Venture Philanthropy

  • August 19, 2021

We first covered Venture philanthropy (VP) back in 2015 ( Venture Philanthropy is a high-engagement and long-term approach whereby an investor for impact supports a social purpose organization (SPO) to help it maximize its social impact. Venture Philanthropy is modeled on venture capitalism and offers a way to invest in charities that are testing new approaches to solving old problems. Venture Philanthropists will choose the most suitable financial instrument(s) to support an SPO. These instruments include grant, debt/loan, equity, and hybrid financial instruments. The choice of the financial instrument(s) depends on a number of factors, such as the investor for impact’s willingness to take the risk, or the SPO’s business model and stage of development.

Investors for impact can be highly engaged grant-makers or social investors (e.g., foundations, social impact funds) that are willing to take risks that most other investors are not prepared to take in order to support innovative solutions. Investors fund SPOs who then fund individual projects. This helps beneficiaries receive the most. SPOs can be social enterprises, NGOs, or charities that may be but are not required to be revenue-generating. SPOs have a solution to solve a pressing social or environmental issue, but often need resources (e.g. funding, human resources, capacity building). The beneficiaries are those benefitting from the SPO’s services or products; e.g. minorities, people in poverty, people with disabilities, women, children, migrants, or the environment.

Some big donors, including the Gates Foundation and The United States Agency for International Development (USAID). Both organizations run competitions for innovative approaches, which are extended if they prove to be effective and efficient. During the pandemic organizations such as Verizon and LISC have also engaged in venture philanthropy. They look for rigorous evaluation with key performance indicators.  For more information on VP check out this great article. Venture Philanthropy – What is it and how do You Attract it to Your Nonprofit?

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