The Power of Venture Philanthropy: Transforming Communities
When people think of philanthropy, they usually think of donating to a nonprofit organization. However, there is a growing movement toward a more strategic and impactful approach to giving, known as venture philanthropy.
Venture philanthropy is a form of philanthropy that applies the principles of venture capital to charitable giving. It involves providing financial and non-financial support to nonprofit organizations to create long-term, sustainable change in communities.
In this article, we will discuss how venture philanthropy is improving communities.
What is Venture Philanthropy?
Venture philanthropy is a relatively new concept that emerged in the 1990s. A smart way to give money that combines investing with making a positive impact in society.
Like venture capital, venture philanthropists provide financial support to organizations, which also goes beyond that. It also includes giving non-money help like mentoring, coaching, and guidance to assist organizations in reaching their objectives.
Venture philanthropy approaches long-term change in communities by investing in impactful organizations for sustainable outcomes.
Venture Philanthropy vs. Impact Investing
While venture philanthropy and impact investing share some similarities, they are different. Impact investing involves investing in for-profit companies with a social or environmental mission, expecting a financial return.
On the other hand, venture philanthropy focuses solely on nonprofit organizations and does not expect a financial return. Instead, we measure the return on investment by the social impact created.
The Impact of Venture Philanthropy
The power of venture philanthropy lies in its ability to create lasting change in communities. By providing financial and non-financial support, venture philanthropy organizations can help nonprofits become more effective and sustainable.
One example of the impact of venture philanthropy is the Jewish Venture Philanthropy Fund (JVPF). Founded in 2000, JVPF has invested over $20 million in more than 50 nonprofit organizations in Israel. These investments have led to significant social impact, including:
- Providing education and job training for at-risk youth
- Supporting social entrepreneurs and small businesses in underprivileged communities
- Promoting diversity and inclusion in the workplace
- Improving access to healthcare for underserved populations
JVPF's giving strategy has helped organizations, transformed communities, and improved countless lives.
The Benefits of Venture Philanthropy
Venture philanthropy offers several benefits for both donors and nonprofit organizations.
For Donors
- Donors can have a bigger impact on causes they value by giving strategically.
- Investing in organizations instead of giving one-time donations helps create lasting, sustainable change for the future.
- Venture philanthropy lets donors be more involved in supported organizations, creating a stronger connection and fulfillment.
For Nonprofit Organizations
- Increased resources: Nonprofit organizations can benefit from financial and non-financial support, helping them achieve their goals more effectively.
- Long-term sustainability: By receiving support from venture philanthropy organizations, nonprofits can become more sustainable and less reliant on one-time donations.
- Nonprofits can get help from venture philanthropy organizations to improve their operations and impact.
Contrasting Venture Philanthropy and Traditional Philanthropy
While traditional philanthropy donates for immediate relief, venture philanthropy invests in sustainable change. An active, engaged form of giving that prioritizes long-term outcomes and impact measurability over mere financial assistance.
Distinguishing Impact Investing from Venture Philanthropy
While both aim for impact, venture philanthropy is more hands-on and strategic, often involving capacity building. In contrast, impact investing seeks socially beneficial and financially self-sustaining ventures.
The Mechanism of Venture Philanthropy
Venture philanthropy provides financial support, guidance, and tools for measuring the success of promising social projects. This enables donors to achieve their goals and create a significant impact.
The Pillars of Venture Philanthropy
- Strategic Investment: Investors deploy capital to generate returns and drive social advancements.
- Hands-On Engagement: Beyond funds, venture philanthropy provides expertise and resources for organizational growth.
- Performance Tracking: Using data and metrics ensures accountability and guides strategic direction.
- Collaborative Effort: It fosters a synergistic relationship between investors and beneficiaries, leveraging collective strengths.
- Systemic Change: The focus is on initiatives that bring about sector-wide transformation.
Case Studies and Real-World Impact
Real-world applications of venture philanthropy are diverse. The Mulago Foundation invested in rainwater harvesting in Uganda, making clean water more accessible and showing the benefits of this approach.
Challenges and the Future of Venture Philanthropy
The sector faces hurdles such as aligning diverse stakeholder goals and measuring long-term impact. Nevertheless, the future is bright as venture philanthropy continues to refine its models for greater social dividends.
Examples of successful venture philanthropy initiatives
Some examples of successful venture philanthropy initiatives include:
- The Mulago Foundation's Rainwater Harvesting Initiative in Uganda provides access to clean water in rural communities
- The Skoll Foundation invests in groups that support social and environmental sustainability, like the Acumen Fund and Mulago Foundation.
The Omidyar Network invests in organizations promoting economic opportunity and social inclusion, such as Kiva and the Grameen Foundation.
Characteristics of Venture Philanthropy
According to the European Venture Philanthropy Association, this diagram shows different approaches within the general term. Given these varied approaches, defining them in absolute terms can be difficult. We have tried to find shared characteristics in the field, such as the Rockefeller Foundation's report.
Venture Philanthropy Partners
Venture philanthropy aims to maximize impact by working with different entities of various sizes, sectors, and expertise.
As shown in the graphic above, venture philanthropy offers innovative benefits to many public and private stakeholders. Often, these distinct stakeholders work together to help achieve shared impact goals.
Earlier, a UK fund called Impetus partnered with the Charities Aid Foundation. They aimed to support Naz Project London (NPL), a local initiative.
To achieve this, they invested jointly and collaborated closely with NPL. They did this by investing together and working closely with NPL. You can read the case study here.
Venture philanthropy aims to maximize impact by working with different entities of various sizes, sectors, and expertise. They all play a crucial role in venture philanthropy initiatives.
As shown in the graphic above, venture philanthropy brings new advantages to different groups, both public and private. Often, these distinct stakeholders work together to help achieve shared impact goals.
Impetus and Charities Aid Foundation from the UK recently partnered with Naz Project London (NPL), a local initiative. They collaborated by investing together and closely working with NPL. They did this by investing together and working closely with NPL. You can read the case study here.
Venture Philanthropy Models
Different frameworks for venture philanthropy exist, but most are a mix of the current frameworks.
Performance Evaluation Based on Metrics
One method to incorporate impact accountability into an agreement is using a Social Return on Investment (SROI) approach. Used by organizations such as the Robert Enterprise Development Fund (REDF).
By assigning monetary values to the impact generated by an investee, it becomes much easier to assess the performance of an investment. In addition, the rigorous SROI process encourages an evaluative approach in which well-performing interventions can be further grown and underperforming areas re-assessed.
High Engagement
This model is, just as it sounds, characterized by a close relationship between the venture philanthropy organization and its capital recipients. The venture philanthropy organization often has its own growth methodology, which it helps its recipients implement. A board seat is sometimes also part of the equation for more frequent oversight and to ease a more hands-on approach.
New Profit is one example of a venture philanthropy organization that takes such an approach. They actively support service delivery of their recipients' work, focusing on education, economic empowerment, early childhood development, and public health impact areas. They have invested in a high-engagement way in over 500 organizations.
Giving Circles
The essence of this model relies on pooling funds together, whether those funds are pooled by high-net-worth individuals, a group of organizations, or both. This pool of funders decides where and how to allocate that capital.
Social Venture Partners (SVP), founded in 1997, is one well-known example of such an approach. Partner affiliates of SVP, of which there are 40+ today, also play a role in the capacity-building side of venture philanthropy. At the same time, the central office of SVP conducts training on topics like venture philanthropy itself.
Hybrid Models
As mentioned at the outset of this section, venture philanthropy doesn't have to be just one thing. Some organizations take a hybrid approach to their strategy. This could mean leveraging both a nonprofit 501(c)3 structure and a for-profit LLC structure to facilitate the support of such entities. Omidyar Network is one of the most well-known organizations that has adopted this approach.
Another hybrid model leader, the Skoll Foundation, takes a very diversified approach to venture philanthropy through its own Program-related investment strategies and its work to advance the ecosystem of venture philanthropy.
Venture Funding in Impact Markets
The capital market for impact-driven enterprises is not as refined as the market for traditional commercial entities, especially in cases where there is a high expectation of an impact return on the part of the funder.
Many social sector enterprises face great difficulty when attempting to grow exponentially the reach of their impact into new markets. Venture philanthropy aims to fill such gaps in this sector, structuring funding-for-scale opportunities. The following are some of how venture philanthropy aims to act as a catalytic force for the impact sector:
- Identifying systemic change opportunities and the players capable of co-creating that change
- Using innovative funding structures to meet the needs of mission-driven enterprises and other high-risk impact ventures
- Taking a long-term approach to growth capital, allowing investees the time to scale
- Accompanying investees in non-financial ways by supporting capacity building and providing access to other resources essential for growth
- Incentivizing impact performance through clear expectation-setting and successful impact management
Venture Philanthropy Organizations
TONIIC is one of the leading impact investor organizations in the world, promoting the understanding and strengthening of the ecosystem. This report outlines the state of impact investing and venture philanthropy, highlighting its importance for social enterprises in need of early-stage risk capital and capacity-building support.
European Venture Philanthropy Association
Founded in 2004, the EVPA is among the foremost players in venture philanthropy in Europe and the world. They have nearly 300 member communities worldwide, which helps them achieve their mission of maximizing societal impact through increased collaboration and know-how in venture philanthropy. Their website also boasts an extensive repository of resources, tools, reports, and others.
Focused regionally on the Greater Washington Area and improving children's lives, Venture Philanthropy Partners takes a high-engagement approach with its investees.
Their strategy involves four stages: partner identification, engagement, investment, and advising. You can learn more about their approach here and their investments here.
LGT is an independent charitable foundation that works with organizations that are directly contributing to achieving the SDGs. In addition to providing capital, they work with investees to support their growth and viability.
Each organization in its portfolio must meet rigorous criteria, including mission alignment and readiness to scale. You can read more about their investment criteria here.
Road to Impact first
Key to the success of any venture philanthropy effort is the ability to manage the immense amounts of data that flow back and forth between stakeholders, from beneficiaries to investees to the funders themselves.
Impact accountability means not only being able to put in place and agree on an impact measurement plan but also being able to implement it effectively and efficiently. Sopact's cloud-based impact data management platform can help play a role in this ecosystem by managing their data easily and for better results.
From defining a Theory of Change to identifying metrics, analyzing data, and reporting on it, all in one place, the Impact Manager can help scale the impact data management capacity of any organization. Because the venture philanthropy sector tends to be highly collaborative, it is a highly targeted solution for all sector stakeholders. Click below to contact our team of impact experts to start scaling your impact strategy.
High impact Philanthropy
It used to be that wealthy donors happily sent an annual check, trusting charitable organizations to use funds effectively. They want to be more involved and targeted in their giving. Many of them use family office services. Family offices are private wealth management advisory firms that serve ultra-high-net-worth families.
Increased wealth: Over the past 30 years, the wealth within the Forbes top 400 has increased from $125 billion to $2.29 trillion today. According to Forbes, there are ~2,208 billionaires, collectively worth $9.1 trillion. Among them are 259 newcomers who made their fortunes in everything from wedding dresses to children’s toys to electric cars. What is the impact of these new wealth owners on the impact investment space? And who is driving the change?
There are two main currents: Generation and Gender.
Generation: Younger wealth holders are more socially and environmentally conscious. According to the 2014 Deloitte Millennial survey, nearly 30% of Millennials believe the top priority is improving society. They believed businesses could do more to address society’s challenges of resource scarcity (56%), climate change (55%), and income inequality (49%). Nearly 40% of GenX/Y millionaires give more than $30,000 annually to charity versus 6% of the baby boomers.
It is estimated that 98% of the time when the next generation inherits wealth, they switch advisers. • Among the ultra-high-net-worth individuals, a growing percentage are women. By 2030, roughly two-thirds of private wealth in the US will be held by women. Attitude towards investing among female advisers: Female advisers report being more interested than their male counterparts in using sustainable investing funds by 59% to 34%.
This is certainly a welcome change. The families who live together through donor-advised funds want to target those funds to have a measurable social impact. They are becoming 'high impact philanthropists.' How might Donor Advised Funds engage these high-impact philanthropists?
Donor Advised Funds
Donor-advised funds help families or individual donors decide on target areas by asking strategic questions like:
- What is your charitable mission?
- What resources (money, time, skills, assets, etc.) are you contributing?
- Do you want to align or structure your giving toward a particular outcome?
Venture Philanthropy's Role in Effective Charity
Venture philanthropy has redefined charitable efficacy. By aligning resources, expertise, and strategic oversight, it ensures that every dollar invested provides immediate help and fosters an environment where social enterprises can thrive independently.
In sum, venture philanthropy stands at the vanguard of modern philanthropic practices, championing a results-oriented approach that maximizes social return on investment. It invites philanthropists and investors to witness and actively participate in the impactful narrative of social change.
.png)
Resources
.webp)
.webp)
