This case is the companion to SI-87A.
The case reveals what decision Unitus leaders made regarding whether or not to create a debt or equity fund to expand the capital the company could provide to its microfinance partners. It also provides updated information regarding the company's results.
Case No: SI87B
Established in the mid-1970s, microfinance provided tiny loans to poor families to help them start to expand small businesses. Thirty years later, the practice had helped more than 80 million people lift themselves out of extreme poverty. The practice had grown into a global industry comprised of more than 3,000 microfinance institutions.
Early pioneers of microfinance, such as Muhammad Yunus of Grameen Bank, had become celebrities of sorts, receiving scores of humanitarian awards, including the the 2006 Nobel Peace Prize. Similarly, the microfinance movement itself had become so well-known that it invited comments from mainstream cultural icons such as Bono, lead singer of the band U2, who said: "Give a man a fish, he'll eat for a day. Give a women microcredit, she, her husband, her children, and her extended family will eat for a lifetime."
Despite these accolades, Geoff Davis and Mike Murray believed that while microfinance was an important social innovation, it was dramatically underperforming relative to its potential because it had yet to achieve adequate scale. They pointed out that less than 20 percent of the world’s demand for microfinance was being met. Murray observed, “Usually, an industry that had those dynamics would have been closed down.”
Prompted by their vision of microfinance’s potential they founded Unitus, Inc., a nonprofit focused on accelerating the growth of the microfinance industry so that vastly more people could gain access to the capital they needed to generate an income, raise their standard of living, and fulfill their basic needs.
This case explores dynamics in the microfinance industry, describes the Unitus business model, and sets up an important decision facing the company: whether or not to expand the amount of capital it can provide to its microfinance partners through the creation of a debt or equity fund.
Case No: SI87A
In 1988, Paul Jones, a 32-year old money manager, started the philanthropic foundation Robin Hood with $3 million and the objective to fight poverty in New York. He invited two of his close friends, Peter Borish and Glenn Dubin, to serve as cofounders and recruited David Saltzman to join the staff. From its inception, Robin Hood applied the investment orientation of its founders to focus on poverty prevention by “funding…the best community-based groups and partnering with them to maximize results.” The foundation focused on four core program areas: (1) early childhood and youth, (2) education, (3) jobs and economic security, and (4) survival. As an early innovator of venture philanthropy, Robin Hood emphasized rigorous due diligence, direct engagement with grantees, and social outcomes assessment. Robin Hood provided grantees with both financial contributions and management and technical assistance. The organization’s board members demonstrated their own commitment to high engagement philanthropy by contributing both time and money to supporting Robin Hood’s grantmaking and internal administration. The board covered all infrastructure costs, ensuring that 100 percent of external donations went directly to grantmaking. Robin Hood did not have an endowment, but maintained a reserve fund that could cover existing grantee costs for at least a year. By 2005, Robin Hood had become the largest private poverty-fighting organization in New York City, and its venture philanthropy model had inspired various foundations and funding intermediaries nationwide. Nonetheless, Robin Hood was committed to having an even greater impact and reaching the 1.7 million New Yorkers still living in poverty. To achieve this, the management team hoped to improve application of best practices and metrics to grantmaking decisions and to more proactively share its knowledge-base with grantees and the greater philanthropic community.
Case No: SI86
Set during the years surrounding the market crash of 2000, Entrepreneurs Foundation (EF) is a strategy case that discusses a number of challenges facing nonprofit managers, including: (1) establishing a sustainable and self-supporting operating model, (2) generating corporate-sector support, and (3) managing through a financial crisis.
The case begins in the boom times of the late 1990s, and describes EF's innovative and profitable operating model based on leveraging stock appreciation in technology startup companies to fund community service programs.
The case continues through the market crash of 2000, the near collapse of EF and its portfolio, and the restructuring led by EF's management in 2002.
Case No: SI81
In 1998, Laura Arrillaga launched the Silicon Valley Social Venture Fund (SV2) with two objectives: (1) providing Silicon Valley donors with philanthropic experience and education that would empower their personal giving, and (2) awarding local nonprofits with multiyear, capacity-building grants that would help them to strengthen their organizations and meet the higher level of accountability associated with contemporary philanthropic investments.
SV2 followed a venture philanthropy partnership model in which investors pooled their money to give large, multiyear grants to nonprofits and also served in consulting and advisory roles to help grantees meet their capacity-building goals.
Arrillaga created SV2 in partnership with Community Foundation Silicon Valley (CFSV), a nationally recognized public foundation that had experience working with individual donors, as well as established credibility within the philanthropic field. Under the leadership of President Peter Hero, CFSV had become known for its strategy of engaging individuals through donor-advised funds that allowed donors to recommend grantees while CFSV managed all related administrative processes.
Arrillaga formed SV2 as a donor-advised fund to ensure that CFSV staff would help guide SV2 partners in leveraging their expertise and funding to select high-performing community organizations, thus generating the greatest social impact.
By 2005, Arrillaga and CFSV had built a volunteer-driven organization composed of 160 partners ranging in age from their twenties to their sixties. In total, SV2 had donated a total of $2 million to support 13 local grantees. Moreover, SV2 had implemented two professionally facilitated strategic planning processes in its short history.
In the future, Arrillaga and her team hoped to continuously evolve the organization; in particular, to improve SV2’s partner consulting program to better leverage partner expertise to benefit grantees. They also wondered how to more fully engage partners in SV2’s grantmaking and educational activities while increasing SV2’s accountability to grantees, partners, and the broader philanthropic community.
Case No: SI80
Greg Widmyer is contemplating the financial structure of a new initiative by Score Learning Centers (a for-profit company that provides after-school educational programs). The new organization, Score Community Ventures, is based on the successful experience that Score had with its first attempts in the Bedford section of Brooklyn to take its after-school program to low-income areas.
The center in Bedford was a partnership with the Restoration Corporation, a nonprofit community development organization. The partnership was ultimately successful (and modestly profitable) and offered an example of how Score could take its model to disadvantaged areas. Score Community Ventures will scale the idea, and take Score to disadvantaged areas nationwide.
Widmyer is seeking funding for this venture, and must decide the best structure for this organization based on lessons learned from Bedford, operational considerations, and the demands and preferences of potential funders. The goal is to establish a scalable and sustainable organization.
Teaching Note available.
Case No: SI8
New Schools Venture Fund had invested in LearnNow, a for-profit charter school management company in New York. The capital markets had tightened since the initial investment, and LearnNow was struggling to raise the money necessary to support its growing operations.
This short update (four pages of text and three pages of exhibits) to the New Schools Venture Fund (A) case chronicles New Schools involvement with LearnNow during a difficult financial time and sheds new light on the role of New Schools in its for-profit investments, as well as the organization’s ongoing debate over whether, as a nonprofit, venture philanthropy fund, it should be investing in risky, for-profit ventures like LearnNow.
Teaching Note Available.
Case No: SI7B
In December 2000, New Schools Venture Fund was debating the role it should play in helping one of its for-profit investees, LearnNow, attract new capital. A $20 million venture philanthropy fund, New Schools invested in for-profit and nonprofit education ventures that targeted a vulnerability in the K-12 education system.
LearnNow, a charter school management company, was wrestling with the need to balance the aggressive growth demanded by most for-profit investors with its commitment to providing quality education for students in low-income communities.
This tension and LearnNow’s struggles to raise money highlighted a question that was always on New Schools President Kim Smith’s mind: Should New Schools, a public charity seeking to improve K-12 education, be investing in for-profit ventures?
Case No: SI7A
In response to the closure of California state psychiatric hospitals, Rubicon Programs was established in 1973 to provide social services for recently deinstitutionalized individuals suffering from mental illness. Located in Richmond, Calif., an area with great need and high unemployment, Rubicon quickly expanded to offer a wide range of programs and services addressing poverty and homelessness for people with barriers to employment.
By 2003, Rubicon Programs had grown into a large nonprofit organization with an international reputation for its success as a social enterprise. Aside from its two core programs of Integrated Services and Rubicon Housing, Rubicon operated three revenue generating business units that employed clients of its social programs: Rubicon Landscaping, Rubicon Bakery, and Rubicon HomeCare Consortium.
While the top management team agreed that Rubicon’s individual units were successful, the team wondered whether the social and economic value created by the whole was more than the sum of the parts.
The videocase explores Rubicon’s reflections and deliberations about their corporate strategy. In addition, it focuses on a decision about how to deal with the struggling home health care division. DVD, Total Run Time: 29:16 min.
Case No: SI77V
In 2000, Jed Emerson founded the Center for Blended Value, a think tank based in Colorado that promoted the concept of “blended value” investments. Emerson applied the concept of blended value to criticize the traditionally impermeable wall between foundation investments and programming.
Typically, foundations invested 5 percent of their assets in generating environmental and social value (through grantmaking) and 95 percent in generating financial returns (through the endowment or corpus). Emerson argued that foundations should actively align their financial and social investments.
Emerson believed that there were five primary ways for foundations to implement a value maximizing strategy of financial asset management: (1) engaged investing of mainstream assets (e.g. proxy voting); (2) socially responsible investing of core assets; (3) investment in alternative asset classes and small and medium enterprises; (4) below market-rate investments; and (5) investment in a way that enabled significant corporate transformation.
By 2005, an increasing number of foundations were working to align their financial investments with their programmatic goals. Examples included the Nathan Cummings Foundation, the Jesse Smith Noyes Foundation, the Abell Foundation, the F.B. Heron Foundation, and the Rockefeller Foundation’s ProVenEx Fund.
In planning for the future, Emerson wondered how to overcome the challenges associated with encouraging more foundations to a dopt a value-maximizing strategy of financial asset management. He aspired to help foundations assess the tradeoffs between the costs and benefits associated with each value-maximizing approach and to develop and disseminate strategies for mitigating various risk factors.
Emerson also recognized the importance of creating effective metrics for assessing the economic, social, and environmental value of the blended-value proposition, noting that existing market-based metrics had taken decades to create.
Case No: SI76