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December 16, 1999
Nonprofits Find Added Value in Venture Philanthropy
by Phillip Johansson
Although it will not replace classical philanthropy, venture philanthropy brings grant-making to a
new level of engagement.
SocialFunds.com --
Venture philanthropy is the latest buzzword in socially responsible investing circles. Combining
the monitoring and support practices of venture capital with strategic grant-making, venture
philanthropy promises to bring much-needed financial and organizational support to nonprofits, like
job-creation for the unemployed and unemployable.
The last few years has seen an evolution in the
field of socially responsible investments, including a blurring of financial returns and important
of "social returns." Venture philanthropy is an important point on the horizon of that evolution,
as philanthropic foundations explore new and innovative models to generate measurable social
returns.
"Venture philanthropy as a label has been around for about five years," said Tom
Reis, Venture Philanthropy Director for the W.K. Kellogg Foundation. "It started out on the West
Coast as an outgrowth of the philosophies and perspectives of the venture capitalists. Then it got
a big shot in the awareness arm in 1997 with an article titled 'Virtuous Capital: What Foundations
Can Learn from Venture Capitalists' in the Harvard Business Review."
A vivid example of
venture philanthropy in action is the Women's Technology Cluster (WTC) in San Francisco, a location
for startup technology businesses owned by women featuring reasonable rent and access to business
mentors, seminars, and services. WTC is a project of the Three Guineas Fund, a public grant-making
foundation that seeks to advance social justice through creating opportunity for girls and women in
education and the workplace.
Although foundations and nonprofits work diligently on behalf
of society's most needy, progress can be painfully slow. Venture philanthropy expands the missions
of foundations from investing only in program innovation to investing in the organizational needs
of nonprofit organizations, as well as using hands-on partnering skills to help nonprofits make
their payroll, pay the rent, or buy a much-needed computer.
Venture philanthropy
emphasizes the "capacity building" of organizations, or actively supporting the sustainability of
their operations, founded on the belief that grants to nonprofit groups really represent a form of
investment in the entire entity, present and future. Venture philanthropists look for ways to be
appropriately engaged in sustaining the work of the nonprofit beyond simply providing funding.
Many people view venture philanthropy as a critique of traditional philanthropy, or a
substitute to replace it in the world of finance. On the contrary, venture philanthropy is a viable
and complementary alternative to more traditional philanthropic endeavors, and both types of
funders are needed to provide nonprofits with the array of capital necessary for success in gaining
social returns.
"Venture philanthropy can enhance traditional philanthropy and vice
versa," said Reis. "Don't throw the baby out with the bathwater: it is non-productive to talk about
venture philanthropy "replacing" traditional philanthropy, which would be a waste of valuable
experience. Philanthropy is a learned behavior, art, and discipline, and there is real value to
bi-mentoring here."
Venture philanthropy has drawn some criticism from skeptics who
believe that direct involvement of donors in relation to their grants is inappropriate, and that
non-profits should be free to pursue their vision without the "interference" of funders. But in
many cases the active engagement of venture philanthropists is crucial to the sustainable success
of the non-profit and their goals.
Venture philanthropists sometimes ask their "investees"
to document the results of their work in terms of social returns, often called social impact
tracking. Although critics suggest that the central work of nonprofit organizations is beyond
measurement, and it is wrong to attempt them to quantify the value of their work, the creation and
measurement of social value is a central tenet of venture philanthropy.
"Many of the more
obvious players are newcomers to philanthropy and smaller more focused operations like Roberts
Enterprise Fund, the Entrepreneurs Foundation, and others," said Reis. "However there are many
Program directors at traditional foundations that are practicing venture philanthropy via their own
portfolios--they just don't get the attention and hype these others do."
A new generation
of social investors, committed to using market-based approaches to solve social problems, is
experimenting with new models of using resources for the public good. With the contradictory
phenomena of unprecedented wealth creation faced with the growing gap in wealth distribution among
the world's rich and poor, venture philanthropists may be instrumental in bringing about social
returns through engaged partnerships with social action nonprofits.
©
SRI World Group, Inc. All Rights Reserved.
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