Philanthropy is driven by the heart, but venture philanthropy isn’t necessarily for the faint of heart. After all, by definition, any venture could just as easily fail as succeed.
With high risk comes the potential for higher reward, and who can argue with that if it’s bringing more good to the world?
But what is venture philanthropy and how does it work?
It stems from the idea that the same practices and principles employed by venture capitalists can be used in the social sector and toward philanthropic goals. To get behind venture philanthropy, you must first understand how it started.
The Origin of Venture Philanthropy
In 1969, John D. Rockefeller III suggested private foundations could act as risk-takers and undertake “an adventurous approach to funding unpopular social causes,” which he described as venture philanthropy.
By 1997, venture philanthropy was firmly placed in the lexicon when Harvard Business Review examined how foundations could learn from venture capitalists and explored venture capitalist strategies such as risk management, performance measurement, and relationship management for philanthropic pursuits.
While there were bright spots, there were also growing pains. Larry Fox of Social Venture Partners Portland recalled, “Things didn’t go as planned. Yes, pooled resources helped community-based organizations grow more efficient, and interesting work has attracted many otherwise uninvolved people into philanthropy. But scale? Replication? Solving society’s toughest problems? Not so much. As one astute partner observed: “We only became great at … turning tiny nonprofits into small ones.”
REDF, one of the oldest venture philanthropy funds, ran into various obstacles when it first started. These included problems with grantee relationships, underlying power dynamics, and a blanketed approach over all enterprises without tailoring any tactics to the specific needs of grantees. Eventually REDF addressed these issues by implementing improved communication systems about expectations and strengthened their collaborative efforts.
Venture Philanthropy Today
As venture philanthropists learned and cultivated the practice, it became more about the collective effort than the capital. While there isn’t one definitive way to practice venture philanthropy, organizations rely on certain strategies, such as years-long engagement to drive systems change, to be successful.
High investor engagement and financing plans that are specific to an organization’s capacity needs are core pieces of venture philanthropy. As are unrestricted funding and a focus on outcomes. Moreover, venture philanthropists help strengthen capacity and build upon already existing strong infrastructures by not only providing financial capital, but advisory services. Think of it more like a partnership with a purpose than a venture with an investment goal.
Venture Philanthropy vs. Impact Investing
Venture philanthropy and impact investing share some similarities; both utilize investment capital for philanthropic efforts. The impact Investing model encourages expanding your investment portfolio to make socially responsible investments and/or divesting away from investments that aren’t making a social impact.
Venture philanthropy, on the other hand, is driven by foundations and private firms giving grants to a range of social entrepreneurs, nonprofits and other philanthropists. There are higher levels of engagement between the grantees and a strong emphasis on measuring impact, while supporting capacity, infrastructure and driving innovation.
Perhaps an easy way to understand these differences is involvement (via philanthropic grant) vs. investment. Venture philanthropy favors involvement while impact investing is central to specific investments and the social returns associated with them.
Interested in learning more about Impact Philanthropy? Other readers at Giving Compass found the following articles helpful for impact giving related to Impact Philanthropy.
Who’s Who in Venture Philanthropy
Several venture philanthropy organizations are leading the way with a diverse array of models and services.
Robin Hood is a poverty-fighting organization investing in the most efficient nonprofits in New York City. Funding these organizations increases its capacity to focus on expanding opportunities and access for low-income residents. Robin Hood funds job training initiatives, strengthens education networks, and provides financial capital to an array of social service organizations to help New Yorkers in need.
The Roberts Enterprise Development Fund (REDF) invests exclusively in social enterprises in the U.S. that focus on enhancing employment opportunities for people who are experiencing homelessness, incarceration and mental health illnesses. REDF helps connect social enterprises to resources and services in order to strengthen their work and capacity and help them measure impact.
The New Schools Venture Fund supports education entrepreneurs who are transforming public education. The organization specifically invests in innovative schools, edtech, and diverse leadership. New Schools Venture Fund aims to create pipelines for education entrepreneurs with the intention of sharing knowledge and building connection. Additionally, the organization provides customized guidance and support through goal-setting frameworks.
Social Venture Partners International builds a network of SVP affiliates around the world, providing professional social change leaders with the best resources and partners. SVP connects philanthropists, changemakers and vetted nonprofit organizations.
New Profit works with social change thought leaders on issues like education, early childhood development, economic empowerment, and public health. It utilizes a systems change approach and provides unrestricted capital to social entrepreneurs that have developed models of impact and provide assistance to help advance the work of these entrepreneurs at the same level as for-profit companies.
The Draper Richards Kaplan Foundation, founded by venture capitalists William Draper and Robin Richards Donohoe and later joined by former Goldman Sachs Vice Chairman Robert Kaplan are a global venture philanthropy firm supporting early stage, high impact social enterprises. It invests not only in the organizations but also partner with leaders and actively sit in as board members in order to provide ongoing, crucial support throughout it’s partnerships.
How to Get Involved in Venture Philanthropy
- Join a network of other venture philanthropists through organizations such as SVP. Your contribution becomes part of a pooled fund to support organizations vetted by SVP.
- Attend conferences such as New Profit’s “A Gathering of Leaders” which focuses on innovation and new ideas in social impact.
- Provide funding to a venture philanthropy organization that is making an impact on a cause you care about.
- And in your own philanthropy, think about how your human and social capital can be wisely used alongside your financial capital.
Original contribution by Lucy Brennan-Levine, Content and Community Associate at Giving Compass
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