Three Private Equity Lessons For The Business Of Social Change

By Chris Addy
May 3, 2017

In the summer of 2015, private equity investor Josh Harris, philanthropist and owner of the Philadelphia 76ers, among other teams, made a five-year, $3.5 million gift to Philadelphia’s Police Athletic League (PAL)—the largest gift in the 68-year-old youth development organization’s history. His goal was to help Philly youth to better opportunities, and his quest led him to PAL, whose mission is to serve Philadelphia’s youth by reducing crime, promoting character development, and improving educational outcomes.

The Harris Family Charitable Foundation (which my firm The Bridgespan Group has advised) applies the same tenacious, results-oriented approach that Harris uses in business to the “business of social change.” Three elements in particular stand out:

He conducted rigorous sourcing and due diligence. Harris looked at a variety of organizations that could achieve his goals before setting his sights on PAL. Then, as noted in an article on the PAL gift, Harris took a page from his experience as cofounder of Apollo Global Management LLC: “We put them through Apollo-style [due] diligence,” he said at the news conference announcing the donation. “They happily acceded.” For more on the often neglected role of due diligence in philanthropy, see More Philanthropists Should Think Like Venture Capitalists.

He looked for existing community assets that already had scale. While donors occasionally need to launch new organizations or initiatives to achieve their goals, more often, they are better served by existing assets. There are Police Athletic Leagues all over the country, but Philadelphia’s PAL was already one of the nation’s strongest. It had 17 centers in some of the city’s highest-crime and lowest-income neighborhoods, reaching 17,000 young people every year. It also had a uniquely high level of police officer participation and burgeoning evidence of results. In two neighborhoods with high crime rates where PAL has youth centers, research found that juvenile arrests in those areas declined much more rapidly than the city as a whole during the period between 2010 and 2012. Philadelphia’s Mayor Michael Nutter noted on that PAL was already a “bedrock institution” in the city that was “particularly important for fostering respectful relations between young people and police.”

He focused on outcomes, not just outputs. Harris’s rigorous due diligence was as much about strengthening a community as it was about leveraging an organization. He helped PAL outline a detailed, five-year strategy to improve the lives of Philadelphia’s youth, with specific milestones and measures to evaluate progress at every stage. It incorporated things like training and performance measurement—“infrastructure” elements that may be unexciting to some funders, but can be critical to impact. Such planning was in some ways a departure for PAL, which had been a rather traditional nonprofit focused more on outputs (e.g., number of participants) than outcomes (like educational attainment or reductions in crime). But it demonstrated that PAL’s leadership was serious about delivering on its mission to help Philadelphia youth realize their full potential.

Originally Published in Forbes.