Understanding Venture Philanthropy and Its Impact on the World

Venture Philanthropy is prevalent in our every day lives. From funds that provide better education opportunities to students in urban school districts to medical research for Cystic Fibrosis, Alzheimer’s, and a range of other diseases, chances are you come across examples of venture philanthropy almost every day.

Without it, many of the world’s largest social impact organizations and foundations wouldn’t be around to help people today.

This guide to venture philanthropy will help you understand what it is, how it works, and why it is important to people all over the world.

The Definition of Venture Philanthropy

Simply put, venture philanthropy is purpose-driven investing.

The high-impact tactic combines elements of venture capital, traditional investing, and basic business strategies, all driven by decisions based on philanthropic principles. The method, which is sometimes called enterprise philanthropy or impact philanthropy, focuses on measuring the impact results and managing them accordingly, rather than focusing on grant sizes or other “input indicators.”

At its most basic model, venture philanthropy involves an investor for impact, such as a foundation, supporting a social purpose organization, such as a charity. All of this is done in hopes of helping it have more social impact.

The Roles and Their Importance

There are three basic roles in the model for venture philanthropy, including the:

1. Investor for impact
2. Social purpose organization
3. Final beneficiaries

Investors are usually highly engaged individuals or organizations who are willing to take a risk in supporting innovative solutions provided by social purpose organizations, something most other investors won’t do.

The social impact organization may or may not be one that generates revenue. Either way, it typically offers solutions to pressing issues within society or the environment but may not have the funding, capacity building, or human resources needed to implement the solution.

The final beneficiaries are those who benefit from the partnership between the investor and the organization. Sometimes the beneficiaries are environmental but more often, they are marginalized people such as minorities, women and children, or people living in poverty.

Core Practices of Venture Philanthropy

Investors who use the venture philanthropy approach follow three core practices to support organizations on a long-term basis. Those practices are:

1. Impact measurement and management
2. Non-financial support
3. Tailored financing

Impact measurement involves measuring and tracking the changes an organization’s activities create, then using the data to make changes to the activity in hopes of increasing positive results.

Non-financial support occurs when the investor provides an education that helps the social organization to increase resilience. This could be in the form of providing business planning advice, fundraising, creating a business strategy, or coaching the organization’s management team.

Finally, tailored financing occurs when the investor provides financial support in the form of equity, grants, loans, or a combination of two or more of these. Specifics depend on factors such as the investor’s willingness to take a risk and the organization’s current stage of development.

Investors for Impact

Investors for impact are expected to contain a specific set of characteristics that make them excellent choices for impact investing.

In fact, the European Venture Philanthropy Association has a specific set of criteria for defining a qualified impact investor. Investors should be able to focus on the problem and how to bring forth a solution and keep the investment’s focus on the final beneficiaries.

Investors must be highly engaged and expect to collaborate long-term to create lasting impact, as well as to provide non-financial support on a regular basis. In fact, impact investors must be willing to commit at least three years to their chosen organization, although the average length of commitment is 5-7 years.

Excellent impact investors are proficient in enhancing collaboration among others, aim to mobilize resources to get them to the people who need them most, and must adhere to high ethical standards.

Venture Philanthropy at Work

Venture philanthropy consists mostly of organizations as impact investors, such as TONIIC, Venture Philanthropy Partners, and the aforementioned EVPA.

However, several individuals also take part in impact investing. One such individual is Mark Stevens, venture capitalist and partner at S-Cubed Capital in Menlo Park, CA. Stevens, along with his wife Mary, have a history of donating time and money that dates back to 2004 when they donated $22 million to the University of Southern California and helped to fund the USC Stevens Institute for Technology Commercialization (not known as the USC Stevens Center for Innovation).

Other philanthropy work includes donating $50 million to the USC Mark and Mary Stevens Neuroimaging and Informatics Institute, sitting on the Board of Councilors at USC Viterbi School of Engineering, and acting as a member of the USC Board of Trustees.

At its core, venture philanthropy benefits investors, organizations, and final beneficiaries alike. Investors typically hope to make a profit on their investment (although this is not always true) while social organizations aim to combat societal issues.

When executed correctly, final beneficiaries see better healthcare, more education, and an overall better quality of life.

For many, the investment method is the perfect blend of business investing and social impact work, and that isn’t expected to change anytime soon.