MARIO MORINO ON PHILANTHROPY

Often considered the “godfather” of the Washington area tech sector for his pioneering work in helping to create the software company LEGENT, Mario Morino also led the way in spreading the message of philanthropy over the last ten years. He launched his signature vehicle for this, Venture Philanthropy Partners, in June 2000 with two of his closest colleagues, Gov. Mark Warner (then of Columbia Capital) and Raul Fernandez of ObjectVideo (then of Proxicom). They also encouraged 26 other business leaders--such as Steve Case, Ted Leonsis, Josh Freeman, Jeong Kim, Jim Kimsey--and several foundations to become VPP's founding investors and contribute a total of $31 million to capitalize their first fund. Today VPP focuses money, expertise, and networking to improve the lives of children of low-income families in the Washington region.

BISNOW: You were a very busy guy building your companies. When and why did you first start thinking about philanthropy?

MORINO: I was not thinking about philanthropy as such, but was conscious of doing something with greater life significance. This came to fruition for me in 1991, a year plus before my retiring in the fall of 1992. I did not have what you might call a vision for what I would do, but I did have several principles.

Which were?

First of all, that whatever I would do, it would be focused on serving children. They should have the opportunities in life that people like me enjoyed. Second, I was realistic to recognize that our net worth was not so great that our money would have impact by itself, a la Bill Gates. I knew I would have to earn a seat at the table via our work. And I also wanted to keep ties to the business world, and that’s why I invested in efforts like Netpreneur and have continued my affiliation with General Atlantic.

How’d you look into this subject, who did you talk to, what opened your eyes?

I met with more than 700 people—from college presidents to social workers—asking them what someone with my resources and skills could do, what pitfalls I should avoid. I particularly sought out colleagues who had exited the field to learn how they handled their finances, estate management, and family matters, and I sought out leading minds in philanthropy, such as Ed Cohen, Bob Buford and others—even Peter Drucker. After that, we created the Morino Institute in 1994. Over the years I continued on a journey of discovery: about young people, through the Youth Learn Initiative; entrepreneurship, via Netpreneur and Potomac KnowledgeWay; leadership through the Potomac Conference; and learning about community development and Internet marketing. What opened my eyes was the first sense of the problems nonprofits have in financing their efforts. The observation that became the hallmark of our work was that for many nonprofits, the funding system itself is dysfunctional.

Where did you come up with the idea of venture philanthropy?

We did not come up with the idea of it, but lived it for years before it was coined as a term of art. Before we created VPP, we created other organizations that featured an investment approach, major capital, and the investment of our sweat equity in terms of expertise, strategic assistance, and our contact network. The Netpreneur effort is one example. Around 1998, what we had learned in the private sector and what I was learning in the social sector converged, and we set out to adapt aspects of the investment approach of high-end venture and private equity investors to investing in nonprofit organizations. It’s been a constant learning experience ever since. It was Chris Letts’ article about “virtuous capital” that triggered the focus on venture philanthropy, and we simply took advantage of the terminology.

What are its major tenets?

VPP has several. First, we take a strategic investment approach that adapts the relevant principles of venture and private equity investment firms and applies them for investing in the nonprofit sector to build high-impact and lasting nonprofit institutions. Second, we combine this strategic investment approach with a regional focus in the Washington area. Finally, we generally invest in high-quality, breakthrough nonprofits that have dynamic leaders with bold goals for improving the lives of children. Our relationship with these nonprofits is so close that we consider them investment partners.

Are you reaching the kids you want?

I think so. Our 12 nonprofit partners serve more than 53,000 children in areas of great need, and are forecast to exceed 76,000 by 2010. Plus, I think the organizations now have higher expectations for their managements, boards, and services. And what makes the results really impressive is that these organizations are taking on some of the toughest challenges and issues, like the mental health needs of immigrants and refugees from war zones, educating young people caught up in the juvenile justice system, preventing gang violence, getting students to college who weren’t going to go, and so on.

Who are some of these partners you’re referring to?

VPP has 12 investment partners, including College Summit, the See Forever Foundation, the Boys & Girls Clubs of Greater Washington, Latin American Youth Center, Heads Up, and more.

How’s your funding process different from others?

VPP, the Edna McConnell Clark Foundation, and just a handful of others around the world take an investment approach to funding. We apply large sums of unrestricted growth money on a few organizations that have bold goals and substantial capital needs. Conventional philanthropy, although of great value in many venues, often focuses on specific program funding, and doesn’t typically address growth capital needs of breakthrough organizations like these.

Who applies for VPP money, who makes decisions, where does the money come from, how do you measure success?

VPP does not solicit grants. We identify the nonprofits we think should be funded. We then enter into a multi-year partnership with these nonprofits, investing large sums of capital over several years. And we provide a team of seasoned executives to advise the leaders of these nonprofits, offering strategic assistance, which includes management and executive coaching, recruiting high level talent, brokering relationships, opening up new doors and contacts for additional sources of funding, and more. The money comes from the $31 million we originally raised from investors, and we measure success by seeing more children being served more effectively; good organizations becoming stronger, more lasting, and more scalable; and by whether or not we are making a difference in the field. The final investment recommendations, developed by the team, are then approved by VPP’s Board, generally by its seven-member plus advisors Executive Committee.

What has surprised you about it and the results?

Two things. First, to make a real, lasting difference, it takes more money and a longer time horizon than any of us thought. Second, the importance of VPP’s regional focus. This regional focus – and our track record of getting complex things done in a complex region -- multiplies the value of VPP’s strategic investment approach to increase the flow of capital, talent, and resources from national players to VPP’s investment partners, and reduce the risk for potential investors. In fact, in addition to investing more than $30 million in nonprofits, VPP has helped its nonprofit partners leverage an additional $30 million in value to their organizations. We’re proud to report to our investors that for every dollar they have invested it has generated another dollar of support for our portfolio of investments. As a result, VPP is becoming a trusted agent and preferred partner for national interests seeking to invest in and/or work in this region.

What do you think is the appropriate age or status for entrepreneurs to start thinking about serious philanthropy? What do you think of the argument that it would be better if they concentrated first on making as much money as possible, then spend more time giving it away later?

There is no appropriate age or state, and they will get involved philanthropically at a point in time just like when they emerged as entrepreneurs. Doing serious philanthropy is incredibly rewarding, because it’s doing something that focuses beyond yourself and your personal or business desires. But I have to caution would-be philanthropists: if you are going to do it, then do it in the right way. That means taking a rigorous approach to what you are investing in, asking the right questions, making informed decisions, and putting your own personal time into the effort. I can’t emphasize enough the importance a more disciplined, rigorous approach. And avoid the adage that the business folks “check their brains at the door,” when they get involved with nonprofits. An example of one who has done this well is Jack Davies, who has been an incredible asset to VPP through his contributions of time and money as a VPP investor and board member, also serves on the board of two of our investment partners. Jack has made great contributions by levering his business experience and contacts to help the nonprofits he works with. But, he has commented that these leaders are just as strong than many of the top people he encountered in his business life, and that he has learned more from them than be believes he has given—a reality that has made this a rewarding experience for Jack.

Is it possible to do effective philanthropy by delegating, or do you really have to spend time personally?

It depends on the individual. Personally, I don’t see how you can be effective and not get involved. As with any organization, effective leadership is the key, because without it, the organization – no matter how well intended – will flounder. In the early years, I was very hands on with VPP. But over the past year, Carol Thompson Cole has been leading VPP’s efforts as its managing partner and doing a terrific job.

How important is it to pick a niche or focus?

It’s important. For example, our strategic investment approach can be exported to many communities across the country. But it is our concentration on children and doing so through a regional focus that magnifies VPP’s effectiveness.

How much time do you spend at this now? Do you come back here a lot for meetings? Why keep it in Washington?

Even though I’m “retired,” I still work about 60-70 hour weeks. I get back to Washington about 2-3 times per month, sometimes more, and my time in Ohio is still focused on the work of VPP. But I’ve got a wonderful family, so I try to limit the travel. VPP will remain in the National Capital Region because that’s where our nonprofit partners and investors are, the VPP team is, and the day to day personal interaction is key.

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