[MUSIC] Hello again, and welcome back to Beyond Silicon Valley. I'm Michael Goldberg. In the last lecture, we talked about government support for entrepreneurship. In this lecture, we'll explore the role of philanthropy and donors in supporting entrepreneurs. Some key points you'll learn about are why donors get involved in supporting entrepreneurs, how donors may differ from government and private investors in terms of the expectations of the organizations they support, and the challenges of maintaining donor interest in entrepreneurship over the long haul. Let's get started. US law allows individuals or corporations to donate money to nonprofit organizations without paying taxes on the money. Often times, these donations are channeled through foundations. Because of Cleveland's economic strength, built on the back of entrepreneurs like John Rockefeller in the 1920s and 1930s, several large foundations were created in the city. One of these foundations, the Cleavland Foundation, was the first community foundation in the United States. For years, these foundations supported and protected Cleveland's artistic treasures, such as the Cleveland Orchestra and the Cleveland Museum of Art. They had not traditionally focused on economic development. However, this changed in the early 1980s when Cleveland's economy was suffering with the decline of its manufacturing base. In 2002, the government of Ohio started to support entrepreneurship with the creation of the Third Frontier Program, which we looked at in depth in our last lecture. Around the same time the Third Frontier Program was launched, a number of leading foundations in northeast Ohio decided to pool resources for economic development and entrepreneurship. The foundations called this new initiative the Fund for Our Economic Future, and it was a philanthropic collaboration program that was truly unique in the United States. David Levine, the founder of Wireless Environment, is one such entrepreneur whose company benefited from philanthropic funding. In 2008, Wireless Environment received a $400,000 investment from Jump Start, a local venture development organization funded by donors and the state of Ohio's Third Frontier Program. David notes the impact that foundations in Cleveland have had in backing entrepreneurs. >> At Wireless Environment, we're taking lighting off the grid. So we're, we have two types of products. The Mr. Beams lights that are fully off-grid lights, battery-powered, motion-sensing lights. And then we have devices that we can put in traditional lighting that will take the lights on and off the grid when it's advantageous. Think of a laptop but for lighting. What I've noticed in Cleveland being a newcomer, of sorts, foundations that traditionally invested in big, staples of the community such as the, the art museum and, and the Cleveland Orchestra, are also investing in the entrepreneurial infrastructure. And they're doing that through Jump Start and other, other organizations that are private and public. It does a few things. It gives credibility to these organizations that are trying to foster this foundation. It's also putting it in the same realm as, something that is for the public good, such as an orchestra or an art museum. >> Dorothy Baunach, the former CEO of Nortech, believes that it is a challenge to convince foundations to invest in entrepreneurs like David Levine. >> We have a wonderful orchestra, and we have a wonderful art museum. And we have all these things that make a wonderful community. But if we didn't have jobs for people, and investment, in those jobs and in those companies, we weren't going to survive. There would be, you know, no one left to go to the art museum or hear a wonderful orchestra. So the foundations actually recognized that sometime in the early 80s, really at the, really taking the lead of the business community that said, you know what? We had, at one time we had over 25 Fortune companies in this community, and now we're down to 10 or 12. And if we don't do something about it, we're going to be the next one to leave. >> Founded in 1914, the Cleveland Foundation is the largest community foundation in the United States. Ronn Richard is the president and CEO. >> So the Cleveland Foundation is unique in a lot of ways, but one thing that's unique about us is our role in the economy in Cleveland, in funding economic development. So for most of the first 100 years we did what most community foundations do these days, which is funding the arts, social services, and, and things like that. But we were really the first community foundation, and still one of the very few, that felt that, you know, heck, if we don't do something about the economy, we won't have an art museum to give money to in 30 years. >> The Cleveland Foundation helped start the unique Fund for Our Economic Future. Support of the growth of entrepreneurship was one of the key focus areas of the fund. Brad Whitehead leads the Fund for Our Economic Future. >> It is the philanthropic's communities response to the long term economic challenges, facing northeast Ohio. And so we have some 50 plus members, who pooled their resources, both financial, in terms of their time and such, to work on the economic vibrancy of our region through grant-making, convening, and sponsoring research. And we do that in collaboration with all the other sectors in the community. >> Cleveland used to rely on its corporate leaders to drive economic prosperity and jobs for the region. As these companies moved away, philanthropy provided important leadership to fill the void. >> And if we think about the history of how economic development has occurred in, greater Cleveland and northeast Ohio, the old formula had always been, well, let's climb on the backs of the large corporate leaders and expect them to provide the answer. But I think we've come to realize that that model on its own won't be successful in the same way. Power is dif, more diffuse now, it's not just in a core city, it's in an entire region. It's not just in the corporate sector, it's in the entrepreneurial sector as well. It's not just in the business sector, it's spread to a bunch of other groups. >> What really galvanized the philanthropic community and led them to take action? Dorothy Baunach credits the Third Frontier's requirement that there be an outside match in order to access its funding. >> So, match and all-state programs, was essential. The state wasn't going to put money into things, especially early-stage risky things, if the communities weren't willing to invest with them. It was right about the time of the Third Frontier that the foundations were thinking about getting their own scale, in terms of investment in entrepreneurship and innovation, that the Third Frontier was coming along. >> The Burton D. Morgan Foundation has been pivotal in the building the region's entrepreneurial ecosystem, supporting the startup community, and experiential entrepreneurship education. A legacy of entrepreneur Burton D. Morgan, the foundation leverages its resources to build networks of people, ideas, organizations, and opportunities that foster the entrepreneurial spirit in the region. Deborah Hoover serves as the CEO of the Foundation and as Chair of the Fund for Our Economic Future. >> It's been a, you know, a really aggressive match requirement on the part of the state of Ohio for our local economic development organizations to access those dollars. But at the end of the day, that's been a really good thing because the dollars coming from the state invested in you know, high-tech startups. And in the services to, you know, to bolster those high-tech startups. It's, it's significant. >> Donors tend to be more patient than the private sector and government in seeing their investments in entrepreneurship bear fruit. Bruce Katz of the Brookings Institution believes that the patience of local philanthropy has benefited northeast Ohio. >> I think metropolitan economies are ecosystems. I mean, you know, in the United States we tend to focus on the celebrity entrepreneur, or the charismatic mayor, and the way in which metropolitan economies actually prosper is through these thick ecosystems and networks of advanced research institutions and large companies and small entrepreneurs and investors and institutions that can help train workers and help firms strengthen their business plans, retool their facilities. Former BioEnterprise CEO Baiju Shah echoes Katz's point of view about philanthropy's willingness to take a long-term view regarding their support of entrepreneurship. >> I think you have a real challenge in, in economic development in sustaining investment and strategies to the point where they have not only proven themselves, but they can become self-sustaining elements of a region. In our case, you've got multiple actors. You've got government, you've got foundations in philanthropy, and you've also got the business slash civic leadership. Government can never be the place where you look to for sustained investment in a strategy because of the short timeframes in which they operate, due to election cycles. >> Brad Whitehead asserts that even though philanthropic support has its advantages, there is another challenge. That of keeping donors engaged, and avoiding a syndrome known as donor fatigue. >> Now one of the greatest advantages of philanthropy is that we can take the long view of issues. But like everyone else in the world is that it, it, it's tiring to stay with something for so long. And we know that this is work that takes decades, but we find that a big part of our task is to keep it evolving and to keep it interesting, so that everyone wants to hang with it. >> While foundations in northeast Ohio had been extremely patient with entrepreneurship programs, Peter Kellner, cofounder of Endeavor, an international organization that supports high-growth entrepreneurship, argues that this is not true with philanthropists from around the world. >> Traditional philanthropy is still very broken. It believes, it's run by bureaucrats, who are box checkers. Who are, essentially, the metaphor is they like to water a gar, water a garden. And when something starts growing they're like oh, it's growing. Let's go somewhere else. What do the best venture capitalists do? And that's how you've got to think about it if you're a philant, if, you know, philanthropist or an investor. You got to think like a venture capitalist. >> Philanthropy is a source of support for entrepreneurs outside the US. However, philanthropy or donations come from sources other than foundations internationally. These philanthropic sources typically include foreign governments through their development assistance programs, non-governmental organizations, often abbreviated as NGOs, and corporate donations. Chris Zobrist, from Vietnam National University, believes it is a major challenge to entice donors to support entrepreneurship in Vietnam. >> There are a few angel investors who actually do have that more philanthropic, kind of bent. You know, they want to, in some ways, give back to, the community or the society, but they're very reluctant to step forward and, and, and actually, actively, engage in that kind of, activity. Largely because they're worried that if they step forward and start putting money, you know, very prominently into new startups, the, the, various parts of the government, it's highly political, here, will, will take notice of that and say, hey, you know, where did you get all this money from? >> Okay, that's it for this lecture. To recap, the Cleveland case study shows how leveraging government support played a key role in getting donors to fund entrepreneurial initiatives. In other cases, donors worked independently from local governments to help foster the creation of startup companies. One important point we learned about donors as investors is they are generally more patient than private-sector or government backers of startup companies. But even donors can have their limits. And it is still challenging to keep them engaged when the results of their funding are often best measured over decades. What has been unique about Cleveland is the ability of many foundations and other entities to pool their resources and act together. This takes strong leadership and trust from all parties involved. In our next lecture, we'll be focusing on the formation of intermediary organizations to deliver support to entrepreneurs. These organizations are typically non-governmental or non-profit organizations. Jump Start, the venture development organization we have discussed in Cleveland, will be featured in the next lecture as an example. See you next time. [MUSIC]
