When donor George Roberts formed the San Francisco- based Roberts Enterprise Development Fund (REDF) in 1997, it was one of the first organizations to operate under a venture philanthropy model, which applies business practices to the funding of nonprofits. ( See Characteristics of Venture Philanthropy. ) Unlike most organizations, however, REDF has created an organizational culture that is committed to reflecting on and learning from its mistakes, as well as its successes, and to sharing those learnings with others.

REDF supports ten nonprofit umbrella organizations that together operate more than twenty social purpose enterprises. A social purpose enterprise is a revenue-generating business founded by a nonprofit to create jobs or training opportunities for very low-income individuals. More than 600 people-most of whom are low-income and homeless-are employed by REDF-funded organizations generating more than $20 million in sales. About half the businesses are currently profitable and contributing income to support their parent organization. REDF has documented improvements in individuals' lives in such areas as housing, employment, wages, self-esteem, drug usage, and recidivism.

In this interview, Melinda Tuan, managing director, discusses drawbacks of the venture philanthropy model, as well as the self-reflective nature of REDF.

MtM: Do you have any cautions about the venture philanthropy model for others who may want to use it?

Tuan: Be attentive to the power imbalance. When you have money and you're talking to someone who wants it, there is always a power imbalance, even in personal giving. For example, if I suggest to someone in one of our enterprises that he talk to a particular person, he might interpret it as, "I have to talk to this person and hire her," but that might not have been my intention. At first we felt uncomfortable with the imbalance of power, so we didn't talk about it. But we've found it's better to acknowledge it, talk about it, and be conscious of it on an ongoing basis.

I would also say to be as clear as possible about everything and communicate more than you possibly think is necessary. As funders, we have monthly meetings with the management teams of our ten investee organizations. Sometimes during that meeting, I wonder whether they took what I said the wrong way. So later, I'll call them up and ask if they thought I was too directive. They'll say, "Yes. I didn't want to mention it." We still make mistakes. We hope they're new ones, not the same ones over and over.

It's important to remember that this work takes a long time and a lot of patience. And you have to be very comfortable with risk. Some projects will fail rather spectacularly. Being able to take blame along with success is the mark of a really good philanthropist.

MtM: Much of your success seems based on the amount of evaluation you do of your own effectiveness as a funder. How did you become such a self-reflective organization?

Tuan: From the outset, our founding executive director, Jed Emerson, had a commitment to being self-reflective. He invited people to give him and the rest of us feedback about ourselves, through external consultants. It was very painful. The personal feedback was not published, but it provided us with a lot of insight into how we are received.

REDF was launched in 1997. In 1998, our investee group gave us feedback that caused us to look at ourselves and say, "This isn't working." We then hired an independent consultant to talk with each of our investee organizations about what was and wasn't working with REDF's approach to the work. It was a big turning point for us in that our investees felt listened to. They found they could speak up to us and we would respond.

MtM: What kinds of mechanisms do you use to create trust and self-reflection?

Tuan: We publish and share information about what we've done wrong. That's a real trust builder. That has a lot to do with our donor. He actually says, "I want to hear what's going wrong." Having the freedom to say what hasn't worked increases the reflection dramatically.

We do the same with the groups we fund. However, just saying, "I want to hear what's going wrong" isn't enough. It opens the door slightly, but it also brings a lot of skepticism. More important is how you respond if your investees tell you bad news. If you won't give them any more money, or you respond by blaming individuals instead of taking responsibility, it doesn't work. You need to be able to say, "I screwed up." It's only over time that you're able to prove to others in a power imbalance that you can be trusted and you're true to your word. We've worked with some investees up to ten years and sometimes they're still not fully open, because of the power dynamic. But they tell us far more than they tell other funders. A lot of them comment on that in our interviews.

We also make time to reflect. A lot of venture philanthropists have started out with PR about what they're going to do. They talk about what they're going to deliver and how quickly they're going to deliver it, so they don't have as much time for reflection. Our donor has given us freedom by saying from the beginning, "Let's not talk to the press and the general public until we have something significant to say. Our work should speak for itself." This approach has given us the flexibility to adapt and change, based on what our work has taught us. Although we have always published what we've learned from our mistakes, this is the first time we're talking about our positive results.

--Interviewed by Pamela Gerloff