Venture Philanthropy: Is it a Worthwhile Investment?
Successful nonprofits should constantly look for new funding opportunities. In recent years, venture philanthropy, a high engagement form of investing in nonprofits, has been on the rise.
Experts have rated venture philanthropy as the “fifth most promising trend” globally (45%). Venture philanthropy “ranks the highest in the United States (53%), where it comes in second.”
What is Venture Philanthropy?
Venture philanthropy has gained in popularity as an increasing number of business leaders seek to be more socially responsible. The desire for positive change combined with the financial needs of nonprofits makes this funding a win-win.
Venture philanthropy utilizes the same process venture capitalism uses when looking for companies to fund. The difference is that instead of investing in a promising up-and-coming business, a venture philanthropist invests in nonprofit organizations. In venture philanthropy, the investor focuses on maximizing social impact, helping charities to scale and make the most of their funding.
Instead of investing in institutions that promise personal financial rewards, philanthropists fund charities based on their potential to favorably impact the world. These funds come in the form of grants or start-up funding. Venture philanthropy is typically practiced by large charitable foundations or venture philanthropy organizations.
Examples of venture philanthropy charitable foundations include:
- The Robin Hood Foundation
- The Cystic Fibrosis Foundation
- Tipping Point Community
Some venture philanthropy business organizations include:
- The Asian Venture Philanthropy Network
- The Social Ventures Australia
- The European Venture Philanthropist Association
A philanthropic organization or philanthropist will research and vet the charities they choose to fund based on certain criteria. The Cystic Fibrosis Foundation, for example, has financially contributed to start-up medical research companies to develop, test, and market treatments. The Robin Hood Foundation funds charities in New York devoted to assisting low-income New Yorkers.
The Venture Philanthropy Environment in Silicon Valley
Its historic concentration of innovative, high-tech start-ups has made Silicon Valley a long-time leader in securing funding from investors and venture capitalism firms. Entrepreneurs in this area are more likely to donate funds, time, resources, and expertise to charities. These self-proclaimed philanthropists embrace a strong commitment to giving back and are empathetic to the fundraising challenges nonprofits face.
Corporate backers of start-ups also have a powerful presence in Silicon Valley. With a number of these innovative companies led by socially conscious founders, many large organizations have been extremely receptive to venture philanthropy.
Silicon Valley philanthropists bring their start-up mindsets to their approach to venture philanthropy and are most likely to support nonprofits that meet the following criteria:
- Similar to start-ups and founded on big ideas and an impactful mission
- Replicable and scalable
- Advance fresh problem-solving strategies employing innovation to address ongoing issues
- Silicon Valley Philanthropic Trends
Below are two Silicon Valley “giving code” philanthropic trends that nonprofits should watch to get tech leader funding:
- Silicon Valley tech leaders and entrepreneurs want to be “bigger, better, and faster” in their giving, contributing large gifts to the causes they care about.
- Tech entrepreneurs are more skeptical of nonprofits. These donors are interested in making an impact, and won’t donate to just any charity.
The Role of Organizations in Philanthropic Endeavors
In venture philanthropy, investors and organizations do more than just give financially to a charity. Venture philanthropists also come alongside the nonprofit, providing additional services to help it operate effectively and quickly get off the ground. Once a nonprofit is running efficiently, it will be successful and able to make a greater impact.
Nonprofits acknowledge the need for operational support that enables them to make donations go farther, increasing the potential for generating significant change. Here are some ways investor organizations can be involved in equipping nonprofits with the resources needed to achieve the greatest impact:
- Funding: Organizations give financially to charities. Unlike typical funds and grants, nonprofits have greater free reign in reporting and meeting requirements. While venture philanthropists give charities more autonomy in deciding how to allocate funds, in turn, they expect their donations and support to have maximum impact.
- Marketing: Big business organizations have in-house marketing and advertising experts who can support nonprofit marketing teams. They can also serve as a charity’s outsourced marketing department.
- Leadership and Management: A leader who has support, is well-trained, and receives continual mentoring will thrive. Well-managed nonprofits are better equipped to achieve their mission and have a significant social impact. To ensure the nonprofit’s success, investors may fill executive and board positions with their own business experts.
The Future of Venture Philanthropy
Venture philanthropy has proven to be a promising nonprofit fundraising source. But will it stick around? While there is growing support for social change within the business community, it may become more difficult to obtain venture philanthropy funds. This is in large part due to many start-ups and venture capitalists looking outside Silicon Valley.
Remote working and high costs have taken a toll on venture capitalism in the area. Many businesses and venture capitalists have left Silicon Valley for less-expensive cities like Los Angeles, Seattle, Boston, Miami, and Austin. PitchBook predicts that in 2021, the count of Silicon Valley venture capital businesses will fall below 20% for the first time in history.
Does this mean venture philanthropy is likely a short-lived fad? Not necessarily.
Venture philanthropists are interested in collaborating with nonprofits and helping them achieve their desired results. Donors want an interactive relationship with their chosen charity rather than a transactional one. As business leaders, there is an increased desire to be socially responsible and make a positive, lasting impact.
The emotional connection to making lasting change has grown in the last 10 to 15 years. This is good news for smaller nonprofits in need of funding.
Venture philanthropy will continue to be an increasingly popular fundraising option for nonprofits due to the growing acceptance of social responsibility. This method brings lasting change that benefits both the investor and the recipient charity. When it’s time to start your research to identify potential Venture Philanthropists, wealth intelligence and relationship capital tools can help make the difference in securing the financial and organizational support needed to make a difference for your beneficiaries.
How can wealth intelligence and relationship capital platforms support my outreach?
Giving Capacity WealthEngine’s WeathScore™ provides a new dimension in wealth analytics, targeted fundraising and prospecting. The WealthScore™ is built upon WealthEngine’s Propensity to Give Score and Wealth Ratings, in order to combine the best parts of both worlds. The score incorporates traditional wealth and asset information while also adding additional key data points from the profile to provide a more complete picture when trying to identify a Venture Philanthropist with the right giving capacity. It even considers the strength and predictive value of specific data source matches, like a tie to a family foundation, as a way to identify potential major donors and clients.
Building Archetypes Leverage the Wealth-X Professional platform to build ideal archetypes that identify potential Venture Philanthropist partnerships and gather powerful insights into how to engage with the right wealthy prospects. Advanced Search filters allow you to refine your research and target prospects based on key outreach success indicators such as interests, passions and hobbies, historical philanthropic donation information and key geographical information.
Leveraging your Network BoardEx helps you unlock the best relationship paths to the people you would like to reach. Leverage BoardEx’s proprietary relationship mapping tools to identify existing relationships that can connect you to your potential donor. Once you have identified a Venture Philanthropist you’d like to engage with, BoardEx data provides a detailed look at their professional background to help support your approach. For example, knowing any historic philanthropic board seats they may have held can help indicate their affiliation to your particular cause.