by Steve Dawson
Venture philanthropy is an active approach to philanthropy, which involves giving skills as well as money to high-potential charities and social enterprises in order to dramatically increase the number of people they are able to help. It applies the principles of venture capital to organisations in the social sector, with the aim of a social, rather than a financial, return.
The most effective form of venture philanthropy provides:
Strategic funding - long-term core funding so charities can build their capacity; this funding is linked to the organisation meeting pre-agreed milestones, which are tracked on a quarterly basis
Hands-on management support
- The “secret ingredient” of the venture philanthropy model is the hands-on management support given to the chief executive and senior management of the charity by experienced investment directors.
Specialist expertise – provided by a pool of experts who volunteer their skills on specific, mutually agreed projects to accelerate the growth of the charities.
Venture philanthropy grew out of a desire to maximise the impact of funding given to charities. In the 1990s there was a growing school of thought that the most common form of funding given to charities - grants for particular projects - did not result in the greatest long-term social impact, as it didn't allow charities with great models to invest in their infrastructure and so expand sustainably.
People started to look for solutions to this problem, and they turned to venture capital because of the track record of this sector in growing companies.
A seminal article appeared in the Harvard Business Review in 1997, called: "Virtuous Capital: What Foundations Can Learn from Venture Capital," that argued that donors and grant makers did not place enough importance on building the capacity of the organisations they funded, as most funding went to projects. It was proposed that rather than just giving funding, there could be huge benefits from a more integrated approach, including tailored expertise and management support, alongside core funding, to help a charity reach specific growth targets.
These ideas were taken on board by a number of individuals, and in the late 1990s a few US organisations began to put this “venture philanthropy” approach into practice.
It quickly proved to be hugely effective, and the movement spread to other countries. Impetus Trust was founded in 2002, as the first venture philanthropy organisation in the UK, and momentum of venture philanthropy is quickly spreading worldwide.
Investing in venture philanthropy is intelligent giving, for several reasons. Savvy funders like that their donations will:
have a long-term impact
be multiplied in value, as they will be matched with co-investment and pro bono expertise
fund charities that are proven to be effective
treat the root causes of disadvantage
yield measurable results.
Venture philanthropy is also great for funders who want to get involved and see at first hand the direct impact of their donations. Many of our funders share their skills and experience with our portfolio charities, and venture philanthropy organisations are adept at managing this interaction to ensure maximum value to the charity and a satisfying experience for the funder.