(c) 2006 
Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.WARREN BUFFETT'S decision to hand over tons of money to a trusted organization is an old-school way of charitable giving: Take this check, put it to good use.
Increasingly, though, wealthy donors are opting for a more hands-on approach, giving money on the condition that the charity take their management advice, too. In many cases, fledgling nonprofits, in exchange for new funding, agree to let benefactors overhaul their business models, make personnel changes and install financial controls.
Donors often see it as the way to get the best bang for their charitable buck by building sustainable organizations, not simply funding pet programs. New Profit Inc. of Cambridge, Mass., which helps local charities expand, provides nonprofits that win grants with professional consulting services from the Monitor Group, a business strategy firm. REDF of San Francisco helps nonprofits establish and manage for-profit operations, like a janitor service staffed by ex- convicts. In New York City, Blue Ridge Foundation provides start-up funds and support for new nonprofits, often sharing work space with them. Venture Philanthropy Partners of Washington, D.C. relies on well-connected business executives to devise expansion plans mainly for nonprofits serving low-income children.
These efforts have roots in the "venture philanthropy" wave of the 1990s, when newly rich dot-com executives looked at nonprofits much as venture capitalists eye start-ups. Many of their ideas fizzled when the technology bubble burst and the stock market tanked. Some survived, though, and today the field is enjoying a battle-hardened renaissance.
"There was a shakeout," said Vanessa Kirsch, founder and president of New Profit Inc. "It enabled the ones in it for the long-term impact to get stronger, and the ones that got in it for the cachet and coolness shut down."
Venture Philanthropy Partners, known as VPP, is a group of wealthy investors that pools its resources to help children in low-income communities around Washington. It's the brainchild of Mario Morino, a former private-equity investor and software executive. The philanthropy doesn't solicit applications. It initially conducted its own analysis of 3,000 nonprofits in the Washington area, which were eventually whittled down to the 12 "investment partners" it supports today.
One is See Forever, a foundation that in 2001 was struggling to operate the Maya Angelou Public Charter School, an institution for youth who had failed at traditional schools. "We didn't have any sort of governance or long-term strategy," said David Domenici, one of See Forever's co-founders. "We had to get some things in place, or we were going to cease to exist some day."
VPP began its courtship of See Forever in early 2002. "We thought they were for-profit guys who didn't know anything about inner-city kids," Mr. Domenici said. Nonetheless, he says he was won over by their thoroughness. "They asked every single question about our school, our personal lives. They looked at every single record."
VPP also paid for a top-to-bottom analysis by management consultants McKinsey & Co. The school discovered its graduates weren't doing as well in college as they'd thought.
Convinced that VPP would help it improve and expand, See Forever accepted a four-year, $2-million-plus investment in 2003. Mr. Domenici was encouraged to give up his roles as principal and math teacher and focus solely on being executive director. VPP advised the school to go after additional lines of government funding.
Next came what VPP refers to as the "strategic assistance" phase where the managerial overhaul intensifies, often beginning with finding a seasoned executive to serve on the charity's board. In the case of See Forever, VPP installed Jack Davies, founder of AOL International, who recruited another former AOL executive to be See Forever's development director.
VPP also produced Fred Bollerer, former chief executive of Riggs Bank, to be an adviser, helping the foundation cope with financial, personnel and real-estate issues. "When we were smaller, we were always making decisions at 2 in the morning, totally stressed," Mr. Domenici said. "Now, when we have to make key financial and personnel decisions, we rely on Fred." Through a contact who had worked with the city's school system, VPP helped See Forever gain permission to use an underutilized public school for its second campus.
See Forever now educates 275 children at two schools, up from 80 and one school at the start of their investment partnership with VPP, which expires next year. The foundation created an alumni support program, and it is currently scouting for its third building. This time, VPP acting managing partner Carol Thompson Cole says, the group is doing more of the search on its own, "but they always call and ask questions."
"Most nonprofits struggle with how to put the capital together to finance their strategies over the long run," said Nancy Roob, president of the Edna McConnell Clark Foundation, a traditional philanthropy that has shown venture characteristics in recent years, reducing the number of recipients, stepping up diligence and insisting on better performance metrics. "We're trying to find the ones that have the most promise."
Still, tensions often ensue. Darin Mc-Keever, executive director of Heads Up, a VPP-funded nonprofit that runs after-school, mentoring and summer programs, says most of that happens during negotiations and business planning. "There was considerable distrust," Mr. McKeever says. "Both sides had huge stakes in the outcome, strong opinions about governance, size and timing of investments. Both of us were willing to walk away from the table."
VPP says it hasn't had to pull out of any of its investments yet. New Profit Inc. says it has curtailed funding on some and walked away from one partner. Both organizations say extensive research and negotiations at the start of the process bring potential breaking points to the fore. "Ultimately, we ended up with a stronger partnership," Mr. McKeever says.
Edward Skloot, executive director of the Surdna Foundation, a more- traditional philanthropy in New York, says he was a skeptic but now is a fan of venture philanthropy. "The second wave [of venture philanthropies] may be notable because the sophistication is really now permeating a lot of the funders," he says. ". . . It's not passive; it's active, and it's increasingly active."
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