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FOUNDATIONS LEADING THROUGH ENTREPRENEURSHIPA New Philanthropic Trend to Create Jobs, Improve Quality of Life, and Strengthen Local Giving

The data in this report is drawn primarily from Endeavor Insight’s original research, which involved interviewing program directors and program officers at foundations that fund entrepreneurship support programs. The interviews were conducted in order to explore the motivations that foundations have for supporting entrepreneurship in local communities and the ways in which they do so.

This report was created by Caroline Pringle and Lili Torok, with assistance from Rhett Morris. For more information about the methodology of the research, please email Lili Torok at lili.torok@endeavor.org.

2 / Foundations: Emerging Catalysts for Local Entrepreneurship

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In recent years, a number of U.S. foundations have started investing in entrepreneurship-related programs. This funding represents an intriguing new frontier for local philanthropies. It also raises interesting questions: Why do foundations support for-profit organizations instead of giving to communities directly? How can they maximize the added value of their support? Are foundations targeting social enterprises only, or do they also support conventional for-profit businesses?

Endeavor Insight researched these new initiatives, and explored how and why foundations are engaging in this field. As part of this project, researchers interviewed directors and program officers at one-third of the foundations working in this new area, and analyzed the programs funded by all of the foundations that support entrepreneurs. This study yielded four major findings:

1. Foundation support for entrepreneurship is already quite large in the U.S. More than 100 U.S. foundations are now funding entrepreneurship initiatives in their local communities. These foundations vary in age, geographic focus, asset size, and stated mission.

2. There are four reasons that foundations tend to invest in entrepreneurship.Program officers reported that they supported entrepreneurship programs in order to achieve the following goals:

• To strengthen and sustain the local philanthropic sector,

• To promote job creation and economic growth,

• To empower underserved communities, and

• To enrich quality of life and prevent brain drain.

3. Funding is beginning to target high-growth entrepreneurship. While early funding has concentrated on early-stage startup firms, a number of larger foundations are now targeting later-stage, fast-growing companies that generate greater job creation and economic outcomes.

4. More foundations are likely to replicate successful entrepreneurship programs and support fast-growing firms. Supporting entrepreneurs is a new, but quickly growing trend among foundations. Since foundations need to maximize return on investment and show measurable results, it is likely that successful foundation programs will expand into new communities and that initiatives targeting high-growth firms will increase in number.

The next pages of this report will provide insight into each of these findings using examples from interviews as well as data from Endeavor Insight’s analysis.

EXECUTIVE SUMMARY

4 / Foundations Leading Through Entrepreneurship

Supporting entrepreneurship is no longer the exclusive territory of local chambers of commerce or government economic development officers. Over the last several years, charitable founda-tions have become some of the most important supporters of entrepreneurship in the U.S. Much of this support has come without major announcements or promotion, yet the cumulative effect of this funding has a potential to change the nature of philanthropic giving.

Endeavor Insight recently identified more than 100 U.S. foundations that support entrepreneur-ship initiatives or programs within their communities. These foundations vary in age, geograph-ic focus, asset size and stated mission. While entrepreneurship is the primary area of focus for several of these foundations, such as the Ewing Kauffman Foundation, the Goldhirsh Foundation, and the 80/20 Foundation, it is more commonly seen as supportive of a broader mission.

The graphic on the opposite page lists the names of foundations that have made recent invest-ments to support entrepreneurship in their communities. The programs that were funded include education and training initiatives, support services, incubators, and innovation competitions. Many foundations also provide financial support directly to entrepreneurs by making grants to organizations that provide venture capital or through program related investments (PRI’s). Often in the form of equity investments or loans, these PRI’s allow foundations to inject money directly into the local economy and recover funds for future reinvestment.

More than 100 U.S. foundations now fund entrepreneurship initiatives in their communities.

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80/20 Foundation

A-B Tech Education and Entrepreneurial Development Foundation

The Abell Foundation

The Algernon Sydney Sullivan Foundation

Allan Houston Legacy Foundation

Amarillo Area Foundation

The Anna B. Stearns Charitable Foundation

Ann Arbor Area Community Foundation

Bangor Savings Bank Foundation

Berks County Community Foundation

Berkshire Bank Foundation

Bloomberg Philanthropies

Booth Ferris Foundation

The Boston Foundation

The Burton D. Morgan Foundation

Central New York Community Foundation

Circle of Service Foundation

Claude Worthington Benedum Foundation

The Cleveland Foundation

The Coleman Foundation

The Columbus Foundation

The Community Foundation for Greater New Haven

Community Foundation for Ocala Marion County

Community Foundation for San Benito County

Community Foundation for Southeast Michigan

Community Foundation of Greater Birmingham

The Community Foundation of Herkimer and Oneida Counties

Community Foundation of Howard County

Community Foundation Sonoma County

The Community Foundation of Utah

The Dakota Foundation

The Dick and Betsy DeVos Family Foundation

Duluth Superior Area Community Foundation

East Bay Community Foundation

Elkhart County Community Foundation

The Erie Community Foundation

Ewing Marion Kauffman Foundation

Fremont Area Community Foundation

Friedman Family Foundation

GAR Foundation

Georgia-Pacific Foundation

The Gheens Foundation

Goldhirsh Foundation

Grand Rapids Community Foundation

Greater New Orleans Foundation

Hardin County Community Foundation

Hartford Foundation for Public Giving

Henry E. Niles Foundation

Holthouse Foundation for Kids

Hudson Webber Foundation

Initiative Foundation

Invest Detroit Foundation

The Isabel Allende Foundation

The James Graham Brown Foundation

James R. Jordan Foundation

Jewish Community Foundation of Los Angeles

The Jim Moran Foundation

The John E. and Jeanne T Hughes Charitable Foundation

The John R. Oishei Foundation

John S. and James L. Knight Foundation

The Kresge Foundation

Latino Community Foundation

Liberty Prairie Foundation

Louisiana Cultural Economy Foundation

Madison Community Foundation

Marin Community Foundation

MICE Foundation

Michigan Women’s Foundation

Mizuho USA Foundation

Mortar Foundation

NAWBO Greater Philadelphia Foundation for Women Entrepreneurs

Nebraska Community Foundation

Northwest Minnesota Foundation

Old National Bank Foundation

Omaha Community Foundation

Opportunity Through Entrepreneurship Foundation

Orange County Community Foundation

Oregon Community Foundation

The Paul Ogle Foundation

PNC Foundation

POISE Foundation

The Paul and Edith Babson Foundation

Polk Bros Foundation

Price Foundation

The Profeta Urban Investment Foundation

The Raymond John Wean Foundation

Richmond Community Foundation

The Robin Hood Foundation

The San Francisco Foundation

Santa Fe Community Foundation

Santa Fe Natural Tobacco Company Foundation

Scott County Community Foundation

Silicon Valley Community Foundation

Southeastern Illinois Community Foundation

Southern Minnesota Initiative Foundation

Southwest Initiative Foundation

Spirit of Entrepreneurship Foundation

Hattie M. Strong Foundation

Telluride Foundation

Toledo Community Foundation

Triangle Community Foundation

The University of Akron Research Foundation

Wakerly Family Foundation

The Wallace Alexander Gerbode Foundation

Washington Research Foundation

Women’s Foundation for a Greater Memphis

Y&H Soda Foundation

Yelp Foundation

The Zellerbach Family Foundation

U.S. Foundations Funding Entrepreneurship Programs

6 / Foundations Leading Through Entrepreneurship

The Endeavor Insight team interviewed program directors and officers funding initiatives that support local entrepreneurship. Based on the interviews and the subsequent analysis, it appears that foundations typically engage in supporting entrepreneurs for the following four reasons.

Reason 1: To strengthen and sustain the local philanthropic sector

Many foundations were motivated by the need to make philanthropic giving more sustainable and diversify their current sources of funding. As one outreach director noted, “We support entrepreneurs because they are the future philanthropist, maybe in our community, maybe in another community.”

As a result of their engagement with entrepreneurs, several foundations have launched pro-grams to facilitate giving among local founders. One such program encourages community in-volvement among entrepreneurs by helping them to develop their own corporate philanthropy objectives. “We want to make it easier for young companies to do good in the community,” the director of this program said. “This is an untapped opportunity to promote philanthropy.”

Reason 2: To promote job creation and economic growth

Among the program officers we interviewed, the desire to promote job creation and econom-ic growth was the most frequently cited reason for supporting entrepreneurship. This was true for foundations working in areas with high rates of poverty as well as for those working in more prosperous communities.

Many respondents indicated that their foundations initially began to promote entrepreneurship initiatives as a response to the 2008 economic downturn. “Entrepreneurship is one of the pri-mary engines to revitalize the economy,” one program officer told us. “We want to bring back the spirit of entrepreneurship because we want growth from within rather than people waiting for the next big industry to put a factory in town.”

Foundations tend to support entrepreneurship for four reasons.

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Reason 3: To empower underserved communities

Many foundations said that their support for entrepreneurship was in service to their mission to open doors for underserved communities, including women, minorities, and immigrants. The director of one large community foundation reported that their entrepreneurship initiatives were part of the foundation’s “focus on economic empowerment for people with barriers to employ-ment. Employment is a priority for them and we recognize that entrepreneurship can be an effective pathway.”

Another foundation officer explained that supporting local entrepreneurship was part of a borad-er strategy to integrate immigrants into the local community: “This is part of the immigrant and refugees program to help low-income immigrants create viable businesses with employment that pays a living wage, provides benefits, and bolsters economic security.”

Reason 4: To enrich quality of life and prevent brain drain

Many respondents stressed that increasing entrepreneurship activity would improve quality of life within their communities. These interviewees frequently discussed how an entrepreneurial cul-ture would allow their communities to become “thriving,” “innovative,” “revitalized,” and “strong.”

One of the most common ways that foundation officers expected this to occur was through the prevention of “brain drain,” in which talented young people left the area for better jobs. As one respondent noted, a strong entrepreneurship ecosystem community not only attracts a talented, educated workforce but also encourages existing “residents to explore their ideas and supports the establishment of new businesses that have local roots.”

8 / Foundations Leading Through Entrepreneurship

There is a growing trend among foundations to target high-growth entrepreneurship.

Many foundations currently encourage the development of startups, often providing them with access to capital or training programs. The Community Foundation for Greater New Haven, for example, sponsors the New Haven Startup Weekend, during which potential entrepreneurs pitch startup ideas and work to launch new companies. The Liberty Prairie Foundation funds The Farm Business Development Center, which provides “new farmers with a head start by beginning their business in an incubator setting.”

Some foundations go beyond financial backing, by sharing contacts and experience with the founders. “It’s an interesting area for us to fund, since we are entrepreneurial ourselves”, noted one interviewee, “we are able to offer more than financial capital – we are able to offer human and social capital.”

In addition to supporting startups, larger foundations have broadened their focus to include fast-er-growing, scaleup companies. The Knight Foundation provided significant funding to Jump-Start, an Ohio program that helps high-impact entrepreneurs scale their companies to achieve growth milestones in both revenue and employment. The Ewing Marion Kauffman Foundation supports a program that identifies “women-led ventures that are poised for explosive growth [and] backs the most promising, investment-ready companies.” Research has shown that high-growth businesses targeted in programs like these are also the largest job creators in most com-munities.

While the practice of supporting successful companies may be surprising to some practitioners, it is important to recognize that targeting high-growth entrepreneurs does not necessarily cause foundations to pull away from giving to charitable causes that are inherently unprofitable. On the contrary, several respondents noted that supporting high-growth firms may ensure the finan-cial sustainability of foundations in a way that enables the continued funding of their traditional causes. If a company’s work is aligned with a foundation’s mission, it can be a reliable source of funding, as well as part of the solution to the problems the organization set out to solve.

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More foundations are likely to replicate successful programs and support fast-growing firms.

Over 100 American foundations now believe entrepreneurship is critical for the health of their communities. They support a variety of entrepreneurship programs in order to provide solutions to challenges including high unemployment, talent depletion, and a vulnerable philanthropic sector. Based on conversations with dozens of foundations across the country, a number of trends are expected to develop in the next several years:

1. Entrepreneurship and philanthropy will be increasingly recognized as complementary forces. Many interviewees emphasized that local entrepreneurs have the potential to transform their communities, empower underserved residents, and become future donors. This trend will continue to grow as more of the supported entrepreneurs create jobs and start to give back, and as more foundation-led entrepreneurship initiatives are publicized.

2. More foundations will implement programs to support local entrepreneurs. Supporting entrepreneurs is a new, but quickly growing trend among U.S. foundations. It is likely to continue to expand as the results of existing programs gain recognition among individual donors and as more local foundations look to expand their funding into new areas.

3. Successful business support programs will be strengthened and expanded.Foundations have increasingly invested in measuring program impact, so it is likely that resources will gravitate towards the expansion and consolidation of programs that show the greatest results. Entrepreneurship support programs lend themselves especially well to assessment and this will help program officers to evaluate their own initiatives and those in other communities.

4. The movement to support high-growth entrepreneurship will accelerate. Foundations need to maximize return on investment, show measurable results, and ensure continued funding for other operations. These imperatives increase the likelihood that there foundations will continue to develop new programs focusing on high-growth entrepreneurship, since fast-growing firms tend to have greater impact than other entrepreneurial companies.

Foundation support for entrepreneurship is still a relatively new area. The development of these trends will help to shape programs in this field, influence giving devoted to this sector, and shape new innovations that utilize entrepreneurship to achieve local philanthropic goals.

10 / Foundations Leading Through Entrepreneurship Foundations: Emerging Catalysts for Local Entrepreneurship / 10

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12 / Foundations Leading Through Entrepreneurship

ENDEAVOR is leading the global high-impact entrepreneurship movement to catalyze long-term economic growth. Over the past fifteen years, Endeavor has selected, mentored, and accelerat-ed the best high-impact entrepreneurs around the world. To date, Endeavor has screened more than 30,000 entrepreneurs and selected 1,000+ individuals leading 600+ high-impact compa-nies. These entrepreneurs represent over 400,000 jobs and over $6.8 billion in revenues in 2013 and inspired future generations to innovate and become entrepreneurs too.

ENDEAVOR INSIGHT, Endeavor’s research arm, studies high-impact entrepreneurs and their contribution to job creation and economic growth. Its research educates policy makers and practitioners on how to accelerate entrepreneurs’ success and support the development of strong entrepreneurship ecosystems. In 2013, Endeavor Insight joined with the Kauffman Foun-dation and the World Bank to co-found the Global Entrepreneurship Research Network.

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