Venture Philanthropy: Origin, Ecosystem, Examples, Models, & Benefits

Most people think philanthropy is just donating to charities. 

However, traditional charity often focuses on providing immediate relief, which may not address long-term challenges. Many charitable contributions lack the necessary strategic planning or resources to drive sustainable change, leaving communities without the tools to overcome systemic issues.

On the other hand, venture philanthropy combines financial support with mentorship and focuses on measurable outcomes, driving lasting social impact.

Let’s dive into the details of venture philanthropy. 

What is Venture Philanthropy?

Venture philanthropy is a modern approach to giving that began in the 1990s. It combines the concept of investing money to make a positive impact on society. 

Like philanthropic venture capital, it provides financial support to organizations but goes further by also offering tips, guidance, and advice. This hands-on approach helps philanthropic organizations achieve their goals and create lasting, meaningful changes in communities.

The Origins of Venture Philanthropy

In 1969, John D. Rockefeller III introduced the idea of venture philanthropy. He encouraged private foundations to act as risk-takers by funding bold and often unpopular social causes. He envisioned philanthropy as an adventurous endeavor.

By 1997, the idea became popular when the Harvard Business Review showed how foundations could use strategies from venture capitalists. These strategies included managing risks, measuring success, and building strong relationships to improve their charitable work.

Early attempts at venture philanthropy faced challenges. Larry Fox from Social Venture Partners Portland noted mixed results. Pooled resources improved NGOs' efficiency and engaged new venture philanthropists. However, large-scale societal impacts remained elusive.

As one partner famously quipped, “We only became great at turning tiny nonprofits into small ones.”

REDF, one of the first venture philanthropy funds, had early struggles with relationships, power issues, and a one-size-fits-all approach. Over time, they improved by focusing on better communication and teamwork.

Venture Philanthropy Today

Modern venture philanthropy focuses on working together and staying involved for the long term, not just giving money. While there’s no singular adventurous approach to funding, successful practices include:

• Years-long commitments to drive systemic change.
• Custom financing aligned with an organization’s needs.
• Unrestricted funding with an emphasis on measurable outcomes.
• Capacity-building through financial and advisory support.

Today, venture philanthropy helps social groups grow by giving money and support.

Venture Philanthropy vs. Impact Investing

Venture philanthropy and impact investing are similar but have different approaches and goals.

• The Venture Philanthropy approach focuses on involvement through grants to nonprofits and social entrepreneurs. It emphasizes close engagement, impact measurement, capacity-building, and innovation.
• Impact Investing focuses on making investments that support social causes. It also involves pulling socially responsible investments from businesses that don’t have a positive social impact. It prioritizes financial returns alongside social benefits.

Venture Philanthropy Ecosystem

The Venture Philanthropy Ecosystem includes various organizations and methods that combine social good with financial returns.

Here’s a breakdown:

1. Types of Social Purpose Organizations (SPOs)

These organizations focus on varying degrees of impact and financial sustainability:

• Charities:
• Operate purely on grants with no trading activities.
• Some combine grants with limited trading revenue.
• Revenue-Generating Social Enterprises:
• Potentially Sustainable: Generate more than 75% of their revenue through trading.
• Break-even Model: All income comes from trading activities.
• Socially Driven Businesses:
• Reinvest profits to sustain their mission.
• Some distribute profits while maintaining a socially driven focus.
• Traditional Businesses:
• CSR Companies: Allocate a percentage of profits to charitable activities.
• Mainstream Market Companies: Primarily focus on financial gains.

2. Spectrum of Focus: Impact vs. Financial Goals

Organizations fall along a spectrum based on their primary goals:

• Impact Only: Focus solely on creating social impact through grant-making.
• Impact First: Prioritize social impact while also considering financial returns (social investments).
• Finance First: Focus mainly on generating financial returns with some social contributions.

3. Blended Goals

Venture philanthropy bridges the gap between impact and finance by:

• Supporting social purpose organizations with funding and guidance.
• Driving measurable, long-term social change while achieving financial sustainability.

This simple framework explains how different organizations work together. It shows how their approaches create a balanced ecosystem for social impact and financial growth.

Venture Philanthropy Examples

Here are some examples of how venture philanthropy has made a difference:

• Mulago Foundation's Rainwater Harvesting Initiative: Helped provide clean water to rural communities in Uganda.
• Skoll Foundation's Investments: Supported groups focus on social and environmental sustainability. Its examples include the Acumen Fund and the Mulago Foundation.
• Omidyar Network's Contributions: Organizations like Kiva and the Grameen Foundation are backed to create economic opportunities. They also focus on promoting social inclusion.

Venture Philanthropy Models

The following are the venture philanthropy models:

Performance Evaluation Based on Metrics

This model measures success through methods like Social Return on Investment (SROI). By assigning a monetary value to results, groups like the Robert Enterprise Development Fund (REDF) can better assess their projects. SROI also helps identify successful strategies to expand and reassess underperforming areas.

High Engagement

This approach means the venture philanthropy organization works closely with the recipient. For instance, New Profit supports its partners in areas like education, economic empowerment, and public health. They provide hands-on assistance, sometimes taking a seat on the board to guide growth directly.

Giving Circles

Giving circles pool resources from individuals or organizations to fund impactful initiatives. Social Venture Partners (SVP), founded in 1997, is a leader in this model. It not only provides financial support but also helps build the capacity of its partners through training and mentorship.

Hybrid Models

Some organizations use a mix of strategies, blending various types of NGOs and for-profit structures. The Omidyar Network, for example, uses both donations and investments to help important projects. Similarly, the Skoll Foundation uses special investments to support programs and create long-lasting change.

Benefits of Venture Philanthropy

Following are the venture philanthropy benefits for the donors and nonprofits:

1. For donors:

• It allows for a more significant, long-term impact on causes they care about.
• Supporting organizations creates sustainable solutions rather than temporary fixes.
• Donors can be more involved, fostering deeper connections with the causes they support.

2. For nonprofit organizations:

• They gain financial and expert support, helping them work more effectively.
• The assistance promotes sustainability, reducing dependence on one-time donations.
• Organizations improve their operations and expand their impact.

Notable Venture Philanthropy Organizations

Following are the important venture philanthropy organizations. 

TONIIC

TONIIC is a global leader in impact investing. It provides early-stage funding and support to social enterprises. Their research highlights the importance of venture philanthropy in building a sustainable ecosystem.

European Venture Philanthropy Association (EVPA)

Since 2004, EVPA has fostered collaboration among nearly 300 global members. Their resources and knowledge play a key role in expanding venture philanthropy's impact on society.

Venture Philanthropy Partners (VPP)

VPP focuses on improving children's lives and early childhood development in the Greater Washington Area. Their high-engagement model includes partner identification, investment, and advisory support to maximize impact.

LGT Venture Philanthropy

LGT is committed to supporting organizations aligned with the Sustainable Development Goals (SDGs). Along with funding, they provide guidance to ensure their partners are scalable and sustainable.

These organizations show how venture philanthropy uses money, skills, and teamwork to create an impact.

In conclusion, venture philanthropy is a powerful approach to driving meaningful social change. It achieves this by combining financial investment with strategic involvement. Unlike traditional giving, it focuses on empowering organizations through customized financing and nonfinancial support. It also emphasizes a commitment to measuring impact.

Its adaptable models allow for innovative solutions to pressing societal challenges. These models range from charities to socially driven businesses. Examples such as funding education or working with social enterprises demonstrate its reach.

Organizations like REDF and Social Venture Partners exemplify how venture philanthropy fosters growth, builds capacity, and drives systemic change.

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