What Is Venture Philanthropy?
Let me explain venture philanthropy directly to you: it's when we take the principles of traditional venture capital financing and apply or redirect them to achieve philanthropic goals. You'll often see this in the context of charitable startups, green companies, or B corporations, because the venture capitalists funding these have the most experience in those areas.
Key Takeaways
Venture capitalists sometimes channel their resources into philanthropic efforts, and that's what we call venture philanthropy. These investors are ideally positioned to drive and inspire change, since shifting their systems from pure capitalist pursuits to philanthropic ones is straightforward. Beyond just investing money, these philanthropists might provide support through executive coaching or board management.
Understanding Venture Philanthropy
Venture philanthropy applies most of the same principles as venture capital funding to invest in startup, growth, or risk-taking social ventures. It's not about profit; instead, it focuses on investments that promote social good, similar to socially responsible investments that meet environmental, social, and governance criteria. This term serves as an umbrella for various philanthropic investing types, but remember, it's distinct from impact investing, which emphasizes profit alongside social concerns.
What characterizes venture philanthropy is the high level of investor oversight and engagement, plus financing plans customized to an organization's capacity-building needs. Major donors often join the boards of supported organizations and get deeply involved in operations or management.
Important Aspects
Venture philanthropy ventures typically focus on building capital and scale.
Other Considerations
These venture capitalists also offer non-financial support, such as executive advice, marketing initiatives through their platforms, and performance measurement. Strategically, these practices come from successful venture capital models, but they evaluate success based on social impact, not just economic profit.
This investment takes many forms, including private foundations from wealthy individuals like the Bill & Melinda Gates Foundation, government or university grants for philanthropic purposes, investing arms of major institutions, or charities seeking large donations. In the United States, most of this is grant-based, involving selective multi-year grants that foster innovation through high competition.
Origins of Venture Philanthropy
The term 'venture philanthropy' is often credited to John D. Rockefeller III in 1969, who called it an adventurous approach to funding unpopular social causes. The Rockefeller Foundation continues as a key player in socially attuned investing. This approach emerged because traditional financing like investments or grants rarely helped non-profits or socially beneficial industries build capital.
Venture philanthropy grew as public concern over climate change and environmental issues increased. However, it's showing signs of losing ground to impact investing, which balances profit with social responsibility. Mechanisms like cap-and-trade carbon markets or subsidies for sustainable businesses try to connect market profit drives with philanthropic social concerns.
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