Venture Philanthropy Offers an Entrepreneurial Approach to Giving

My posts often comment on the tendency of many business people to manage their personal financial situations with considerably less rigor than they do their businesses.

web-3244-1013-B0675.jpgHowever, there is one area of personal finance in which business people are known to use their business skills quite powerfully – charitable giving.

Ever since the days of Carnegie and Rockefeller, this country’s leading business executives have impacted the communities and causes they care about through charitable giving. Nowadays, Ted Turner, Bill Gates, and George Soros are some of the most visible businessmen carrying on this tradition, dedicating huge sums of money to advance their vision of a better world.

But thanks to an emerging trend, one doesn’t have to give millions away to have a big impact through charitable giving. This trend, which is sometimes called “venture philanthropy”, applies an entrepreneurial approach to giving. Like venture capital investing, it presents the possibility of very high return on investment; it also, however, is harder to do, and presents more risk.

Historically, most charitable giving has been responsive – supporting ongoing operations or specific campaigns of large institutions and organizations. This approach not only provides donors with an easy way to help the communities and causes they care about; it also provides sorely needed flexible funds to well-established nonprofit groups.

This responsive approach to charitable giving is vitally important. Much of what makes our communities worth living in depends on the ability of educational, religious, social service, and arts organizations to have stable support from their donors. To carry the business analogy further, these organizations represent the “blue chip” organizations that provide our civic life with much needed stability.

But just as every industry sector needs innovation to maintain its relevance and competitiveness, so does the nonprofit sector – and this is where venture philanthropy becomes important.

Whether supporting the formation of new organizations, or encouraging existing groups to take on previously unspecified challenges, venture philanthropists are less interested in supporting existing programs than they are in generating new action to address a particular interest of theirs.

For accomplished business people, the emotional appeal of this type of giving can be quite powerful. Having achieved financial success making their own way in the business world, they can find psychological, spiritual, and/or existential satisfaction applying their entrepreneurial energies toward whatever civic concerns move them.

Another appeal of venture philanthropy is that it can produce more impact per charitable dollar. Venture philanthropists typically provide only a portion of the funds needed to tackle their particular area of interest. Instead of providing all the money, they look to condition their contribution on “leveraging” other people to invest money and time in their charitable cause.

Venture philanthropy is not, however, for people who want quick results. Like any entrepreneurial project, venture philanthropy requires more attention than more traditional charitable giving.

It also requires patience and humility – innovative charitable initiatives can be undermined when a well-meaning donor naively underestimates the challenges involved, or tries to micro-manage the reform process.

Indeed, once a person has identified an area of interest they want to impact through their charitable giving, one of the first steps is to look for sources of help. Typically, this involves having conversations with people who have wisdom, money, and time that could be contributed to the cause – not unlike what most of us have done to get our businesses started in the first place.

Venture philanthropy is not limited to the exceptionally wealthy. For instance, people with ambitious philanthropic objectives who have only tens of thousands of dollars to invest in charitable purposes, can partner with “community foundations” that can serve as important allies and sources of support to venture philanthropists.

Some of these foundations engage in venture philanthropy of their own. For instance, in my town the local community foundation has started supplementing its traditional grant-making with its own community development initiatives, leveraging substantial support from community groups and other funders.

Generally, the more ambitious the project, the greater the need for help to make it happen. This may not be attractive for some donors known for their “take charge” entrepreneurial style. However, I see the need for such help as yet another form of “leverage”, which is one of the most appealing aspects of venture philanthropy.

Indeed, I have observed that the most reliable way to advance an ambitious business agenda is to recruit talented and committed people to join in the cause. As with other matters of personal finance, it should be no surprise that this business practice is relevant in the domain of ambitious philanthropy as well.