Roberts Fund Puts Its Venture-Philanthropy Approach to the Test

Venture philanthropy, an approach that marries the methods of venture capitalism with the needs of the non-profit world, has generated a healthy following in recent years.

Dozens of groups are using its techniques in a bid to help charities operate more effectively.

But does venture philanthropy work? One group that is expending considerable money and energy to analyze its own version of venture philanthropy is the Roberts Enterprise Development Fund, in San Francisco.

The fund was formed in January 1997 as part of the Roberts Foundation, which was founded by George Roberts, a partner in the leveraged-buyout firm of Kohlberg Kravis Roberts & Co., and his wife, Leanne. Mr. Roberts has put about $12-million so far into the Roberts Enterprise Development Fund and more than $6-million into a predecessor effort, the Homeless Economic Development Fund.

The enterprise fund supports seven non-profit umbrella organizations that together operate more than 20 businesses, from thrift stores and janitorial services to a bakery that makes expensive desserts and sells them through area grocery stores.

The businesses, which Roberts officials call “social-purpose enterprises,” are run by non-profit organizations and compete in the open market. Their employees are people who live on the fringes of the booming Bay Area economy: homeless youths, recovering addicts, former prisoners, and people with psychiatric and physical disabilities.

One of the fund’s goals is to give people a chance to learn employment and social skills so that they can find — and keep — jobs in the for-profit world.

“The whole point is, how do you engage young people in the mainstream labor market who have been told in that market that they have no value,” says Jed Emerson, the fund’s president.

As an example of the Roberts fund’s work, Mr. Emerson points to Youth Industry, one of the seven umbrella groups.

Youth Industry, which operates thrift stores, a business that collects and sells donated goods, a bicycle-repair shop, and a cafe, began in 1993 as a tiny program founded by a pediatrician who lived in the beleaguered Mission District of San Francisco. The doctor rented a warehouse and invited a group of friends to provide activities for homeless youths in the neighborhood.

“They had their articles of incorporation, a board of directors, and little else,” Mr. Emerson says. “It was clearly the Mickey Rooney approach to social change.”

The Roberts fund and, earlier, the Homeless Economic Development Fund infused Youth Industry with money and a broader vision. “We were able to give a larger amount of ongoing capital to build the organization over time,” Mr. Emerson says. From that single storefront group have grown five businesses employing more than 100 youths annually, and the non-profit enterprise earns enough to cover about 85 percent of its budget. This year, Youth Industry’s sales will total about $3-million, according to Melinda T. Tuan, managing director of the Roberts Enterprise Development Fund.

Still, not all of the Roberts ventures have been successful, a point that the fund makes no effort to hide. Three umbrella charities left the Roberts portfolio in 1999 because their businesses — construction, temporary-staff placement, and silkscreen-printing enterprises — weren’t financially successful, Ms. Tuan says.

In addition, the construction business “wasn’t meeting its social mission” because it wasn’t able to employ enough unskilled workers along with its highly skilled employees, she says.

Ms. Tuan says the departure of the three groups underscored the importance of maintaining constant communication between the venture fund and its grantees — or “investees” — and of making it clear to the grant recipients how a venture fund works.

Some executives of the former Roberts enterprises expected the fund to function like a traditional foundation, with minimal direct involvement with grant recipients after money was distributed, Ms. Tuan says. But, she adds: “We wanted to know what was going well and what wasn’t. We wanted to hear about problems now, not after the fact.”

Analyses of the three former ventures, along with reams of other material about the Roberts Enterprise Development Fund and venture philanthropy, are posted on the fund’s Web site (http://www.redf.org). The postings exemplify an openness that Mr. Emerson says is part of venture philanthropy’s culture of accountability.

This year, the Roberts Enterprise Development Fund will make $2-million in grants to the seven umbrella groups to help them run the businesses in their portfolios. Besides receiving operating capital, the businesses also get long-term professional and technical advice from the Roberts fund through “venture committees” that gather monthly and that include business consultants who work full time for the fund. Help also is available from consultants who are paid by the fund and who have expertise in database management, in assessing the outcome of charitable programs, and in other subjects.

Ms. Tuan says that although not all of the businesses that are managed by the seven umbrella groups were profitable last year, about three-fourths of them met financial benchmarks that were established jointly by the businesses and by the Roberts fund.

This year, the businesses are projected to generate $20-million in aggregate sales, up from $16-million in 1999, $13-million in 1998, and $10-million in 1997, she says. Profits totaled $630,000 in 1999, compared with $520,000 in 1998 and $230,000 in 1997.

Ms. Tuan says that financial results are one way to measure success. But, she adds, the real question is, what kind of impact is the Roberts fund having on the people it is trying to serve?

To answer that question, Roberts is undertaking a three-step information-gathering process that is expected to go on for years.

One step involves collecting demographic information and other statistics on a quarterly basis on the people who work in the 20 or so businesses in the Roberts portfolio.

Ms. Tuan says that 350 to 400 people are employed at any one time and that a total of 600 people work at the businesses in the course of a year. About half of those people are ages 16 through 22, and two-thirds are homeless or living in unstable housing when hired.

More than half are male, about one-fifth spent time in a jail or hospital in the year before they joined a Roberts business, and one-fourth were disabled — typically with a psychiatric problem — when they were hired.

More than a third of the people who left the Roberts nest said that after leaving they went to another job, to a job-training program, or to school.

Besides taking a demographic snapshot of the people who work for the businesses, the fund is spending $1.8-million on an effort to figure out the long-term impact of the Roberts businesses. It is interviewing hundreds of current and former employees of the businesses and following them over time with the goal of learning what happens to employees in the two years after they leave. The study has not yet been completed.

The third part of the Roberts review process is an assessment called “social return on investment,” a complex measure of the fund’s financial and social influence on the San Francisco area. The effort is being conducted by the Roberts fund, with advice from Stanford University’s Graduate School of Business. The fund hired an analyst from the public-finance division of the J.P. Morgan financial company to help with the project.

The idea, Ms. Tuan says, is to learn whether the Roberts Enterprise Development Fund is saving tax dollars by helping the people who work for Roberts businesses reduce their dependency on food stamps, homeless shelters, and other government-supported services.

Ms. Tuan says she hopes data from the three-step assessment effort will be publicly available on the Roberts Web site this fall.

“We’re not expecting a financial return” on the groups that the Roberts fund supports, she says. “But we certainly hope that the investments we’re making are creating positive change in society.”