Stalled Investing.

Flatiron Partners ponders the future

The double-barreled entrepreneurial effort that New York-based Flatiron Partners launched in April, 2000 to encourage social entrepreneurship has hit the same bump that the sluggish economy has thrown up for other venture capitalists.

Now, Flatiron's social-venture initiative is regrouping and taking a hard look at what to do next.

"We definitely have less than we thought we would have because the stock market has affected all of our donors," said Cathy Clark, president of the Flatiron Foundation, a public charity, and managing director of the Flatiron Future Fund, a venture fund with a social focus.

Individual partners in Flatiron Partners, a technology-focused venture firm, agreed to contribute a total of $2 million for use by either the new foundation or social venture fund. "We said we want to encourage social entrepreneurs and we don't care if they're nonprofit or for-profit," said Clark.

The idea was find early-stage nonprofit or for-profit groups with a focus in any of three areas -- children, entrepreneurship among minorities and women, or helping entrepreneurs turn their attention to social problems. The next step was to provide the type of support that a venture capital fund typically provides.

In addition to money, that support includes hands-on help in launching and starting an organization, and in sustaining it over the long term, including the securing of funding from other investors or donors. The two funds also were set up to help the groups in which they invested measure their impact and make better use of technology.

The foundation reviewed nearly 2,000 proposals and funded five. The social-venture fund reviewed 2,000 to 3,000 business plans -- with analysts at Flatiron Partners screening the financial aspects of the plans -- but funded none of them.

The fund, Clark said, did not want to be the sole funder, and the economic downturn made it tough for startups to find other funders. "You don't want to bear all the risk of every investment," Clark said, "and it's always better to have more experienced investors at the table as the company is making strategic decisions."

All told, the foundation has contributed $300,000 in traditional grants to the five groups:

* NpowerNY, a tech training and assistance organization spun off from Npower, a Seattle nonprofit that expanding throughout the United States with support from Microsoft;

* Springboard Enterprises, a new nonprofit in Washington, D.C., that helps female entrepreneurs raise money;

* MOUSE, which aims to help build technology into learning for the New York City public schools;

* One Economy Corp., a new nonprofit in Washington, D.C. that tries to connect people living in government-support housing to technology and the New Economy;

* The Haas Social Venture Competition, a national competition, sponsored by the Haas School of Business at the University of California at Berkeley, for MBA students interested in social ventures.

Grantees said the foundation's support -- financial and strategic -- had been critical. Rey Ramsey, chief executive officer of One Economy, said the foundation's grant of $100,000 came at a crucial time during the non-profit's startup.

With the foundation's help, One Economy pursued a "venture process" that was important both internally and externally, Ramsey said. "Although we all like to think we bring discipline," he said, "having somebody say I need a business plan by a certain date helps supply that discipline."

The business approach encouraged by the foundation also helped show other potential investors that "we were going through an orderly process and we were able to produce for them a business plan and strategy," Ramsey said.

The foundation also helped open doors to other prospective backers, including San Jose-based Cisco Systems, which was considering a funding request from One Economy when The NonProfit Times went to press, and which has provided the nonprofit with 13 Cisco Fellows -- employees who otherwise would have lost their jobs as part of the company's recent layoffs.

Now, the Flatiron Foundation is trying to measure its own impact. In June, when Flatiron Partners moved back into the offices of J.P. Morgan Partners -- Flatiron's sole limited partner -- the foundation moved out of Flatiron's Manhattan office and into an office in Brooklyn. The foundation now plans to focus its non-monetary resources on the five groups it has funded while it studies its future, Clark said.

"The game plan is to concentrate our attention on the grantees we already have, at least through the summer and possibly through the end of the year, and after that we'll see," she said. Any future grants, she said, "will depend on how successful we are at raising money in the future."

Options include trying to raise more money, folding the operation into other foundations or merging it with other venture philanthropies.

Clark, formerly a vice president for seven years at the Markle Foundation in New York, said she was disappointed that Flatiron's social-venture initiative had collided with the downturn in the economy. "We weren't able to have the resources we thought we would have," said Clark, who this fall will teach a course at the business school at Columbia University in New York on nonprofit and for-profit social entrepreneurship.

Tom Reis, a program officer at the WK. Kellogg Foundation in Battle Creek, Mich., who tracks venture philanthropy, said that while it was too early to assess its philanthropic impact, Flatiron had been innovative in assessing groups in which it might invest.

"They really required organizations to take a look at their goals and objectives, what did they really want to do and how could they measure that," he said.

Todd Cohen is editor and publisher of Nonprofitxpress, an online newspaper at www.npxpress.com.