, foundation representatives do not understand what the venture asset class can do for them in terms of achieving mission goals without jeopardizing the financial stability of endowments.

We are right at the tipping point: mission-related investing is gaining traction in the foundation world, much as the heavily-private-equity-weighted Modern Portfolio Theory of Investing with a higher risk allocation became standard after the Yale Endowment proved it to be superior.4 The traditional asset allocation model for foundations is about to be disrupted. For charitable foundations this will mean dedicating resources to explore alternative investments, as well as reviewing existing endowment investments for their ability to survive public scrutiny. For venture capitalists, this will mean potentially a new pool of limited partners (LPs) as investors who will be asking for delivery and measurement of mission returns. In this article, I examine the legal restrictions on and the culture of U.S. charitable foundations, consider how those factors have made the venture asset class challenging for foundations, and discuss the ways venture can create mission returns.

Leveraged Impact

Leverage is an issue for foundations, as most foundations find themselves turning down worthy requests with regularity. When I served on the grantmaking panels of the Idaho Community Foundation, I read through two to four thick binders of grant requests per cycle, of which the ICF could fund only a small portion. Foundation staff and trustees spend countless hours in conference sessions like How to Leverage Grant Dollars to Have Greater Impact.5

Statistics show that venture investment can have significant leverage. In the hardscrabble, boom-and-bust economy of Seattle in 1981, $2 million of venture capital was invested in Microsoft, reportedly by David Marquardt6—the only venture money invested in the company. As of November 2010, Microsoft had a market capitalization of $230 billion.7 In 2008, 12.1 million jobs were located in venture-backed companies, representing 11 percent of total U.S. private sector employment.8 According to the National Venture Capital Association (NVCA), "For every dollar of venture capital invested from 1970–2008, $6.36 of revenue was generated in 2008."9 Venture-backed companies earned almost $3 trillion in revenue in 2008, one fifth of the USA's GDP.10Venture investing utilizes several of the skill sets foundations already employ for best grantmaking practices. Grantmakers are accustomed to analyzing whether the value of the outputs justifies the resource inputs before funding a grant. Due diligence on a grant request is very similar to due diligence on a fund investment: Is this team qualified to undertake this work? What is their track record in previous efforts? What are the chances they will achieve the goals they have set? What will be achieved by the investment of this amount of dollars—will there be significant impact or leverage of those dollars?

Unique Investment Pressures on Charitable Foundations

Given these parallels and the sustainable economic leverage created by venture, it is notable that charitable foundations do not seem to understand the mission benefits of or seek investments in the asset class. The answer lies in the particular investment pressures faced by foundations.

"Prudent Man" Parameters

Charitable foundation laws have been crafted to ensure that foundation endowment dollars are invested within "prudent man" parameters: if a venture is too risky for their peer foundation investors, it may be considered a "jeopardizing" investment that would put the charitable status of the foundation at risk. To gain access to foundation investors, venture capitalists need to understand how important peer actions are to foundation trustees and the dependence of those trustees on paid outside expert advisors to validate their decisions.

Viewing venture investing from the prudent-man perspective, a foundation must be of a minimum size to get adequate diversity of asset class, managers within the class, and vintage year. To adequately diversify an investment, a 14 percent alternative asset allocation of private equity for a $10 million foundation is $1.4 million—close to the minimum entry level for many venture capital funds—and thus one venture investment would compose the entire alternative asset class, providing no diversity of manager risk or vintage year.Cambridge Associates recommends that foundations only consider the asset class if they have an endowment of at least $100 million.11 Furthermore, Cambridge will advise charitable foundations that it is difficult to make a good return in venture unless you are allowed into the top quartile funds—and the top quartile funds do not want new LPs. Bill Gurley of Benchmark Capital readily admits that their fund does not actively court new LPs (including charitable foundation LPs); they want LPs who are committed to the asset class, will not panic in low-liquidity times, and know what they are getting into. A top-quartile fund doesn't see its duty as training novice entrants into the asset class.12Many times a family member founder of a foundation may be highly interested in and understand the risk/reward of venture capital mission investing, and small family foundations would therefore seem to be "low hanging fruit" for venture investment prospects. However, 64 percent of family foundations in 2009 had an endowment of less than $1 million.13 I started my own family foundation when my daughter was born, after deep thinking about inherited wealth and my values; however, it will not be fully endowed until my death.

Disincentive versus Incentive Orientation and Headline Risk

Even billion-dollar foundations are essentially overseen by volunteers; with some exceptions, most foundation trustees are unpaid or reimbursed for meetings at nominal amounts.14 Trustees are recruited because of their stature in their communities and because they are deemed to be "good stewards." In contrast to venture capital partners, trustees have nothing to personally gain from investments that do well financially; however, they have significant personal image risk and perhaps personal liability if their investment decisions on behalf of the foundation reduce endowment value.

Rather than personal financial incentives, trustees are motivated by disincentivesand operate under headline risk. Their first objective is to maintain the value of the endowment corpus, and their second objective is to ensure their actions are similar to their peers' and endorsed by advisors so they will be deemed prudent even if the endowment declines in value.

Cash Payout Pressure

Although overall return may be improved by adding the venture asset class, unlike educational institutions, charitable foundations have unique cash payout pressures. U.S. foundations are required by tax law to grant out 5 percent of their net asset value to charitable recipients each year, putting pressure on investment committees. Not only do committee members need to avoid corpus loss and act prudently, they must also generate cash returns above 5 percent plus potential overhead costs of 1-3 percent or more to avoid using their endowment capital.

This problem is exacerbated with a long-term investment asset (e.g., raw land real estate or venture capital) that does not generate current cash returns but contributes to overall asset value; a higher return must be generated somewhere else to "cover" the 5 percent per year on the value of the venture capital investment. A foundation must consider whether its current investments cover the loss of current income from a non-liquid venture investment that may not return capital for seven or eight years.

Lean Staffing

Charitable foundations are not homogeneous entities; they can vary from no-staff, no-assets (pass-through giving from the founders) to several billion dollars of assets with highly paid, sophisticated, career-dedicated staff—and every variation in between. The Paul G. Allen Family Foundation generally gives out $20-$30 million in grants each year, has no substantial endowment commensurate with its payout, but does have staff.15

A foundation may or may not have a dedicated staff person to manage the endowment's portfolio; a volunteer investment-committee chair will likely manage the endowment by retaining the part-time services of an investment advisor. Other committee members may have a financial services background, perhaps now retired. The committee often meets only quarterly and will rarely undertake subcommittee work between meetings.The volunteer investment committee will depend heavily upon the advice of the investment advisor, and any change of money managers will take several quarters of debate to enact. Any change to the asset allocation target percentages would take much longer, and adding an asset class might take years.Staffing is generally extremely small at foundations to maximize charitable payouts and reduce overhead costs. In many small family foundations, family members are actively involved in the daily operation of the foundation, from grant-making, to determining the mission direction of the foundation, to financial management.

Recent Developments in Mission Investing

Up until this point, foundation trustees have believed in an either/or proposition for investing in mission ways. Either the investment committee achieves the maximum possible return with traditional asset allocation, or the foundation has to bear below-market returns and risk their corpus to undertake mission-related or impact investing.

However, pioneering foundations are proving it is possible to achieve good returns while investing in mission-related ways. With nearly half of its endowment today invested in mission-related ways, the F.B. Heron Foundation has achieved an annualized 15-year total return of 9.81 percent through December 31, 2009, well above its median peer group according to Cambridge Associates.16

Headline Risk Inspires the Evaluation of Endowment Portfolios

Foundations are starting to remember that their overriding mission is charitable impact, not just growing ever-larger endowments; furthermore, headline riskis pressuring foundations to examine their endowment investments. Most famously, L.A. Times reporters in 2007 questioned this cultural schizophrenia in The Bill & Melinda Gates Foundation: the Foundation was simultaneously providing malaria treatment to children in Africa and also investing in a company that owned a factory upstream which was poisoning those same children.17

As profiled in a Harvard Kennedy School Case Study, Doug Stamm, CEO of the Meyer Memorial Trust, actually mocked up a fictional newspaper front page to get his trustees' attention and show them how their endowment investments could come under challenge.18 "When the five Meyer trustees and their 31 money managers entered the conference room, the first thing they saw were copies of a front page article in the Portland Oregonian: "Dark Cloud Over Meyer Memorial Trust Investments." A story followed detailing the hypocrisy of the Meyer Memorial Trust's initiatives to reduce pulmonary disease while at the same time investing in tobacco companies. A large photo of the five trustees ran alongside the story, and as Stamm recalled, "You could see words being mouthed around the table like, 'Oh, my God.'"19

Mission Investing for Foundations is Gaining Traction

In 2009, the Bill & Melinda Gates Foundation announced a $400 million allocation in their budget for Program-Related Investments (PRIs), noting on their website that PRIs would leverage their resources "to catalyze broader support for [their] mission."20 Foundations such as the F.B. Heron Foundation, the Rockefeller Foundation, the Annie E. Casey Foundation, and the Meyer Memorial Trust have formed new organizations like More For Mission and PRIMakers to encourage and educate more foundations and public charities on how to invest their $3 trillion of endowments in mission-related ways. In fact, these organizations have challenged the charitable foundation community to raise their mission-related investments to at least 2 percent of their assets—an estimated $10 billion increase.

The F.B. Heron Foundation has developed a spectrum of mission-related investment opportunities for charitable foundations with returns below-market, market, or above market.21The Mary Reynolds Babcock Foundation has further populated this spectrum.22 Rockefeller Philanthropy Advisors have developed the publication Solutions for Impact Investors: From Strategy to Implementation,23andBoston College's Institute for Responsible Investment has developed a Handbook on Responsible Investment Across Asset Classes24 for impact investors.In recent years, Cambridge Associates formed the MRI Group in response to the increase in requests from clients in mission-related investing, which they attribute to the efforts of More for Mission and other groups.25 In an arena where financial products are sold, not bought, this is an impressive, customer-driven development. Cambridge has developed a master list of venture funds offering mission investment opportunities.26 In August 2010, they had 342 mission-related investment funds across all asset classes in their database and 17 clients had made mission-related investments, with 51 additional clients having expressed interest in MRI. There is now a searchable mission investment database for charitable foundations and accredited investors at the Global Impact Investing Network's website, they are held to peer investment standards, foundations can reduce the risk of entering a "jeopardizing investment" if they undertake such investment alongside their peers. In one example, three foundation clients of Cambridge Associates requested an investment opportunity in emerging markets for managers screening for Environmental, Social, and Governance (ESG) goals: Cambridge put out an RFP for an ESG emerging markets fund manager, all three foundations undertook due diligence with Cambridge, and all were eventually placed in the manager identified by the RFP.27 Even Julie Sunderland of the Bill & Melinda Gates Foundation has stated, "We don't want to do this on our own."28

Financial-First versus Mission-First Investment

Current foundation law and practice strongly influence a foundation to decide if it is a financial-first investor or a mission-first investor when looking to add the venture asset class. If a foundation is investing out of its endowment, it has to be a financial (return) first investor and seek entrance into high performing, top-quartile venture funds with significantly high minimum financial commitments. This way, the venture asset class can increase overall financial return for the foundation's endowment.

Historically, venture has provided good returns to financial first investors. Yale University Investments data from 1978–2006 show a 79 percent per annum 10-year return for the venture portion of its portfolio and a 34 percent return since inception.29 The 2011 Preqin Global Private Equity Report states, "Venture funds operate in a notoriously risky industry, but one with the potential for high returns."30 To potential LPs, Rob Mazzoni from Truebridge Capital Partners makes the case that higher risk asset classes are essential to increase the overall returns of an endowment, and that venture industry returns have shown consistent outperformance over time. Truebridge's target IRR is 15-30 percent, but they reiterate that as a fund of funds, they have access to top fund managers.31Alternately, a foundation can achieve mission impact (e.g., economic development, jobs creation, or poverty reduction) through venture investment: Rather than endowment dollars, it can invest out of its grants 5 percent payout budget through PRIs. Investing through PRIs eliminates the "jeopardizing investments" lens used on foundation investments; investments are permissible that further a foundation's mission goals first and put financial returns second.In fact, for PRIs, a foundation cannot have an expectation of a market return, or the investment has to be of above average risk for a market investor. It is therefore difficult for a foundation to pursue a PRI in a venture fund's Fund IV when Funds I, II, and III had top quartile returns and a similar good return is expected.The case of the DBL Bay Area Equity Fund I (BAEF I) illustrates this effect. Nancy Pfund and Cynthia Ringo raised the BAEF I in 2004,32 which was groundbreaking in that it had a double-bottom-line mission to create jobs in the Bay Area as well as to achieve financial returns. The BAEF I was only able to secure charitable foundation investment through PRI program investments; foundations were generally only willing to risk funds out of their grants budget. Since it was a first-time fund and it was trying to achieve social missions as well as financial returns, the investment was risky enough to qualify as a PRI.DBL Investors had target goals for cumulative jobs created over the life of the Fund, and as of March 31, 2010 they had achieved 142 percent of that goal with a total of 7,700 projected jobs created at the end of investment exits—many of those jobs created in low income enterprise zones. As well, the fund has achieved top quartile financial returns for their vintage year of 2004 funds and has realized several portfolio exits and returned significant capital to their investors.33BAEF I's success is impressive, but limiting for further charitable foundation PRI investment. Foundations cannot invest in DBL's second fund through a PRI because the argument cannot be made, based on historical financial returns, that the next fund's returns will not be market rate—and in order to invest out of grants through PRIs, the foundation must be a mission-first investor. Regarding their PRI investments, Julie Sunderland of the Bill & Melinda Gates Foundation says there are not many market venture funds where they are investing their PRIs because those are difficult places to make financial returns.34

Mission Outcomes of Venture Capital Investing

As more venture funds like DBL, Good Capital's Social Enterprise Expansion Fund, and others start to have good financial returns, such funds will be acceptable to more charitable foundations as mainstream investments. The Community Development Venture Capital Alliance (CDVC) cites a 15.5 percent gross IRR based on an analysis of 32 exits from three CDVC fund investments made prior to 1997.35

However, there has long been a firewall between the retired investment bankers traditionally recruited to foundation invest-ment committees (the financial-first investors) and grantmaking committees (the mission-first investors). Nancy Pfund encountered measurable resistance in raising funds from foundations and found that in general, a charitable endowment's financial management is isolated from its program side.36 The larger the foundation (e.g., the Ford and MacArthur Foundations), the more bifurcated the division between program and investment.37Foundation investment committees and trustees should educate themselves on how venture can result in mission outcome byproducts. Venture capitalists look to invest in untested, disruptive new systems or technology, which leads to the establishment of companies that can grow more quickly. Revenue growth from 2006-2008 was 5.3 percent in venture-backed companies, compared to total U.S. revenue growth of 3.5 percent.38 Josh Lerner, leading researcher on entrepreneurial ecosystems, noted that

…venture capital, even though it on average amounted to less than 3% of corporate R&D in the U.S. from 1983 to 1992, was responsible for a much greater share—perhaps 10%—of U.S. industrial innovations this decade.39

Genetech, Amgen, Intel, Microsoft, Fedex, Amazon, Facebook, Cisco, eBay, Apple, and Google were all backed by venture.

Economic Development

The standard practices of venture investing become key components to sustainable economic change. Josh Lerner writes,

Entrepreneurs seem better at developing and commercializing new ideas. And no matter how one looks at the numbers, venture capital clearly serves as an important source industry for innovation . . . these investors both provide important guidance to young firms and relieve all-too-common capital constraints.40

Venture capitalists work on the boards of portfolio companies and work closely with company management to nurture them to success, viewing mentoring as a key part of their work. They share information with emerging entrepreneurs about good governance, milestone setting, capital efficiency, commitment to ongoing research and development, and the necessity of adjusting business models to market feedback on a timely basis. Lerner further notes,

Academic research has highlighted the role of entrepreneurship and venture capital in stimulating innovation. Venture financiers and firms have developed tools that are very well suited to the challenging task of nurturing high-risk, but promising new ideas.41

In 1977, Seattle and the Puget Sound area were economically tied to the fortunes of one dominant company, Boeing. In 2011, after venture investment to Microsoft, Amazon, and Starbucks, among others, there is a diversified base of profitable companies providing employment, as well as many new startup companies and clusters.Indeed, venture investment can change entire financial ecosystems.

A community that has a stable economy can support not only the essentials of community life, but also the organizations that constitute an improvement in the overall quality of life in a city, town or region…symphony, ball fields and recreational opportunities, better libraries and parks, or social services to assist the less fortunate.42

Many former Microsoft employees are not only involved in creating new companies, but in giving back to their community through direct philanthropy or engagement in philanthropic organizations like Social Venture Partners. Bill and Melinda Gates have endowed the largest charitable foundation in history, and Paul Allen is not far behind with his foundation efforts.

In support of his point that "more economic activity and a better quality of life depend vitally on a steady supply of new technologies and approaches,"43 Josh Lerner compares the experience of two small countries, Singapore and Jamaica. Both had similar per capita GDP in 1965 and similar attributes such as a centrally located port and a strong capitalist orientation.

But four decades later…Singapore had climbed to a per capita GDP of $31,400 [2006 data], while Jamaica's figure was only $4,800.…In explaining Singapore's economic growth, it is hard not to give considerable credit to its policies toward entrepreneur-ship.44

Research on Innovation and New Technologies

In addition to economic development, venture commercializes research innovation; people benefit from new medicines, medical devices, and tools in technology. Michaela Platzer lists angioplasty, cardiac therapy, drug delivery systems, MRI and ultrasound, diagnostic imaging, implantable defibrillators, spinal implants, and glucose self-monitoring devices among the achievements of venture-backed research innovation. As evidence of the broad impact, she cites research showing that "more than 100 million (1 out of 3) Americans have been positively impacted by innovations developed and launched by venture capital backed life sciences companies during the past 20 years."45

Venture can also have broad social impact, as African cell phone provider Celtel International demonstrates.

Because of the low average income, the African market had little penetration in either wireless or landline phones. Celtel grew by recognizing the large cash-based informal sector, addressing the low income of users by selling prepaid time in small, affordable units.…These initiatives had broad-reaching social consequences. In many cases, the cell phone has been an income generator for village entrepreneurs.…Small–scale farmers and traders in particular have benefited from better knowledge of prices, allowing the market to converge to a point more beneficial to the small player. The cell phone is also used for low-cost banking, targeting low-income users underserved by traditional banks.46

Small Business Support

Foundations have actually been successfully investing in impact venture since at least the 1980s, through what is often called "small business support." The MacArthur Foundation started using PRIs in the mid-1980s for a community development mission, and by 2004 had invested $100s of millions in low-cost loans and equity investments. Jonathan Fanton from the MacArthur Foundation stated in 2004, "We think this investment in small business makes good sense. As all of you know, small business is the true driver of job creation in the American economy."47 Furthermore, direct equity mission investments may provide non-correlated diversification.

Mission Investors May Add Complexity to Venture Funds' Operations

Charitable foundations will undertake mission investing somewhat differently than other venture investors. In particular, foundations will conduct and document formalized due diligence procedures that may seem lengthy and arduous to venture funds, and once invested, foundations require mission goals reporting from their funds, adding a layer of reporting work for VCs.

Formal and Documented Due Diligence

Because of "prudent man" investing rules and guidelines for foundations, charitable foundations will follow clear procedures in due diligence of a venture investment. One such due diligence checklist created by the Rockefeller Foundation is provided as a template for member foundations on the PRIMaker's website.48 In the "Prudent Man" Rule Clarification of 1979,49 pension funds were officially allowed to include venture under their "prudent man" rules. Although charitable foundations have invested in the asset class for much, much longer, they must defend any investment decision with significant due diligence and rigor surrounding the investment decision.

Emphasis on the Measurement of Mission Goals

Foundations have evolved sophisticated effectiveness-measurement tools for their grants, and are extending this work to evaluating mission investments. DBL and the Ford Foundation together designed systems and developed metrics to measure mission impact of the venture investments in their fund.50 Josh Lerner notes that where government social-mission venture has failed, there had been a "failure to design appropriate evaluative mechanisms."51 Foundations then will find comfort in the fact that mission as well as financial outcomes can be measurable in venture—jobs created, carbon reduced, tax dollars collected from new companies.

Mission outcome measurement tools are emerging to standardize such evaluations. The Global Impact Investing Rating System (GIIRS) provides ratings on how well funds and companies are achieving environmental, social, and governance goals in their activities. At the September 20, 2011 annual meeting of the Clinton Global Initiative, impact investors with $1.5 billion of impact assets declared their preference for GIIRS-rated funds and companies.52 The Impact Reporting and Investment Standards (IRIS) is attempting to provide a standardized set of measurements of non-financial performance so that investors can evaluate funds and portfolio companies effectively.

Possible Additional Steps for Program-Related Investments (PRIs)

Since PRIs allow charitable organizations to invest in for-profit companies, foundations are spending considerable effort to verify that an investment truly qualifies as a PRI; for example, they may take the extra step of obtaining a side letter from the IRS ruling that the investment qualifies before they invest. The Annie E. Casey Foundation has spent considerable effort ensuring that they satisfy the IRS grantee expenditures reporting requirements with their PRIs.53 Foundations are legally required to establish withdrawal rights from equity investments if the company or fund moves away from the original investment and diverges from mission goals; numerous foundations, including the Bill & Melinda Gates Foundation54 report successfully negotiating the necessary withdrawal rights in their PRIs.

Direct Investments Over Venture Funds

Some foundations like the Omidyar Network have actually opted to bypass investing in funds and have instead focused on direct equity investments in start-up companies to retain a laser focus on mission. Julie Sunderland at the Bill & Melinda Gates Foundation says it is much easier to demonstrate mission with direct investments; in their experience, there is too much mission dilution in a fund.55 They find that mission investment generally lacks something vital: the clear link between the investment and the social benefit.

Cautionary Notes for Charitable Foundation LPs

Charitable foundations enthusiastic about mission venture investing should remember, however, that mission impact is a beneficial side outcome of the traditional venture investment process—venture will fail if social goals hamstring the investment decision process. For example, restricting investments only to those creating a certain number of jobs would constrain the investment selection too much and doom the fund to failure in its financial goals, or if narrow geographic constraints are used then deal flow may be too constricted and fund returns may also suffer.

According to Nancy Pfund, one of the key aspects of her BAE Fund is that they co-invest alongside traditional mainstream venture fund investors, albeit selectively in investments that will have social goals "by-products."56 BAE has co-invested alongside Kleiner Perkins Caufield & Byers, Draper Fisher Jurvetson, Mayfield, New Enterprise Associates, Sequoia Capital, and others—partners who use only traditional financial goals in investment selection.

The private equity model itself, while a potentially powerful instrument of growth, is fundamentally an instrument of precision. Most successful portfolio companies share a number of qualities. These include sound financial practices, prospects for significant growth, excellent management willing to work in partnership with new owners, a unique product or service, and a clear exit strategy.57

Further, entrepreneurial ecosystems cannot be "plopped down" just anywhere—like seeds, startup companies need rich soil in the form of support systems professionals (i.e., attorneys, accountants, and investment bankers who understand the needs of high growth companies). Deal flow is best where technology is coming out of university and government labs and where there is already a culture of entrepreneurialism—in other words, where individuals understand what it takes to start and run a new business with financial acumen.To encourage new company startups in areas where such an ecosystem does not already exist, foundations are well advised to supplement their PRI or mission-investment dollars with grant dollars for entrepreneurial training and other support. They should also expect less financial return in funds geographically restricted to areas that are not traditionally entrepreneurial.Finally, foundations are advised to define mission goals first—before undertaking mission investing. In working with charitable foundations to place mission investments, Jessica Matthews of Cambridge Advisors has found that if a foundation is too limited in its mission focus, there is too little opportunity for investment.57

Looking Ahead

Although foundations are differing in their tolerance of and adoption of mission investing, there will undoubtedly be significant change in the charitable foundation investment landscape in the near future. The marketplace is rapidly evolving new products in response to investor demand, and start-up companies are asking for more patient, mission-focused capital to achieve double-bottom-line success.

The traditional venture model can achieve significant mission outcomes as by-products of its current standard practices; however, the marketplace may demand more from venture in the future as investors increase their sophistication in mission investing. Foundation mission investors may be harbingers of a "sea change" in the investment landscape: In ten years, perhaps most investors will measure their venture investments with a double-bottom-line lens. It is hoped that venture capitalists and charitable foundation trustees will take the time to understand the pressures under which each operate, and find common ground in the double bottom line.Thanks go to the following interviewees who gave generously of their time, in alphabetical order: Peter Berliner, Managing Director, PRI Makers Network; Nancy Floyd, Founder and Managing Director, Nth Power; Tim Freundlich, Good Capital, Giving Assets at the Calvert Foundation; Eric Hallstein, former Director, Investments, Omidyar Network; Denis Hayes, President and CEO, The Bullitt Foundation; Tracy Kartye, Associate Director of Social Investments, The Annie E. Casey Foundation; Lisa Kleissner, Founder, KL Felicitas Foundation; Jessica Matthews, MRI Group Manager, Cambridge Associates; Rob Mazzoni, Truebridge Capital Partners; Jennifer Nice, Vice President of Business Development, Good Capital Social Enterprise Expansion Fund; Nancy Pfund, Managing Partner, DBL Investors Bay Area Equity Fund; Susan Phinney Silver, Program-Related Investment Officer, David and Lucile Packard Foundation; Luther M. Ragin, Jr., former CIO, F.B. Heron Foundation, and CEO, Global Impact Investing Network; Andy Rappaport, Partner, August Capital, and Founder, Rappaport Family Foundation; Jenny Rooke, Senior Program Officer, Bill & Melinda Gates Foundation; Morgan Simon, Director of Toniic; and Julie Sunderland, Senior Program Investment Officer, Bill & Melinda Gates Foundation.

Kiki Tidwell

Kiki Tidwell

Kiki is President of the Tidwell Idaho Foundation. She has also served on the board and finance committee of the Idaho Community Foundation (ICF), as well as volunteered as a charitable grants panelist for ICF and the Idaho Children's Trust Fund. Kiki was involved in angel, clean tech, and impact investing before she knew that these had titles, but eventually joined Northwest Energy Angels and recently completed two years on its board. She has an active portfolio of angel investments and has served on portfolio company boards and advisory boards. Kiki is also a Limited Partner in several venture funds: Nth Power Fund IV, CalCEF Angel Fund, Good Capital's Social Enterprise Expansion Fund, SJF Ventures Fund III, TrueBridge Capital Fund II, and Aligned Partners.

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1 Commonfund, "2010 Commonfund Benchmarks Study of Foundations: Alternative Strategies Asset Mix for Fiscal Year 2009," Of the sample of 173 foundations with assets above $10 million, totaling $103 billion in assets, 35% is invested in alternative strategies, 7% of which is invested in venture, or 2.55%. A $103 billion sample size out of $590 billion may be non-representative of the entire investment universe of foundations, as larger foundations invest in venture more than small foundations.2 The Foundation Center, "Aggregate Fiscal Data by Foundation Type," 2009, Jessica Matthews, MRI Group Manager, Cambridge Associates, interview, 21 October 2010.4 Josh Lerner, Felda Hardymon, Ann Leamon, Venture Capital and Private Equity: A Casebook, 4th ed., (Hoboken, NJ: Wiley, 2009), 43.5 For examples, see the Council on Foundations Annual Conference Sessions list: Robert A. Finkel, with David Greising, The Masters of Private Equity and Venture Capital: Management Lessons from the Pioneers of Private Investing (New York: McGraw Hill, 2010), 159.7 Available from National Venture Capital Association (NVCA), Venture Impact: The Economic Importance of Venture Capital-Backed Companies to the U.S. Economy, 5th ed., 2. Available from Ibid., 10.10 Ibid., 9.11 Jessica Matthews, interview.12 Bill Gurley, question and answer session, Palo Alto, 4 November 2010.13 The Foundation Center, Key Facts on Family Foundations (Author, 2011), Council on Foundations, Board Composition and Compensation, Foundation Management Series, available from Paul G. Allen Family Foundation 2009 Tax Return, retrieved from Foundation Center archive: Luther Ragin, Jr., Vice President of Investments, F.B. Heron Foundation, interview 2010.17 Charles Piller, Edmund Sanders, and Robyn Dixon, "Dark Cloud Over Good Works of Gates Foundation," Los Angeles Times, 7 January 2007,,0,2533850.story.18 Rob Bleiberg, Alicia Cacace, Baylee DeCastro, Anne Perkins, Alvin Sheng Hui Tan, Chris Toomer, and Sandra Wirth, "$650 Million Ain't What it Used to Be (A) The Meyer Memorial Trust Considers Mission Related Investing," Harvard Kennedy School, John F. Kennedy School of Government, 3 May 2010, Ibid., 7.20 Bill & Melinda Gates Foundation, "Program-Related Investments: Leveraging Our Resources to Catalyze Broader Support for Our Mission," F.B. Heron Foundation, Impact Across the Mission-Related Investment Portfolio (Author, n.d.), Mary Reynolds Babcock Foundation, Mission Investing (Author, n.d.), Available from the Rockefeller Philanthropy Advisors website: Boston College Center for Corporate Citizenship, Handbook on Responsible Investment Across Asset Classes (Chestnut Hill, MA: Author, n.d.), Jessica Matthews, interview.26 More for Mission Investing, "Members Only Portal," 2008, Jessica Matthews, interview.28 Julie Sunderland, Bill & Melinda Gates Foundation, interview 12 November 2010.29 Josh Lerner, Felda Hardymon, and Ann Leamon, Venture Capital and Private Equity: A Casebook, 4th ed. (New York: Wiley, 2009), 50.30 Tim Friedman, ed., Preqin Global Private Equity Report 2011 (New York: Preqin Ltd., 2011), 62. Available from Rob Mazzoni, Senior Associate, TrueBridge Capital Partners, interview, 10 September 2010.32 Nancy Pfund, DBL Equity Fund, interview, 12 October 2010.33 Ibid.34 Julie Sunderland, interview.35 InSight at Pacific Community Ventures, Community Equity Capital (San Francisco: Author, 2010), 12, retrieved from Nancy Pfund, interview.37 Ibid.38 NVCA, Venture Impact, 2.39 Josh Lerner, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do About It, Kauffman Foundation Series on Innovation and Entrepre-neurship (Princeton, NJ: Princeton University Press, 2009), 62.40 Ibid., 63.41 Ibid., 9.42 Gerald L. Gordon, The Formula For Economic Growth On Main Street America, American Society for Public Administration Book Series on Public Administration & Public Policy (Boca Raton, FL: CRC Press Taylor & Francis Group, 2010), 17.43 Lerner, 63.44 Ibid., 18.45 Michaela Platzer and Content First, Patient Capital: How Venture Capital Investment Drives Revolutionary Medical Innovation Arlington, VA: National Venture Capital Association, 2011), 9.46 Lerner, 49.47 Jonathan Fanton, "Welcoming Remarks to the Small Business Investment Alliance, September 30, 2004," Available from the PRIMakers Network website: Paul A. Gompers, 1994, "The Rise and Fall of Venture Capital," Business and Economic History, 23, no. 2, 1–26. Nancy Pfund, interview.51 Lerner, 14.52 B Lab/B Corporation, "Launch of the World's First Ratings and Analytics Platform for Impact Investing: 15 Pioneer Investors with $1.5 Billion in Impact Assets Declare Investment Preference for GIIRS-rated Funds and Companies," 20 September 2011, Tracy Kartye, Annie E. Casey Foundation, interview December 2011.54 Jenny Rooke, Bill & Melinda Gates Foundation, telephone conference, November 2011.55 Julie Sunderland, interview.56 Nancy Pfund, interview.57 Laura and David Gladstone, as cited by Insight at Pacific Community Ventures, "Community Equity Capital: The Opportunities and Challenges of Growth," December 2010,, 16.58 Jessica Matthews, interview.

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