Merger of Two Successful Funds Creates Philanthropy Powerhouse

THE PHILANTHROPY 400

In his job as chief executive of the new Silicon Valley Community Foundation, formed by a recent merger of two

funds, Emmett Carson says that he is often reminded of his experience as the father of a teenage daughter.

Mergers and acquisitions, whether corporate or charitable, says Mr. Carson, usually involve a stronger organization that absorbs and dictates the course of a weaker, often troubled, one. But in this case, the new foundation is more like the independent offspring of two powerful parents, he says.

Indeed, both of the new foundation’s parent organizations raised enough money last year to make it onto the Philanthropy 400: Community Foundation Silicon Valley ranks No. 84, and the Peninsula Community Foundation is No. 153. If their fund-raising returns had been counted together last year, the merged entity would have been No. 42 on the Philanthropy 400.

“We have the eyes of one and the chin of another, and we are unlikely to do what either parent wants,” says Mr. Carson of his new foundation.

Trustees of the Silicon Valley fund are determined to keep the best of what the two community foundations achieved while at the same time charting an entirely different course. The ultimate goal: appealing to more donors and solving regional problems more effectively than the two foundations could when they worked on their own. Already, in the months since the merger became official in January, Silicon Valley Community Foundation can report some impressive results. From January through September, it raised $225-million, up from the $117-million raised by its parent funds in the same period last year.

And by becoming a single organization, the charity is now the fourth largest community foundation in the nation, with nearly $1.7-billion in assets, according to an annual survey conducted by the Columbus Foundation, in Ohio.

Fund-Raising Breadwinner

Of the parent organizations, Community Foundation Silicon Valley, representing Santa Clara County, was the fund-raising powerhouse.

Last year, it raised more than $190-million, with much of the money coming from local technology entrepreneurs and corporations whose giving has recently begun to revive as the technology industry recovers from its 2000 decline. Many technology entrepreneurs have established donor-advised funds at the foundation, which allows them to help choose which groups get grants.

The Peninsula Foundation, which covered nearby San Mateo County, raised only $116-million last year, but it had a larger endowment. By not focusing as heavily on donor-advised funds, Peninsula was able to make many more discretionary grants, about $7-million last year compared with $1.1-million distributed in Silicon Valley.

The original foundations’ strong points were complementary even though their cultures were very different, says Greg Avis, chairman of the new foundation’s board and former chair of the original Silicon Valley fund.

“You could just feel that walking into their offices,” says Mr. Avis, the founding partner of Summit Partners, a Palo Alto venture-capital fund. “Community Foundation Silicon Valley was more freewheeling, like the entrepreneurs it served. Peninsula was more traditional.”

Mr. Avis and other board members say that the merger idea was proposed by trustees of the two funds, who had worked together on projects over the years and began to weigh the benefits to the region of a possible merger. An opportunity suddenly presented itself when Sterling Speirn, president of the Peninsula fund, left to become president of the W.K. Kellogg Foundation in 2004, and Peter Hero, leader of Community Foundation Silicon Valley, announced his plans to step down soon after.

It was the willingness trustees showed to take on the hard work involved in the merger that convinced Mr. Carson to take the job. A well-known leader in the nonprofit world, he had spent the previous dozen years running the Minneapolis Foundation, where he helped increase assets from $186-million to more than $600-million. Before that, he spent six years at the Ford Foundation, where he led a grant-making effort to promote charitable giving worldwide.

“I came here because there was no reason for these two boards to do this merger, they were not in trouble or danger,” Mr. Carson says. “They said, ‘As we look at the problems facing this region, the region will not be better if we are competing for donors and media attention.’ It is remarkable that two boards came together to recognize this.”

Merging Support

Other grant makers in the region felt the same way. The new foundation has received $4.8-million to cover the cost of the merger from the Omidyar Network, Skoll Foundation, William and Flora Hewlett Foundation, James Irvine Foundation, and David and Lucile Packard Foundation.

The merger made sense, says Paul Brest, president of the Hewlett Foundation.

“Neither foundation was small, but they had divided the peninsula between north and south, and there were a lot of activities and organizations and important programs that didn’t divide that way. Grantees often found it confusing to apply to one or the other or to both, and donors were often confused as well.”

The nearly $5-million in grants, however, will not cover the entire merger. The rest of the total estimated expenses, $7-million though 2009, will come from the foundation’s operating budget.

“It is expensive to merge,” says Mr. Avis, the board chairman. Costs so far have included a move and improvements to new office space in Mountain View, Calif., located midway between the former homes of the original funds, fees paid to lawyers and consultants, severance pay, and hiring costs.

While many of the staff members of both foundations, about 100 people, have stayed with the new fund, some departed amid concerns about long commutes or because their position in the new foundation would have been changed.

Mr. Hero, former leader of Community Foundation Silicon Valley, who had announced his intention to step down before the merger, is staying on until next year in the position of senior adviser. Building on his fund’s success in attracting corporate dollars, he spearheaded the foundation’s study of the scope and impact of giving by 100 local companies that was released last month. The study found that many of the companies were relatively young and in the early stages of becoming philanthropic organizations.

“We have about 30 corporations that now do all of their giving through our foundation,” says Mr. Hero. He says that he hopes to use the study to increase that number while also getting local executives more involved in area charities by serving on their boards and pursuing other civic activities.

The foundation has taken other steps to strengthen its fund raising. For example, interviews conducted before the merger with financial advisers showed that they would be more likely to refer wealthy charity-minded clients to a merged foundation than to either of the smaller parent funds. To help tap into the interest from advisers, the foundation has hired a development officer whose full-time job is to serve as a liaison to financial experts. Such professionals, Mr. Carson says, “need fast answers. This person can cut through red tape.”

Solving Problems

On the grant-making side, Silicon Valley Community Foundation is now holding a series of nine gatherings on topics such as the environment, health, and low-cost housing to set new guidelines and inform where its money goes. Each meeting begins with the foundation soliciting reaction to a three-page brief describing the region’s problems related to each issue and potential solutions, which foundation staff members write after a thorough review of existing research and other data.

Each meeting has drawn 40 to 60 people, who are invited for their expertise in the subject area. They are asked to comment on the brief and to help foundation staff members identify the best possible solutions to pursue.

The fund is now gathering information and working to set new guidelines for distributing money. It suspended grant making for new projects beginning in July, though it is honoring previous commitments made by its two parent organizations. Mr. Carson says that he and his colleagues hope to begin accepting proposals again in January or February.

Some grantees of the original foundations are nervous about whether they will be able to get money from the new fund under revised grant-making guidelines, and others have been critical of the decision to suspend grants.

“I do not know how they can merge and suspend grant making. That is the business they are in,” says Bruce Davis, executive director of Arts Council Silicon Valley, a San Jose organization that provides grants and other services to area arts groups. “Would a hospital stop providing medical care in a merger? You would think they would plan in advance; this seems to be really poor planning. People want to see the new merger succeed. I just have problems with how they’ve gone about it so far.”

Mr. Carson says that the foundation has continued to make the grants that the former two funds had in process and will actually give away more money this year than the two foundations did in 2006. “The idea that money is not getting out the door is not accurate,” he says, adding that donors have also continued to make grants as before from their donor-advised funds. But, he says, “like the hospital that needs to upgrade from an X-ray machine to an MRI machine, there is a period of transition where you have to get old equipment out, new equip in, and train staff. Starting next year, the way we get money out will reflect a different set of guidelines consistent with a new vision.”

Answering Questions

Besides dealing with complaints from grantees and some people with donor-advised funds who feel they are not getting the same level of service as they did before, the foundation has other hassles. It is still operating with two different databases containing donor and other information, as well as dual accounting systems.

But for Mr. Carson, the most frustrating aspect of the merger is not having answers to what seems like an endless barrage of questions from donors, staff members, grantees, and others.

Before the merger, he says, “everyone knew the way things were done and what the traditions were. Now, no one knows what the traditions will be and everyone wants to redefine them. The question I get all the time is, ‘Will I be able to do X?’ For the person asking, it is a legitimate question. But I don’t always have an immediate answer. This is frustrating for everyone.”

Still, Mr. Carson says that he is committed to taking the time to find the right answers. “The worst thing is to make a promise or create a solution that is only short term,” he says. “It sounds like a bait and switch.”

Mr. Carson says that it will be years before he and his colleagues know if they have succeeded.

“We want to do things that have never been contemplated before by either organization,” he says. “If we are just doing what we did before, we will not be achieving the mission.”