Building a Portfolio

Emphasizing Outcomes with Venture Philanthropy

While many impact investors have sharpened their focus on financial returns in recent years, impact-forward strategies can still play an important role in a broader portfolio that seeks to promote good in the world. One such strategy is the hands-on, outcomes-oriented field of venture philanthropy.

How Does Venture Philanthropy Work?

Venture philanthropists take the rigor and risk-taking attitude of venture capitalism and combine it with the values of philanthropy to fund entrepreneurs and nonprofits solving pressing social or environmental problems.

More specifically, the SDG Philanthropy Platform outlines three key features of venture philanthropy:

  • Customized Financing: Venture philanthropists design flexible, hybrid investment structures. These might include recoverable grants and/or some debt or equity in the organization. As patient investors, venture philanthropists often provide support over a long time horizon.
  • Nonfinancial Support: Like venture capitalists who provide intensive organizational support to investees, venture philanthropists support management teams with mentoring, networks, and a broad range of business assistance, from legal to marketing.
  • Impact Measurement and Management: Venture philanthropists put a special emphasis on measuring investments’ impact. While a conventional philanthropist might record inputs—for example, the number of books donated to a community—a venture philanthropist focuses on outputs: the number of people who achieve literacy.

Some suggest that whether it is for a for-profit or a nonprofit enterprise, all venture funding comes down to a common approach: taking smart risks on talented people who are developing cutting-edge solutions and boosting their impact through network-building.

Venture philanthropists take the rigor and risk-taking attitude of venture capitalism and combine it with the values of philanthropy to fund entrepreneurs and nonprofits solving pressing social or environmental problems.

Venture Philanthropy in Action

While not every venture philanthropist self-identifies with the term, examples of organizations upholding these tenets are not hard to find.

With a mission of addressing poverty, Acumen makes flexible investments around the world, leveraging “patient capital” to help startups broaden their impact “where markets have failed and aid has fallen short.” They support leaders of innovative companies, often partnering with local government agencies, with a combination of debt and equity and a longer investment horizon.

Blue Meridian Partners also invests in impactful programs that lift young people and families out of poverty. Blue Meridian collaborates with other philanthropic funders and works hands on with its investees—social sector leaders—to bring the most promising solutions to scale. Blue Meridian managing directors serve as personal contacts for investee leaders, strategizing together to meet the interim goals of the long-term investment plan.

One area of overlap for venture philanthropists and impact investors is the donor-advised fund (DAF). Often founded as part of a bank’s broader portfolio, some DAFs invest in venture philanthropy projects vetted by partner foundations. For example, Schwab Charitable gives those who bank with Charles Schwab the opportunity to invest in a broad portfolio of high-impact projects. The Draper Richards Kaplan Foundation (DRKF) is a partner of Schwab Charitable, and they work together to place experienced, connected managing directors from the bank on the boards of early-stage social change organizations, providing mentoring and community.

“[T]he idea that we can apply early stage capital and board service with exceptional leaders who can produce that kind of impact in the world is just a privilege for us,” said DRKF CEO Jim Bildner in an interview with the Stanford Social Innovation Review. “And that is inherently the definition of . . . impact investing and venture philanthropy, because for us it’s 100% about social impact.”

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