Filling the Gap: Venture Philanthropy

Lately I have been exploring ideas about capacity-building, the non-profit sector, and how an organization actually grows and expands their abilities to make societal changes.  Now, my first question upon reading all of this new information was: what’s capacity-building?  This is a multi-faceted concept.  But, capacity building is a term mainly used to discuss how to improve not-for-profit organizations.  It first came into our lexicon in the mid 1990’s within the international development field.  Capacity-building refers to anything that happens on the individual, institutional, or societal level that makes the infrastructures intended to deal with social goods such as education, health, etc., more efficient and successful.

First, I understand capacity building as having two needs in order to be complete: aid and technical cooperation.  This means, that to build ones capacity as an organization (aka ones organizational capacity), one has to have a source of money, and an internal system that can appropriately digest that money.  More importantly however, is that one needs an internal system that has the ability to gauge how much money it can actually handle.  Believe it or not, there is a such thing as too much money when it comes to non-profits.  This leads me to my next point: assets.  The nature of an organizations assets is one of the most obvious ways to determine if it is not for profit or for profit.  Assets are anything that a company has.  Assets can vary in how liquid they are.  This means that the ways in which the assets can be turned into cash to be used in any way for the organization ranges.  In the for-profit community, assets are far more liquid.  The revenues generated are used for one main purpose: to generate more profit.  The stakeholders in the company do not earmark the money they give for very specific things.  Generally, as long as their money is making money, that is all that they are concerned about.  However, in the not for profit organizations, their assets are extremely, “illiquid.”  This is so because the money they have comes from sources other than market investments (i.e. much of their money comes from donors) and therefore comes with more conditions.  They have to do certain things with that money in order to have the rights to it.  Having the money is great, but being told what to do with it is tricky.  So tricky, that it can ruin and organization.

Lets take am example.  Say, for example you are running a non profit arts space.  You have been given a huge donation of $1 million.  But, it has to be used towards the construction of a new theater space.  And, in order to have the money, you have to match it in internal fundraising efforts.  This is how the donor conditions it.  Of course, you want the money right?  So, how do you get it?  First, you have to develop a group to lead the efforts on finding a contractor to build the new theater, find the space for it, determine how to design it.  Next, you have to increase staff in order to raise the funds the donor demands.  Wait a minute, how do you have the money to do all of that?  There in lies the problem.  More money means…well, more money.  But more money means having more people, having a clearer vision, being more organized, and being more multifaceted in an organization.  Bigger bucks means bigger responsibility. 

So my question is, can we fill the gap?  Can we merge the differences in the not-for-profit and for profit sectors to create profit-focused organizations that put their social impact first?  Venture philanthropy tries to do just this.  Many of the venture philanthropy firms have been founded by individuals coming out of the private equity sector.  These individuals believe that the practice of philanthropy and social impact projects usually taken on by not-for-profit institutions could use a different model.  Their model goes something to the tune of “engaged philanthropy.”  I see this as a combination investment and consulting mentality.  They invest their money into not-for-profit initiatives whose mission has been identified as altruistic, and whose internal infrastructure has been identified as lean and fit, and they stay with that organization for 3-5 years.  During this time frame, they support the daily activity of the organization as if it were a start-up business, but measure the success of the organization based on not-for-profit standards, aka the social impact. 

I think this model has a lot of potential.  It started in the 90’s in America and has been gaining ground in Europe over the last five years.  I think this model many have very useful iterations.  What about using this mentality to change the way foundations view grant-making?  What if other social good organizations such as arts institutions could apply this model in a way that addresses their needs?  In art institutions such as performing arts centers or museums, the product is always similar.  The performance is always the Nutcracker, and the permanent collection usually always has that van Gogh.  But, the public’s desires always change.  What if the engagement focus provided by venture philanthropy could somehow enhance the visibility and value of cultural products?  Maybe I am dreaming, but it sounds pretty cool. 


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