The Venture Philanthropy Phenomenon
by Vic WIens
Venture philanthropy has become a buzz term in the non-profit sector in the last decade. The term was coined in 1984 by the Peninsula Community Foundation in San Matao, California. However, it gained popularity as a result of a very influential article in the Harvard Business Review entitled “Virtuous Capital: What Foundations Can Learn from Venture Capitalists”(March-April edition 1997).
Lee Davis and Nicole Etchart provide the following summary of the principles of venture philanthropy in an excellent article at www.changemakers.net.
Some of the key distinguishing characteristics of the venture philanthropy approach versus “classical philanthropy” include:
- Multi-year financing: venture philanthropists provide longer-term, multi-year (and perhaps also larger scale) investments in nonprofits as opposed to single-year grant awards;
- Tailored financing: venture philanthropists use an “investment approach” (versus a “grantmaking approach”) to determine not only the amount and duration of financial support, but the type of financing most appropriate for the nonprofit’s needs (i.e., making available an array of financing instruments rather than depending solely on grants/subsides);
- “Engaged” philanthropy: venture philanthropists provide more than simply financial resources to nonprofits. These non-financial “investments” can include: a position on the nonprofit board to assist with organizational development overall; and/or other types of capacity-building, coaching/mentoring, or technical assistance to the nonprofit.
- Organizational focus: venture philanthropists focus their strategy of support on the overall organizational health of nonprofits rather than on individual projects or programs;
- Shared risk: venture philanthropists may encourage innovation and new ideas just as classical philanthropists, but take an invested role in attempting to realize success rather than placing the burden of success (and risk of failure) on the nonprofit;
- Measurable performance: venture philanthropists seek measurable results and impact and hold the nonprofits they support to agreed-upon benchmarks for success (and also seek more regular and specific progress reports as opposed to narrative/financial reports at the end of a grant term);
- Exit strategy: venture philanthropists define clear exit strategies for disengaging from the nonprofits they support once agreed-upon benchmarks are achieved (or when the nonprofit consistently fails to meet agreed-upon performance benchmarks) or when they are no longer able to “add value” (i.e., the nonprofit outgrows the type of support provided).
Excerpted from Not Only For Profit: Innovative mechanisms for Philanthropic Investment (forthcoming from NESsT, September 2001)
Venture philanthropists are making very significant funds available to the non-profit sector. On the other hand, the for-profit corporate investors that are providing the funds, also have expectations that the receiving non-profits will be run in a business-like manner. Funds are often not released until the venture philanthropists are satisfied that the necessary changes are being made, or that they will have the power to make the changes.
Many of my own successes in dealing with major business donors have come from “learning the lingo” of the business community. A number of the camps and Christian schools I worked with in my early years were heavily supported by such donors. As a result, I focused much of my research in my Masters in Educational Administration program on learning the entrepreneurial side to leading non-profit organizations. I have found that venture philanthropists gravitate to people who understand sound entrepreneurial principles.
Non-profit organizations need to have people, either from within the organization, or consultants from the outside, who understand both the business and non-profit side of the equation. One of my goals in starting Vic Wiens Consulting was to train people inside non-profit organizations to understand both sides of the equation. There are many people in non-profit organizations who understand one side or the other. As key leaders gain an understanding of both the non-profit and entrepreneurial side of the equation we will be in an excellent position to gain substantial support from venture philanthropists.
