New Charity Hopes to Infuse Non-Profit World With Business Thinking

Vanessa Kirsch, founder of the national youth group Public Allies, remembers cringing the many times she heard foundation executives tell her: “Sorry, your group is just too successful. We can’t fund you.”

Ms. Kirsch pounds a fist on a table at the recollection. “What kind of disincentive is that?” she asks.

She says she was so frustrated by grant makers’ reluctance to support her group that she sometimes wished she had founded Public Allies as a business, so it would not have been so dependent on donations and instead could rely on a steady revenue stream.

Today, Ms. Kirsch, 32, is trying to help other charities avoid such frustrations. She has left Public Allies and is establishing a new organization that will support charities that are successful but need help to expand.

Her group, called New Profit Inc., has so far raised $170,000 for what Ms. Kirsch hopes will become a multimillion-dollar fund.

Leaders of New Profit will seek out promising charities — organizations that have been in operation most likely for at least two years and that have a proven track record. Organizations working in any field, be it education, environment, or the arts, will be eligible to seek aid.

New Profit plans to give selected charities about $1-million each, spread over three to five years. It will also provide free legal advice, public-relations assistance, accounting help, and other services to help the institutions expand smoothly. In addition, a New Profit employee will sit on the board of each charity to better monitor and assist it.

“What we’re trying to do is help finance and support social entrepreneurs who want to get their organizations to scale,” she says.

One of the most controversial aspects of New Profit is its plans to weave incentives into its charitable support. Groups that reach certain benchmarks will be rewarded with additional money, while those that do not — and continuously falter — will be dropped.

“When something is not succeeding, your instinct is to say, I’ll give it more money to succeed,” says Ms. Kirsch. “But what we sometimes have to do is make hard choices.”

New Profit employees will be given salary bonuses based on the successes or failures of the charities they oversee. Ms. Kirsch says those employees will be referred to and treated much like portfolio managers at investment banks.

“We really want to have a sense of competition,” she says.. “Are you picking winners, and are you going with them?”

She adds, “One of the more painful and difficult parts to this whole thing is that not everybody is going to succeed.”

In addition to its support of charities, New Profit will provide start-up capital to new businesses with a social mission at their core. Unlike the charities that it supports, the businesses will be brand new or very young.

New Profit wants to encourage socially driven businesses, but it also hopes that if some of the companies flourish, it will profit handsomely from big returns on its investments. Profits will be reinvested in the New Profit organization.

Ms. Kirsch has so far received grants for New Profit from such foundations as the W. K. Kellogg Foundation and Ewing Marion Kauffman Foundation. But she hopes not to rely so much on established grant makers and instead get most of the money for New Profit from young entrepreneurs, whom she believes are a “whole world of philanthropists that are really untapped.”

New Profit has run “focus group” discussions with wealthy business people, such as money managers and computer-business executives. Through them, Ms. Kirsch has learned that for many, “they haven’t found the right kinds of mechanisms to attach their money to.”

When she asked them about investing — and perhaps offering their services pro bono — to a group like New Profit, she says they expressed interest. “These people are cathedral builders,” she says. “They want to take part in something that is for the long haul.”

She thinks there is enough interest in New Profit that it has the potential to raise as much as $50-million within the next 5 to 10 years.

Ms. Kirsch says she is excited about the prospect of working with both business and charity leaders, who share common ground. “We’re going to be bringing down the walls between the non-profit and for-profit sectors,” she says.

New Profit’s name is drawn from what Ms. Kirsch calls the emergence of a “new profit sector,” people and groups who regularly blend the best ideas and practices of the non-profit world with the best from the for-profit world.

She adds that there has been a lot of research and talk about the benefits of charities’ borrowing business practices, but over all, “There hasn’t been a lot of putting this concept of venture philanthropy into play.”

Ms. Kirsch envisions, one day, New Profit-supported charity leaders and business leaders using ideas from one another.

“There will be a lot of interesting things occurring,” she says, “because you can start as a non-profit and add a for-profit spin-off, or be a for-profit and add on a non-profit component.”

Ms. Kirsch’s project has not been without controversy.

She says some long-time colleagues in the charity world have told her, “You’re destroying our sector, Vanessa,” by relying so heavily on business theories of competition and incentives. She says some think the non-profit world could be harmed if charities think too much like businesses.

Since New Profit Inc. is challenging traditions, Ms. Kirsch says she expects to only hear more criticism as its work progresses.

“We’ll receive whatever flak we get,” she says, “because change has got to happen.” — Susan Gray Michael Fein, for The Chronicle Vanessa Kirsch is founding New Profit, a charity that supports organizations with proven track records. It will invest in new companies with a social mission.