Venture Philanthropy

Venture Philanthropy Aspects by Wendy Kohli

In the four decades of philanthropy that have paralleled my business career, I’ve found that the same principles apply whether you’re providing access to capital to grow a business, creating a new paradigm for medical research, or pioneering innovative approaches to education: Empower the most talented people in each field and encourage them to pursue their passions.
Michael Milken

Philanthrocapitalism or venture philanthropy is the latest trend in philanthropy. It takes its concepts from venture capital financing and hi-tech business management, in order to accomplish philanthropic objectives.

In other words, venture philanthropy is a new kind of philanthropic activity where venture capital models are applied into the charitable and non-profit sectors.

A new and exciting development in the field of philanthropy is what is known as Philanthrocapitalism.

In its most basic form, Philanthrocapitalism (also known as Venture philanthropy) is the amalgam of the best facets of venture capital financing and high-tech business management, in order to provide the best, most cost-effective and value-driven solutions to philanthropic aims, as well as tackling fundamental social and environmental issues.

In keeping with the broad tenets of Venture capitalism, Philanthrocapitalism is based on the following benchmark standards:

A clear focus on measurable results, with in-depth assessment progress based on mutually determined benchmarks and building solid foundation to grow the capacity of what can be achieved over the long term. In short, a willingness to do good together with a careful eye on the bottom-line.

The willingness to provide the necessary financial, intellectual, and human capital (as opposed to just signing a check and hoping for the best). This includes a high level of donor participation, whereby donors will often join the board of the not-for-profit organizations they’re funding.

A long-term strategically organized funding program (anything from 3-7 years – or more…) with the sharing of business and soft skills in the non-profit sector.

This includes the key criteria of better risk management, a highly-developed proactive fundraising structure (as opposed to traditional models which wait for large legacies from wills) plus an efficient, self-sustaining infrastructures and increase capacity to deliver effective support to those who need it most.

Notwithstanding, these three main elements of venture philanthropy–building operating capacity, the formation of tight working relationships between philanthrocapitalists and the recipients of their wealth, and performance expectations are hardly new.

But philanthrocapitalism is no mere flash in the pan. The willingness, expertise and financial backing are present, and look set to transform this already highly-developed sector, the overall goal being a deeper interaction between giver and recipient and an emphasis on measurable results.

1) Take, for example, what is generally recognized as the “standard bearer” of this form of philanthropy, namely The Bill And Melinda Gates Foundation, which has over $74 billion of assets (over half of which is comprised of the donation by legendary investment fund expert Warren Buffett. These funds make it the largest charitable foundation in the world.

2) Pierre Omidyar, founder of eBay, uses a similar model to achieve his charitable aims by launching the Omidyar Network in 2004, which they call a “mission-based investment group”. This group they funds both conventional for-profits and non-profit organizations which “promote equal access to information, tools and opportunities; connections around shared interests; and a sense of ownership for participants.”

Another well-publicized example of philanthrocapitalism in action is the Hot Fudge Social Venture Fund, a community development venture capital fund created by Ben Cohen, co-founder of Ben & Jerry’s Ice Cream. The fund provided both capital and management expertise to help launch Los Angeles-based TeamX, a producer of SweatX brand apparel.

But in spite of the big players in this new funding arena, is philanthrocapitalism merely a slight variant on an already-existing model? The experts would seem to agree, albeit with a cautious “yes”.

With the growth of global awareness of social and environmental concerns, and socially conscious mutual funds based on religious, ethical and “green” beliefs, the foundations are already in place for this ‘proactive philanthropy’ to gain a greater place in the public consciousness, as well as help those who most need assistance.