Venture philanthropy

This has been termed a 'movement' and is variously called or is related to "social entrepreneurism," "strategic philanthropy," "social venture philanthropy", "the new philanthropy," "social venturing" or "e-philanthropy" and other terms. Generally these moves claim adopted techniques (and the influenced of) the activities of venture capital firms in the 1990s. The argument is, mainly, that a deeper interaction between giver and recipient is engendered alongside an emphasis on measurable results. The terms mostly abounds in today’s discussions, among professionals involved in the high-tech, venture capital and foundation worlds. Below we will refer to the use of venture capital practices by foundations as "venture philanthropy" (VP).

There is plenty of debate over questions as to its efficacy and, as of yet, not much academic research.

The annual survey of Venture Philanthropy Partners, a Washington, D.C., foundation that supports programs for children, finds that:

"A few years ago, the concepts of venture philanthropy and high-engagement grant making were overinflated, with airy promises to transform philanthropy as we know it," the study concluded. "Today, we can see their progress toward that promise is real but not yet revolutionary."

Writers such as Thomas J. Donaldson have traced the movement to the moves 20 years ago to get American companies to divest themselves of stocks in companies with interests in South Africa. Now, socially conscious investment philosophy has gone mainstream, with one out of every six to nine investment dollars in the U.S. subject to some kind of social or ethical criteria. Its roots are also traced back to a 1997 Harvard Business Review article, "Virtuous Capital: What Foundations Can Learn from Venture Capital," by academics Christine Letts, William Dyer and Allen Grossman. This states:

U.S. foundations and nonprofits work diligently on behalf of society's most needy and yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support, and stay involved long enough to see the company become strong.

Mark Kramer, founder of the Center for Effective Philanthropy characterizes venture philanthropy as a fad underwritten by venture capitalists who got rich in the stock bubble of the 1990s and blithely assumed that they could transfer their skills to a field in which they had no experience. "Young entrepreneurs became our heroes, and we hailed a new breed of 'social entrepreneurs' to bring the magic of this success to charities and foundations," he says. As it turned out, it was a market bubble that made these people look good, and few were really the geniuses they appeared to be.

Assessing Venture Philanthropy

Assessments of VP ^[1] note that even with well-crafted, innovative programs, foundations are finding that the social impacts they desire are not being realized. Reduced government spending caused some foundations (traditionally, 'the research and development arm of society') to re-evaluate their grantmaking strategy. Objections are made to the appropriate deployment of the analogy between venture capital on the grounds that venture capital practices are not consistent with the social sector's core values.

Bruce Sievers contends that the venture capital world is different in many important ways from the philanthropic world, and consequently lessons are not transferable. In regards to the call for more active, venture capitalist-like involvement in the management of nonprofits, Sievers writes:

"As the nonprofit organization has evolved in America, it [has] emerged as the independent voice of society…[to] defend against both the state and the for profit sector…For this reason, the involvement of a foundation in the internal workings of an organization…is inappropriate." In addition, Elizabeth Locke and David Roberson of The Duke Endowment take issue with the contention that foundations can take more risks. They maintain, "the venture capitalist's risk-management controls are poorly suited to the entirely different reward system of the foundation world." ^[2]

Collins makes the general conclusion could be research confirms that venture philanthropy is not reasonable for every foundation. It is also of note that VP is currently a small share of all giving, but it is a significant trend. It is postulated that the growth of social entrepreneurs is the most important reason for adopting the venture philanthropy approach. What is potentially of significance is VP's use as Corporate Social Responsibility and as a disguised vehicle for Lobbying government.

European Venture Philanthropy Association

The European Venture Philanthropy Association was set up in 2004 funded by Private Equity companies: Barclays Private Equity Limited, 3i, KPMG and LLP with Hill & Knowlton as 'Communications Partner.'

Notes

^ Collins, M. (1998) Assessing Venture Philanthropy , Harvard Business School

^ ibid.