Jim Bildner, President and CEO of Draper Richards Kaplan Foundation Joins Denver Frederick

The following is a conversation between Jim Bildner, the President and CEO of Draper Richards Kaplan Foundation, and Denver Frederick Host of The Business of Giving on AM 970 The Answer in New York City.


 

 

Denver: We see all the time the extraordinary impact that startup companies have had on our lives. Uber and Airbnb, to take just two. The same is true in the nonprofit sector. Imagine the social entrepreneurs with fantastic ideas and plans to make our communities and world a better place, but their ability to access capital is often not as clear-cut as it is for their counterparts in the private sector.  And that it why it is fortunate that we have Draper Richards Kaplan Foundation to help address this urgent need. And with us this evening is their President and CEO, Jim Bildner.

Good evening, Jim, and welcome to The Business of Giving!

Jim: Thanks, Denver.

 Denver: Tell us about Draper Richards Kaplan, how the foundation got started, and what your mission is.

Jim: Absolutely. So, we were started in 2002 by Bill Draper and Robin Richards, now Robin Richards-Donohoe; later joined by Rob Kaplan. In 2002, Bill and Robin had had a successful venture capital career. Bill is an amazing human being. He’s 90 years old. Still comes to the office every day. Still the toughest questioner of our social enterprises, and he followed again this very successful career in venture capital, but even more importantly, had served as the head of the UNDP for seven years.  He comes with a long-term commitment to public service as well as to venture capital. In fact, his father, General Draper was one of the first venture capitalists. Also, the person who operationalized the Marshall Plan.

They came to this with a realization that, in 2002, they had a very successful return on their India Fund and realized that they really didn’t need to do more venture capital.  But the same principles that they had applied so carefully in the venture capital investment community could be applied to the social sector, and that was really the insight, that intentionality, and I’ll talk more about that later.  In terms of what you invest in, who you invest in, and understanding at the beginning, what the ultimate end game is, is actually more important in the social sector than it is in the private sector.

In 2002, they formed their own fund; basically, it was Draper Richards. Roughly, $13 million to $14 million of their own funds then went into 26 to 28 social enterprises, many of which are legendary. And their model was exquisitely simple, which is investing for a three-year duration, then stops. So, beginning and then ending in three years. Again, the innovation here was not just the capital, but like venture capitalists in the private sector, a board seat, and an aggressive and constructive board seat. And that really, from the beginning to where we are today; and I’ll talk about how Rob joined us in 2009 and 2010, became the essence of what Draper Richards Kaplan is, and I’ll tell what we invested in later.

Rob Kaplan in 2010 joined Bill and Robin, and Rob had a successful career at Goldman Sachs and was a professor at Harvard Business School.  And now he’s the president of the Dallas Federal Reserve Bank. So, for sure I’m the luckiest guy in the world to have those three as my senior partners. Rob brought the same discipline that we had had all along. When Rob joined us, we raised our second fund, about $33.8 million that funded about 56 new enterprises. Again, same model, three years, board service, and a lot of intentionalities, and we are just now closing our third fund. It’ll be about $65 million to fund another 100 new social enterprises.

Denver: Jim, tell us about the DRK portfolio. How many enterprises, what the split is between international and domestic, and the areas that they’re in.

Jim: Sure. So, historically, from inception to date, we’ve done 118 investments. Our portfolio today has roughly 60% domestic and 40% international. But it’s varied through the 15 years that we’ve been doing this. And so, we would expect roughly half and half to be the division between domestic and global. In terms of issue areas, we’re focused in on a wide range of diverse complex societal problems, and our entrepreneurs are tackling issues that range from systemic poverty to criminal justice to inequity in opportunity, health access, food, and water safety. Folks should just go to our website, and they’re going to see a long list of these investments and what they do.

Denver: You know, we’ve had other institutions on the show, Jim, that provide start-up capital for social entrepreneurs; the Skoll Foundation, Echoing Green, a couple of others. Do you look at this any differently than they do?  And where you’re going to put your investments?  And if so, how would that be?

Jim: So, we’re part of a larger ecosystem. So, Ashoka and Echoing Green and now, a lot of incubators, accelerators are really at the earliest stage. They’re looking for individuals depending on what their particular focus is, who are basically in an ideation stage; who have an idea but don’t have a pilot. We are sort of the next step along the way. So, we are looking for entrepreneurs who not only have an idea but have created a pilot that’s ready for scale. Further downstream,  after our entrepreneurs are with us, they may be ready for new profits, goal, and others– ultimately larger institutional funders– who can take the pilots that we have helped them scale and keep moving them up.

Denver: Let me ask you before we get to the particular organizations that you fund, a more overarching question, and that is how you find these organizations in the first place?  And also what broad areas you are going to focus on? For instance, I read that earlier this year, you convened a group of former US attorneys to look at the criminal justice system. So, I guess this is how you get things started. Walk us through that process and where you’re going to take it from there.

Jim: Sure. So, I’m going to break those questions up because one is really about our pipeline, and then the other is really: once we begin to invest in the space, what do we do to really understand it better?

In terms of our pipeline, I think we’re pretty unique in that we have an open application process, and as our network has grown, so have our applications. I just looked at a series of numbers, and already through the third quarter, we have something close to… well in the last quarter, we had 233 applications. So, you can do the math. And yet, we’ll only fund 20. So, the fact that we have a very large pipeline, and the fact that we fund a relatively small amount means that we really have to do our homework and really be intentional. What we found ourselves in the criminal justice space is having made a few investments. And as we were looking at the opportunity there and because we see it as such an important area for us, we wanted then to do what we call a systems map, and it was incredibly useful.

To basically understand what does the entire ecosystem looks like in criminal justice… From the time someone enters the system to the time they exit it?  And then as part of that, we convene, because Carter Stewart is one of our managing directors; before he came with us, was a US attorney for the Southern District of Ohio. So, we had 11 former US attorneys, as well as other stakeholders, and began to share with them our observations. And what came out of that was really important for us, and now we use it across the board when we’re looking at areas of focus… which is we realize that the places where we could have the largest impact are keeping people out of the system and keeping them from going back if they’ve been in the system; that the area in the middle where a lot of attention and money is spent are really prosecutorial discretion judicial sentencing. And those are areas where entrepreneurs, per se, cannot have as much impact.

It starts with a problem. Because our capital is precious, by the time we close the third fund, we’ll have raised almost $110 million.  If you think about the capital sources for even the 25 largest foundations in the country, roughly speaking, depending on how the endowments have done, their $300, $350 billion at a 5% payout, they’re not going to be able to do anything really significant that can help.

Denver: That’s very interesting. So, you really understand the system before you make any investments around particular organizations. While looking at particular organizations that you’re going to make these investments in, you take into consideration a number things. One of them is the problem that they’re trying to solve. So, what kind of problems would you look upon favorably, and which ones less so?

Jim: Well again, it starts with a problem. Because our capital is precious, by the time we close the third fund, we’ll have raised almost $110 million.  If you think about the capital sources for even the 25 largest foundations in the country, roughly speaking, depending on how the endowments have done, their $300, $350 billion at a 5% payout, they’re not going to be able to do anything really significant that can help. And so, when you look at our capital and our time and energy, we have to make bets where we believe a couple of facts exist. One, again, complex problem. Two, that there’s a sustainable model to that. So, more often than not, we’re trying to figure out, okay, we got a team that’s trying to work on a complex problem and can raise the capital that’s required for it.

Denver: As you said, the business model is critical. You’ve looked at a lot of business models over the years, I would imagine. The ones that don’t make it, where do they generally go off the tracks?

Jim:  In our decisional process when we’re looking at the business model, first: what is the nature of the problem? Paul Brest has a wonderful framework that I use all the time, and it’s big cube, small cube. Big cube are really intractable problems with multiple co-dependencies requiring huge resource, very low probability of success…  the poster child being climate change. Small cube problem is the neighborhood cleanup.

The first instance we’re trying to figure out: okay, if somebody’s trying to work on criminal justice or systemic poverty or even homelessness, where do they fit in that framework?  And depending on where they fit, if they’re going for a very large big cube problem, they’re going to need significant resources. And if they’re going for a small problem: A) we’re probably not going to fund it anyhow, but often what we see is a mismatch. So, entrepreneurs come with a problem. It’s a big cube problem, but they have small cube resources in which case, we can’t fund that because it’s not going to work, and often it’s the reverse. Somebody is really trying to attack a small cube problem but it has so many resources that again, our money would not be necessary.

Denver: They don’t need you.  You know, we’ve had a lot of people on this show, and I ask them: Would you invest in the idea and plan, or the person?  And invariably, they say: the person. So, what characteristics are you looking for in the social entrepreneurs that you invest in?

Jim: Okay, so our answer is different. Our answer in the first instance is: it has to be both. Number one: the problem again that somebody is trying to solve and the solution, alleviation, intervention, remediation, whatever they’re trying to do, has to be credible; and then, the business model has to work.  Sure, charisma alone is not the right answer. So, you need folks who have domain knowledge, tenacity, business experience, charisma, storytelling capability, and who care in their heart. The odds of finding that in one human being is pretty small, which is why today, we’re much more likely to fund a team as opposed to a single human being.

One of our early insights is that: Two is better than one, but three is worse than two.

Denver: Yes, speak a little bit more about that. That’s really very interesting. Tell me how that has evolved over the last 10 years or so.

Jim: Yeah, sadly it’s a function of the kinds of problems that we have in the world today. Most of them do not lend themselves to a single human being driving a solution all the way as well… with the scale of it. So, if you’re trying to address a problem that affects the whole country or a whole part of a continent, the odds that one human being can do that is pretty small. The second is that, again, you need all parts of a brain. You need somebody who understands — absolutely cold — the domain. You also need somebody who’s had operating experience. We find in our entrepreneurs, having some private sector background is really helpful, and again, because we’re making intentional bets here, we’ll often say:  “We love this idea, and you’re really fantastic, but you need a chief operating officer. You need somebody who’s going to help you run the trains, and then we’ll invest.” And that’s how we’ve ended up with teams that we have. So, today, one of our early insights is that:  Two is better than one, but three is worse than two. So, there are some limitations there.

Denver: I hear you. Sometimes too many cooks. I’ve also heard you speak about the fact that you’re looking for people who have a learning mindset and who are coachable. How can you tell whether somebody is coachable at these early stages?

Jim: So, I think for all of us who fund in this sector, or particularly those of us who fund in the earlier stage, solving for that upfront is the most important thing. People who are not coachable can still be successful, but our model is premised on two things. One, unrestricted capital, and the other is our board service. We always ask ourselves: What’s our distinctive value? What can we add? If the other person at the end of the table thinks they have all the answers, knows what the problem is cold, and is really just looking for money, then it’s not a good fit for us. So, in our due diligence, we’re pushing our entrepreneurs really hard to see if there are folks that we would want to spend three years with. This is not just a marriage. This is an intense partnership. And it’s not hard to figure out pretty quickly like, whoa, this is a really incredible person,  but he doesn’t really have the capacity or the willingness or even the interest to really learn from us.

Denver: You know, you mentioned financial support, and you mentioned three years, how much do you provide?

Jim: Typically, we always provide the same amount of money, $300,000; and typically, it’s $50,000 every six months on the achievement of metrics and milestones. One thing you haven’t asked is that historically from inception to today, virtually all the investments we’ve made have been in the nonprofits. But today, the market has shifted. And even in that pipeline number that I gave you, roughly 28% are for-profit enterprises. That’s a function of the market. That’s a function of the entrepreneurs. That’s again a function of the complexities of these problems, and so even if we’re making a for-profit investment within our program-related investment capacity, it’s a $300,000 investment.

Denver: Yeah, you’re funding solutions. You don’t care where they’re coming from. You just want outcomes that are going to meet the problem.  Let’s talk about a couple of these 118 investments. One that I’ve always loved is Crisis Text Line. It’s such a brilliant idea and such a contemporary way to deal with such a critical issue. Tell us about that and your relationship.

Jim: So, Stephanie Dodson sits on Nancy Lublin’s board. Nancy is just a wonderful force of nature.

Denver: She is.

Jim: She is. Having started DoSomething and coming to this realization is amazing. And the innovation wasn’t purely technological. It uses text as you know. What it did is it created a parallel pathway for–it’s not just teens in crisis for anybody in crisis to be able to access help. Today, I just got the number, this is before I came here, they’ve already processed 47 million messages. It’s just amazing in some respects. A sad statement of. . .

Denver: What’s going on.

Jim: The other part of it that is truly innovative is this idea that it’s not just the messages but it’s the ability to aggregate that data and find causation. As you know, if you go to her website, you’ll see that you have the ability to actually localize to a neighborhood, to a school, to a time of day and see what the text message volume is. You can begin to draw correlations between high frequency and the underlying issues that are there.

Denver: I know another one that you’re very excited about is the EducationSuperHighway.

Jim: Right. Yes.

Denver: Tell us about that.

Jim: To us, that is another poster child, if you will, of what we call special purpose nonprofit. Started by Evan Marwell, just an amazing human being, who through his own experience with his daughter out of school realized that there’s an insufficiency of broadband reach. First, it was just as simple as people were using the same modems they were using in their home for their schools, and then it became much more significant in that it’s actually the broadband speed.

Starting back in 2013, when he started, he has been successful in connecting almost 33.5 million students to access. There’s another 6.5 million to go, which I’m sure he’ll get to. He’s got 49 governors signed on. He just issued a state of the states report. It is the perfect nonprofit that’s been able to identify a problem, pull the resources to be able to achieve it, operationalize it to solve it and get the political support needed to make it happen. By 2022 or 2023, it will be done.

Denver: That is really fantastic, and those are two great stories. But let me ask you this. What happens when you realize that you may have made a mistake, that for whatever reason the business model or the leadership, or the market… something is not working: what have you done when you’ve encountered that?

Jim: Yeah, so it’s been rare. Of those 118 investments that we’ve made, roughly 9 are no longer in existence.

Denver: Good average.

Jim: I think Bill, Robin, and Rob would say that maybe we’re not taking enough risk. Because, again, I think when we’re looking at the social sector and the kinds of problems that exist around the globe, you really need to take big risks, particularly at the stage that we’re at. We try to figure out, as I said earlier, who wouldn’t be or what organization wouldn’t be able to take advantage of the resources that we can provide, and we weed that out. But every enterprise in our portfolio, even the most successful, had moments in time where it looked like it wasn’t going to be that successful. I think the distinction between us and other grantmakers who do not take the board seat is: we’re there.

One of the great values that we have by having 118 organizations in our portfolio is we have a lot of pattern recognition. So, we can see, hopefully early enough, when cash crises are taking place, or where there’s a capacity issue within the organization itself or where there’s a regulatory environment, or there’s some other new issue that’s there. The other thing is we don’t do this alone. We clearly work with our entrepreneurs and the team. But one of the most important things for us to do during our tenure with our organizations is to build a board and build capacity.

JBildner DFrederick at AM970

Jim Bildner and Denver Frederick at the AM970 The Answer Studio

Denver: Unlike so many other investors, instead of being the last to know, you’re the first to know when something is not going right. You have so many interesting perspectives on the field of philanthropy. I want to ask you about a couple if I can. One is about collaboration. There’s a general consensus that there ain’t much collaboration in this sector. Every foundation has their own theory of change or a really strong-willed board, and they’re going to do what they want to do and meet their goals and objectives, almost in silos.  What’s your take on that?

Jim: That’s not our view. In addition to serving as CEO of Draper Richards Kaplan,  I’m also on the Kresge Foundation board. I speak regularly with a number of other large foundations. I actually believe that there’s a lot more collaboration taking place and a meaningful amount of collaboration, but it tends to be pretty issue-specific. So, it’s not collaboration for collaboration’s sake. Five, 10, 15 years ago, there was a lot of noise in the system to make that happen. It’s no different than in real life, which is if you and I want to form a partnership and it’s a very loose partnership, neither one of us have a lot invested in it. But when you have significant issue focus alignment, then– I’ve seen foundations work side by side, again, in the supported ecosystem– EcoGreen, Ashoka, Incubators– are developing pipeline; they then hand them off to us; we then nurture them. That’s the most fundamental test of collaboration. I’m a big believer that actually it’s taking place, and it’s taking place in a way that’s actually material.

It is true 20 years ago, there was a swing the other way mostly because I think there was a fear that the unrestricted capital that was given at that time was not being used for the purpose. And then the folks really went to restricted funding. I think all of us realized that that’s counterproductive. You either believe in what an organization is doing, and you fund it. If you don’t believe in what they’re doing, it doesn’t make sense to give them money in a restricted way because if you don’t believe in them, why would you fund them at all?

Denver: Another one would be unrestricted giving. Now, again, the conventional wisdom is that foundations don’t like unrestricted giving. There isn’t a lot of it going on. They are very program-centric. They want to put their money towards a particular project. What’s your take on that?

Jim: Again, I see that as mythology. I mean, you don’t have to look very far. You can see what Darren has done at the Ford Foundation.

Denver: That’s Darren Walker.

Jim: You can see what Rip Rapson has done at the Kresge Foundation. You can see what Larry Kramer has done at Hewlett. You can see what Carol Larson has done at Packard, and the list goes on and on. It is true 20 years ago, there was a swing the other way mostly because I think there was a fear that the unrestricted capital that was given at that time was not being used for the purpose. And then the folks really went to restricted funding. I think all of us realized that that’s counterproductive. You either believe in what an organization is doing, and you fund it. If you don’t believe in what they’re doing, it doesn’t make sense to give them money in a restricted way because if you don’t believe in them, why would you fund them at all?

Denver: That is so encouraging to hear because those are two areas where real progress is being made. Let me ask you, where is the place where progress is not being made as rapidly as you would like?  And what do you think needs to be done to change that?

Jim: I don’t think it’s around: this is a missing component. I was on another panel two days ago. I think there’s a new urgency to this work, whether it’s domestic unrest or global inequality or climate change or natural disasters. I mean, I just don’t think this is the time for any of us to be timid.  And so my hope is that all of us- again, we’re so fortunate, right? We’re stewards of capital. We have the ability to move when we believe it’s important; we should be moving in a much more urgent way. And so I think rather than a problem, I think- by the way, I see signs now that folks are doing that. I mean, I think there’s no question that we see the globe at an inflection point.

Denver: Yeah. Right. So, they’re getting out of their comfort zone in the way they’ve always done business.  And that urgency is really driving different patterns of behavior. It’s interesting that there are endowed foundations, and what they do is they continue to make grants into perpetuity.  And then we have the spend down kind of foundation which is going to sunset. And they’re taking their capital and making their big investments. You’re neither.

Jim: Correct.

Denver: You’re a bit of a hybrid — a foundation that goes to market every couple of years with your track record in hand, seeking more capital. How does that shape the work culture of your organization? How does it factor into how you operate, how you interact, and how you go about doing your work and getting things done?

Jim: I think of all of the elements of our business model, that is at least in the top two or three that really distinguish us from others. Because, as you say, there isn’t an individual donor that endowed us 60 years ago… or for that matter 10 years ago. I mean, to me it’s sort of 101, why wouldn’t you want to be held accountable for the investments you’ve made. If for whatever reason… we have our portfolio of 118 investments and people look at it and are like, “I’m not sure really you’ve done anything,” then we shouldn’t be doing this work. We’re lucky in terms- we have just an amazing group of donor partners, 45 to 50 individuals and family foundations, but also institutional partners like Kresge, Davidson, Packard, Hewlett, Fidelity, BlackRock, Kaufman, Gordon Moore who are all in it for the same thing– which is a true belief that the inequities in the world need to be solved, and a true curiosity and desire to really have frontline exposure. That’s why they fund us. Over those last 15 years, it has been remarkable. I fully expect over the next 15 years we’ll have a similar outcome.

Denver: Great. Let me close with this, Jim. We talked a little bit earlier about you’re beginning to focus on the criminal justice system in this country, what other areas do you think that social entrepreneurs of the kind you’ve described could really have a profound impact, and where a little bit of disruption is sorely needed?

Jim: Right, so that gets to the question of innovation.  And a lot of noises in the system about impact investing and innovation and innovation being more or less defined as something new.  What we’re really interested in is the applied innovation. When I look through our portfolio today, even in new issue areas that we’re focused on, more often than not, it’s somebody looking at what worked in a different sector and applying it to a new sector. We are wide open for engagement, again, as long as it’s in these complex social issues, so domestically: homelessness, food insecurity, systemic poverty, criminal justice. We’ve made investments in the arts and culture space, environmental mitigation, conservation. Those are all areas that we care deeply about.  And on a global basis. all of those, plus refugees and other issues.

Denver: Jim Bildner, the president and CEO of Draper Richards Kaplan, I want to thank you so much for being here this evening. Tell us about your website and maybe something on it that you think people will find real interesting.

Jim: Yeah. So, we’ve just updated our website. Number one, look at the team. You ask me about the culture, we’re completely defined by the folks who I get to work with. Our managing directors are incredible, our associates, everybody who’s working at DRK. For sure, go there. I think it would be helpful because you’ll see the backgrounds of the folks that we have on our team. And then, of course, you’ll see the 118 organizations we’ve funded to date. And then you’ll see our pipeline. You’ll see the opportunity set. And then we’ll be uploading all the time different videos from different organizations. It’s a wonderful way for people to get acquainted with the work we do, and more broadly to the space of venture philanthropy.

Denver: Yeah, and I think there are a lot of organizations that people may not be familiar with but are making a tremendous impact in making this a better world. Thanks, Jim. It was a real pleasure to have you on the program.

Jim: Yeah, my pleasure to be here. Thanks, Denver.

JBildner DFrederick

Jim Bildner and Denver Frederick

 


The Business of Giving can be heard every Sunday evening between 6:00 p.m. and 7:00 p.m. Eastern on AM 970 The Answer in New York and on iHeartRadio. You can follow us @bizofgive on Twitter, @bizofgive on Instagram and at http://www.facebook.com/BusinessOfGiving

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s