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Foundation-funded EveryBlock sold to MSNBC

Jeff Trexler | Tuesday 18th August 2009

Ten years ago journalism was such a hot industry that writers could expect to score upwards of five dollars a word. Now, business is so bad that media ventures are literally looking to charity for help.

The Knight Foundation is one of the leaders in using charitable grants to foster socially beneficial innovation in journalism--and these grants go to both nonprofit and commercial recipients. This in itself is not new--charities have been giving money to for-profits serving public benefit long before blended value became a social enterprise buzzword.

What can shift, however, is how such grants are perceived. One factor is the context--an economic downtown is a far different environment from a boom economy. Another is scale--benefits accruing to a big business can have a different valence from support for a microenterprise. Additional factors include the presence of an identifiable personal beneficiary--did charitable dollars make someone rich--and the level of public involvement in charity's work.

For a perfect storm of cognitive dissonance, check out this Gawker piece on reactions to the sale local news site EveryBloc to MSNBC. EveryBlock built its base on open source, crowdsourcing and a $1.1 million Knight Foundation grant. The founder gets a payday, and MSNBC gets the charitably-developed site.

It's all technically legal until it's not. This is exactly the sort of transaction that could call public attention to how charitable grants to commercial entities result in personal profit and substantial private benefit. We've seen such blowback before--in the U.S., private foundations have to deal with statutory restrictions imposed forty years ago in response to perceived outrages. Ain't nuthin' stoppin' that from happening again, only this time, with negative consequences for all charity that seeks to promote blended value.

How to forestall such negative feedback? One strategy would be for a grant to a startup or other commercial entity to be conditioned on some sort of charitable clawback provision, requiring the organization to pay back the grant--and possibly more--should the venture change ownership or generate substantial revenue. Thank yous are nice, but when you've been funded by charitable money they may not be enough.

The key thing, though, is the principle. Charities don't want to risk creating the impression that they are taxpayer-funded ATMs for well-connected profiteers.

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Valerie LaVoie 9 September 2009

The Knight Foundation is a wonderful leader in this grantmaking space and this particular topic is a tricky one. I think one of the major benefits of grantmaking is the ability to subsidize an idea or project the foundation believes to be worthwhile, but for which a mainstream investor may not have the "risk appetite", and seems to be what happened in this case. Two ideas that may start to address this: 1. while it may conflict with the idea of traditional grants, the grantor could in some way be a part of the capitalization structure of the company - perhaps retain 5% stake with the understanding they won't be an active shareholder 2. Make this an investment as part of the endowment portfolio. As a standalone investment or through the many social venture funds out there. This type of investing is a great way for foundations to achieve their mission through their endowment dollars, not just the 5% they are required to distribute in grants.