What Is Venture Philanthropy? (Definition and Examples)

Venture Philanthropy (VP) is a high-engagement and long-term approach whereby an investor for impact supports a social purpose organisation (SPO) to help it maximise its social impact.

The role of venture capital in philanthropy has increased as traditional sources of charity have shrunk and donors increasingly seek greater impact from their donations. Publisher of SSIRs Michael Voss talks with Jim Bildner, CEO of the Draper Richards Kaplan Foundation, and Julia Reed, managing director of relationship management at Schwab Charitable, about the trends and what they mean for giving. A sponsored podcast program created with assistance from Schwab Charitable

The analytical rigor of the for-profit sector is used by donors who engage in venture philanthropy to evaluate the nonprofit organizations they support. It has grown in popularity as more businesses express social concern, traditional funding sources have shrunk, and donors demand greater impact from their donations. Publisher of SSIRs Michael Voss talks with Jim Bildner, CEO of the Draper Richards Kaplan Foundation, and Julia Reed, managing director of relationship management at Schwab Charitable, about the trends and what they mean for giving. The full transcript of the episode can be read below.

Welcome to Giving with Impact, a Stanford Social Innovation Review original podcast series created with funding from Schwab Charitable. [MICHAEL GORDON VOSS] I’m your host, Michael Gordon Voss, publisher of SSIR. This series aims to provide a collaborative forum for influential figures from the philanthropic ecosystem to engage in aspirational and pragmatic discussions about pertinent issues that are essential to achieving more effective philanthropy.

The way philanthropy approaches some of society’s biggest problems has significantly changed over the past ten or so years, and market-based or market-inspired solutions to these problems are becoming more and more popular. At the same time, concepts like shared value, the idea that businesses should prioritize social good over pure financial gain, or impact investing have proliferated. This is partly because traditional funding sources, such as federal funding, are declining, and donors are increasingly demanding greater impact from their charitable donations. Philanthropy and private equity used to be very distant worlds. Today, the idea of venture philanthropy has become more widespread. But how does venture philanthropy operate, how does it compare to more conventional grant-making models, and how can donors adopt a venture philanthropy approach without creating their own foundation?

Draper Richards Kaplan Foundation, a global venture philanthropy organization that supports early-stage, high-impact social enterprises, is led by Jim Bildner. Jim is a well-known lecturer, panelist, and speaker on topics related to nonprofit organizations, social enterprise, capitalization, and the institutional role of philanthropy in addressing difficult societal problems. Jim is a senior research fellow at the Hauser Institute for Civil Society at the Harvard University Center for Public Leadership and an adjunct lecturer in public policy at the Harvard Kennedy School.

Julia Reed is Managing Director, Relationship Management with Schwab Charitable. For more than ten years, Julia has assisted wealth management professionals and their clients with charitable planning, consultation, and resources. She works with the registered independent advisor and family office communities on the West Coast. Regarding all facets of effective philanthropy, including complex assets, legacy planning, and social impact strategy, Julia has in-depth knowledge. In the financial services sector for more than 20 years, Julia has worked on two security exchanges and in private wealth management.

[JULIA REED] Thank you for having me today. The act of identifying your philanthropic asset—the money you invest in charities—is known as venture philanthropy. Based on their performance, their social responsibility strategy, or your own values and risk tolerance, you as an investor might look for securities or businesses that you think present good opportunities. You choose not-for-profit organizations as a venture philanthropist based on the rigor, impact, or potential impact that an organization has as a metric of its performance. The primary performance metric for charitable giving in this context is the impact your donations will have on the beneficiaries, so the term “venture” really refers to charitable giving as an investment.

In terms of where venture philanthropy fits in the landscape. I believe that each of us needs a different portion of that pie, just like a well-balanced investment portfolio. The greatest risk associated with charitable giving, however, is giving to a social entrepreneur or not-for-profit that doesn’t have the impact you anticipate. With the help of a social venture fund, you can spread your charitable contributions among a variety of thoroughly vetted not-for-profit organizations. You can also contribute to the impact of a fund by making a tax-deductible grant payable to the fund, for instance.

[JIM BILDNER] Sure. In response to Julia’s comment, let me say that Bill Draper, a venture capital legend, and Robin Richards, now known as Robin Richards Donohoe, founded us in 2002. They had just closed one of their most lucrative funds when they realized they had a great chance to use the discipline they had acquired in venture capital in the social sector. The DRK model, which is still in use today, was founded on that kind of discipline, thorough due diligence before an investment, and the notion of accepting a board seat, similar to what a venture capitalist would do for a for-profit organization.

And currently, the foundation is primarily focused on six things. One, given the amount of capital at our disposal, we really are attempting to advance complex societal issues, such as access to food and water, homelessness, education, and healthcare, as well as the most pressing problems facing society at large. Currently, 50% of our portfolio is domestic, and 50% is international. We are therefore seeking solutions to extremely complex societal problems, and we typically discover them in early-stage entrepreneurs, typically teams. As we evaluate them, we also evaluate the problem at hand—do they truly comprehend the ecosystem that surrounds the issue they’re attempting to solve?—as well as their proposed solution.

Of course, there are also management issues and these leaders’ skill sets to consider. And today, we invest more in teams of two than in individuals because it is extremely difficult to find an individual with both operating skills and deep domain knowledge.

Then, as the core of venture philanthropy, we look for replication. This idea that scaling up solutions is necessary for them to have a significant impact We are therefore still investigating the potential of these organizations. Remember, we’re early stage investors, so our investments are typically less than a million dollars in resources and less than four years old. Nevertheless, we need to be fairly certain that when we make this investment, nearly 80% of everything we invest in will eventually have a direct impact on 10,000 or more lives. We’ve been doing this for 17 years, and I’m happy to say that we’ve just made our 168th investment—about 105 of which were made in the previous four and a half years.

Additionally, we evaluate each and every organization in our portfolio that we have invested in annually. And as of a month ago, roughly half of the entire portfolio was directly affecting 10,000 or more lives, roughly a third was directly affecting 50,000 or more lives, roughly a quarter was directly affecting 500,000 or more lives, and 18 of our organizations were directly affecting millions of lives. Additionally, as those who receive our annual report will notice, the headline for this year’s report is “150 million lives,” which represents the impact of all of our portfolio companies over this time period.

And the idea that we can work with exceptional leaders who can have that kind of an impact on the world and apply early stage capital and board service is just a privilege for us. And since social impact is everything to us, that is fundamentally how impact investing and venture philanthropy are defined. And I’m happy to report that the portfolio, as well as the organizations delivering it, have really risen to the occasion.

So, Jim, let’s have a brief discussion about those organizations. You’ve talked about the expansion and impact of the portfolio, and it’s true that changing 150 million lives has a significant impact. However, how do you locate these social enterprises and the leaders who run them, these social entrepreneurs, and how does DRK support them in their initial stages?

Our pipeline, or the total pool of the organizations we’re looking at, is at an all-time high. We’ll receive a record 1,100 applications this year, but we’ll only fund 22 of them. And the good news is that there is an incredible force fighting those challenges in the pipeline opportunity, which is in response to the challenges that the world faces.

And in terms of the organizations we’ve backed, you know, just in the Bay Area, we have Education Super Highway, which has connected nearly 49 million students to broadband in the past nine years while also leveraging close to $3 billion in federal funding and combining 60 million in raised capital. With its capacity, Crisis Text Line, which has already processed more than 130 million text messages from teenagers in need, hopes to eventually reach over 35% of the world’s population. Additionally, we provided early funding for organizations like Kiva, A Room to Read, One Acre Fund, and the list goes on and on.

[JR] Sure. In the United States, donor-advised funds are the vehicle with the fastest growth. However, I believe that any plan giving vehicles, including private foundations, donor-advised funds, and private equity funds, are excellent for maximizing the potential of a complex gift of stock or real estate. Once you contribute, it sort of unlocks this cash gift that you can eventually give to charities.

Going back to donor-advised funds, specifically the vehicle, it makes it much simpler to transfer non-cash gift proceeds to 501(c)(3) organizations that our donors care about and use them for a charitable endeavor or social cause. Increasingly, our donors are making impact investments with the charitable assets in their donor-advised funds before making a gift and pursuing that cause or those causes further through grantmaking. And the Draper Richards Kaplan Foundation, which provides grants, enables them to make an impact investment while introducing them to outstanding new businesses and entrepreneurs that they might not have otherwise encountered.

[JB] And there’s a real opportunity here. So far, we have nearly 70 donor partners, including family foundations, individuals, and large institutions. They all have something in common, whether they are the CEO of some of the largest foundations in the world or a person who has committed a DAF and is attempting to understand the tradecraft, such as how to have impact, in that they all benefit from learning from one another by coming together as members of a community. They can therefore interact with our entrepreneurs, hear from them, and pick up lessons from their experiences. It’s also the ideal median for them, their kids, and anyone else in their family who wants exposure. And I believe that they were extremely pleased with Schwab’s commitment to us.

And it provides an answer to what is likely the most important question for us: how can we increase engagement in this work for the benefit of all of our portfolio companies, not just DRK, as they frequently claim (as they did last week)? (These companies have since raised $50-, $60 million.) The hardest capital to come by is the first million, is the second million dollars.

And also the board service. You know, among the managing director team’s members are former US attorneys, national and international health experts, education specialists, a former LA Times deputy publisher, and the director of Harvard’s Shorenstein Center, a digital expert. And those individuals are those who are participating in these early stage boards. And you can imagine the amount of capacity that those organizations gain from that. So the DAF holder essentially receives a team of 35 people working on their behalf to increase their philanthropic capital by being able to participate with us. Because this new generation of philanthropists is also attempting to understand impact investing, we have a number of second and third generations participating with us. So it’s a catalytic accelerator and that’s really the beauty.

[JR] And there’s not just demand from the entrepreneurs. There’s demand from our donors. The sheer number of non-profit organizations that are available to fund them is so overwhelming. They may already support certain causes regularly through donor-advised funds or in other ways, but they also have the capacity to learn about new organizations and causes. Additionally, they may want to involve their family members in their philanthropy but are unsure of how to do so.

[MGV] You know, I think what both of you have said really plays well with some data that we’ve seen that shows donors want to feel like they’re providing meaningful support, not just money, when they invest more and more. Therefore, I want to thank you both for responding to what I think would have been my next question to you.

So let me change tracks a little bit. Jim, before you talked about lessons to be learned, you gave some wonderful examples of organizations from DRK that had achieved great success. Any additional lessons, perhaps from things that didn’t quite work out the way the organization had hoped or planned?

[JB] The most important lesson is how difficult the work is, which we discover every day. Again, think about what these folks are doing. They are therefore tackling a challenging issue with numerous co-dependencies that lead to the causation that affects and restricts vulnerable populations. So that’s the problem set. And they are a small organization in the early stages with few resources trying to demonstrate… we are in the post-pilot, pre-scale phase trying to demonstrate that the solution they have developed is scalable. Additionally, just because someone is working toward a social cause doesn’t shield them from having to manage an organization as it grows. Therefore, whether a company is for-profit or nonprofit, it must still find and keep exceptional talent, execute plans, pay employees, and have a budget, a strategy, and the ability to interpret financial statements. This must be done in some of the world’s most challenging environments. That is the biggest lesson.

And so, you know, by assigning our managing directors to these startup companies, we automatically give each of our entrepreneurial leaders a contact they can rely on day and night. We also have two other types of bookends, which is another aspect of our model that may not be as obvious to people. Number one, we never reinvest. So we make a single investment of 300,000. 100,000 per year for three years if it’s a non-profit. On the same terms as all other angel investors, if it’s a for-profit, it’s typically done in two tranches of 150,000, so converts or safe stocks But because we never reinvest, the incentive structure for our entrepreneurs is always to come to us first. And since they aren’t applying for funding from us and aren’t attending auditions, we learn about any bad news first.

The fact that we serve on these boards for three years is another factor. So we’re not kidding around. We do a lot of due diligence to determine what we need to accomplish in those three years, and one aspect of that is to check with the other board members of the organizations we’re considering joining to make sure they’re on board and aware that they’re getting more than just a board member; they’re getting an operating partner.

And part of the secret sauce that has enabled us to make an impact is that synergy and alignment of interests. And without it, it’s very hard to achieve this. We bring together the board chairs of our organizations and their executives every September. We had about 40 of them together this year, and for many of them, it was their first time meeting other board chairs. Therefore, regardless of what else happened, 20 board chairs of early-stage organizations were able to gather as a peer group to share experiences. It was also a great chance for us to emphasize to them how crucial they are to our work. And when you consider the 168 portfolio organizations, our donor partners, or our board chairs, and multiply those numbers by the number of current and former board members as well as the newest board members, you begin to reach thousands of individuals who are highly motivated and committed. And that’s a strong lesson for us: you’re not alone, even though there aren’t many organizations like us. There are… a group of people who have joined this platform as both donors and doers.

[MGV] And, Jim, I just want to echo that. You know, we were just talking about how management accountability and/or management’s responsibility are crucial for nonprofit organizations and social enterprises alike, just as they are in the for-profit sector. That was a contributing factor in the initial development of SSIR. Therefore, it goes without saying that we commend you for choosing to work with a partner organization.

[JR] Well, I believe some things are already taking place, and I can speak from experience in the donor-advised funds space, that high net worth philanthropy, planned giving, and strategic philanthropy, in general, has really moved away from more of a transactional relationship with a charity for the donor and more toward an interaction that takes place over time. Additionally, it has more emotional energy than I recall seeing ten to fifteen years ago.

We see families and donors wanting to spend time with a non-profit organization before making any kind of financial commitment, especially with the next generation. There are usually some criteria we’ll run into when they do decide to apply for a grant. Even if it’s just a simple annual report or a grant agreement with several years of very specific reporting requirements from the non-profit,

Therefore, I believe it has raised the bar for us as a charity, for the operating charities that our donors support and for the recipient charities, as well as for other donors who are holding their counterparts accountable to also demand documented impact from the charities that they support. And I believe that will continue to motivate impact investing and strategic philanthropy because people want to align their values and see outcomes that can be well-documented over time.

[JB] I don’t think it’s shocking; it’s a result of the times we’re in right now. Every generation seems to think of itself as special, but it’s obvious that the problems we face are universal in nature. Whether it’s systemic poverty or inequity or climate change, all of these issues seem to be having an increasingly negative impact. I notice that donors are impatient, and it’s a really good impatience.

And once more, bravo to Schwab for seizing this chance and making it accessible to their customers. The donor partners we have and those we communicate with frequently, you know, reflect the urgency that we don’t have a limitless amount of time to solve this. Additionally, there is a genuine affiliation with the work that goes beyond, you know, some sort of self-gratification Our collaborators’ and our donor partners’ ethos is centered on serving others. This idea that dedicating oneself to helping others is worthwhile in and of itself, in my opinion, is what’s fueling a new intentionality.

It’s not impact for impact’s sake. I think, you know, philanthropy has gone through that routine. It’s a very different paradigm from what we’ve seen in the past; now it’s really about applied impact; it’s about understanding, okay, what are you trying to do and what are the measurements that you think are going to be useful so that I can understand how I can help you.

Well, that… that sense of practical significance, that sense of urgency I really like the way you put it: “positive impatience among donors.” It relates to what Jeff Raikes, who I know you are familiar with, said in one of our podcasts and basically summed up as “give smart, give now.” ’.

We could certainly spend hours discussing this subject, but, as much as I’d like to, our time has run out. So, Jim, Julia, thank you, both, for your time today. I hope our conversation has inspired more donors to look into alternative giving strategies and adopt even more stringent philanthropic practices.

[MGV] Thank you for listening. We hope you’ve enjoyed this episode. As it helps other people find the show, please think about leaving us a review on Apple Podcast or your preferred listening app. We recommend that you check out the remaining installments in this series as well as the podcasts produced by SSIR, Schwab Charitable, and Charles Schwab. This podcast series is made possible thanks to Schwab Charitable, which was instrumental in determining the subjects and speakers. Visit ssir for pertinent information and a transcript of this episode. org/givingpodcast.

simpleshow explains Venture Philanthropy

What is the value of venture philanthropy?

The concept behind venture philanthropy was that it can be challenging to raise money for charitable causes. Venture philanthropy offers many benefits, including:

What is venture philanthropy?

The practice of directing conventional venture capital funding toward a charitable goal is known as venture philanthropy. It involves using resources from a business to establish a nonprofit organization that promotes a cause. The main objective of venture philanthropy is to have a positive social impact rather than to make a profit. For instance, reducing hunger or supporting a project to study a widespread illness

Examples of venture philanthropy

Venture philanthropy can take different forms, including:

A venture philanthropy organization could be a charity, a for-profit company, or even a company with a strong social mission that donates a portion of its earnings.

How does venture philanthropy work?

When investors devote their time and resources to a project intended to bring about social change, venture philanthropy succeeds. Venture philanthropy is made up of three practices:

1. Customized financing

Venture philanthropists frequently have the resources or financial know-how to support a charitable mission. They could finance it by borrowing money, reallocating existing resources, or securing financial grants. Investors have the option of reinvesting any profits back into the business. A philanthropist’s choice of financing strategy is influenced by the resources they have available and the amount of risk they are willing to take.

Venture philanthropists often take a blended approach to funding. Long-term funding for the mission is made possible by investors who combine the use of loans or grants with investments that generate returns.

2. Nonfinancial support

Non-financial support is the type of assistance that an investor provides to a venture fund that is not financial. This may include consulting, coaching or helping with fundraising efforts. Additionally, it frequently entails the collaborative allocation of resources, which occurs when a sizable group of team members pool their resources and expertise to support the philanthropy. This may include stakeholders, public members or private investors. An important aspect of venture philanthropy is the variety of resources and skills that each member contributes to the mission.

3. Impact measurement and management

The measurement and observation of social change involves investors as well. They frequently examine information from the ventures board and suggest modifications to maximize social outcomes. An essential component of venture philanthropy is impact accountability, which involves managing data and resources and allocating them to the necessary models for social change.

Venture philanthropy models

A variety of philanthropists may opt for different frameworks to direct their business choices. A few of the most common venture philanthropy models include:

Performance evaluation

In a performance evaluation model, the primary goal is metrics. Investors use a social return on investment (SROI), a measurement tool that determines the financial and environmental benefits of a particular course of action. In this process, social changes brought about by the venture group’s efforts are given monetary values. This aids investors in assigning values to the various tasks they complete. Additionally, it enables them to reallocate resources to tasks that produce better results and determine which efforts should be continued and which should be abandoned.

High engagement

A venture philanthropy group has close relationships with its group members when it uses high engagement models. Each venture capitalist who contributes to the group actively participates in decision-making and day-to-day business operations. It may be established by the venture philanthropy group so that each capital investor has access to a board seat.

Giving circles

Giving circles are formed when many investors pool their funds or resources to support social needs and objectives. The primary decision-makers on where and how to allocate the funds are frequently the contributors. Unlike a model with high engagement, some investors might decide to support philanthropy while participating less in day-to-day activities than others.

Hybrid models

A method that combines several models is referred to as a hybrid model. For instance, a group might employ the giving circle model, in which all investors pool money but only a select few participate in the philanthropy’s decision-making. A framework that incorporates elements of the performance evaluation model and high engagement could be used by another group.

Special considerations of venture philanthropy

Additional information on venture philanthropy is provided below:

Resources are important to the success of the philanthropy

Venture philanthropy emphasizes financial contributions, but combining resources is also necessary for effective social change. Investors or board members are frequently used by venture philanthropies to help with planning, budgeting, hiring, and training. Some funds may employ full-time employees, such as project managers or members of the administrative team, but they still rely on some investors’ active participation.

Venture philanthropies involve some degree of risk

Furthermore, it is crucial to remember that venture philanthropies carry risk, just like any other type of business or endeavor. While making a profit isn’t the main objective of venture philanthropy, it frequently needs to do so in order to fund the organization’s activities. Investors typically understand that taking part in venture philanthropy involves some risk.

Organization is an important part of a venture philanthropy

The management of available resources can be another issue that venture philanthropists frequently encounter. Many different types of investors, including important decision-makers from large organizations, participate in venture philanthropy. It can be difficult to agree on the kinds of initiatives to fund, in addition to learning how to use everyone’s unique skills to the best advantage.

FAQ

What is the meaning of venture philanthropy?

The act of identifying your philanthropic asset—the money you invest in charities—is known as venture philanthropy. Based on their performance, their social responsibility strategy, or your own values and risk tolerance, you as an investor might look for securities or businesses that you think present good opportunities.

What is venture philanthropy examples?

Examples of venture philanthropy Creating a private foundation. Funding college or university grants. Encouraging other large businesses to contribute to the charity. creating a business plan that benefits others and makes money

What is the difference between philanthropy and impact investing?

While impact investing has a wider scope of social and environmental causes, venture philanthropy focuses specifically on social causes. Both generally seek to make a profit while also making the world a better place, but not all investments bring in a profit.

What are the types of philanthropy?

With the emerging forms of exchanging money comes many types of philanthropy you may not know about.
  • Donor Fund. …
  • Check Book. …
  • Partner Group. …
  • Stand Alone. …
  • Support Grants. …
  • Competition Prizes. …
  • Novel Institutions. …
  • Pool Money.

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