Unlock the Power of Venture Philanthropy with Sopact Impact Strategy

Venture Philanthropy

Venture philanthropy is a type of philanthropy that combines the principles of venture capitalism with the goals of traditional philanthropy. It is a way of giving that aims to achieve social impact and financial returns. It is a form of impact investing that utilizes a venture capital approach to provide funding, strategic advice, and other resources to social enterprises and nonprofit organizations. Venture philanthropy is designed to help organizations working to solve social and environmental problems grow and scale their impact. It is a way for philanthropists, foundations, and impact investors to support organizations addressing critical social and environmental issues.

Sopact's Impact Strategy can partner with venture philanthropy organizations to design effective strategies that achieve the desired social impact and financial returns. With its innovative impact strategy app, Sopact can provide a comprehensive approach to impact management, including outcome-based metrics, data strategy, and dashboard strategy. This end-to-end approach enables organizations to measure and improve their social impact while achieving financial returns. With Sopact's expertise in impact management and data analytics, venture philanthropy organizations can have a reliable partner in designing and executing effective impact strategies.

In the article, you can discuss the following key points in detail:

Definition of venture philanthropy
How it differs from traditional philanthropy
How venture philanthropy organizations are structured
The benefits of venture philanthropy for social enterprises and nonprofits
The benefits of venture philanthropy for philanthropists, foundations, and impact investors
The role of Sopact's Impact Strategy in designing effective strategies for venture philanthropy organizations
Real-world examples of venture philanthropy in action
Challenges facing the venture philanthropy sector
Conclusion and future outlook for venture philanthropy

How is it different from traditional philanthropy?

Traditional philanthropy generally supports organizations and programs that address social and environmental challenges. In contrast, venture philanthropy takes a more strategic and hands-on approach to giving. It involves making strategic investments in organizations and programs with the goal of creating measurable impact and achieving sustainable, long-term change.

The key principles of venture philanthropy

The key principles of venture philanthropy include the following:

Making strategic investments in organizations and programs that address social and environmental challenges
Focusing on creating sustainable, long-term change
Taking a hands-on, active approach to give
Using data and metrics to measure impact and track progress
Building strong partnerships with organizations and programs to achieve a shared goal

How venture philanthropy organizations work

Venture philanthropy organizations typically work by:

Identifying and researching organizations and programs that address social and environmental challenges
Making strategic investments in these organizations and programs
Providing financial and non-financial support to help organizations and programs achieve their goals
Using data and metrics to measure impact and track progress
Building strong partnerships with organizations and programs to achieve shared goals

Examples of successful venture philanthropy initiatives

Some examples of successful venture philanthropy initiatives include:

The Mulago Foundation's Rainwater Harvesting Initiative in Uganda provides access to clean water in rural communities
The Skoll Foundation's investments in organizations that promote social and environmental sustainability, such as the Acumen Fund and the Mulago Foundation
The Omidyar Network's investments in organizations that promote economic opportunity and social inclusion, such as Kiva and the Grameen Foundation

Characteristics of Venture Philanthropy

venture philanthropy examples

As we can see in this diagram from the European Venture Philanthropy Association, there is a significant range of approaches under the umbrella of the general term. Given these varied approaches, defining them in absolute terms can be difficult. However, there have been efforts to identify some of the shared characteristics of the field, such as this report by the Rockefeller Foundation.

Who is involved in Venture Philanthropy?

Because venture philanthropy is oriented toward optimizing impact through a collaborative approach, entities of varying sizes, sectors, expertise, etc., can all be vital to a venture philanthropy initiative.

As the above graphic from the EVPA shows, venture philanthropy can offer innovative benefits to a wide variety of stakeholders, public and private. Often, these distinct stakeholders work together to help achieve shared impact goals.

For example, some years ago, the UK's first venture philanthropy fund, Impetus, partnered with a foundation (Charities Aid Foundation to help catalyze Naz Project London (NPL), a local initiative, through a co-investment deal and structured engagement with the NPL. You can read the case study here.

venture philanthropy organizations

Because venture philanthropy is oriented towards optimizing impact through a collaborative approach, entities of varying sizes, sectors, expertise, etc., can all be a key part of a venture philanthropy initiative.

As the above graphic from the EVPA shows, venture philanthropy can offer innovative benefits to various stakeholders, public and private. Often, these distinct stakeholders work together to help achieve shared impact goals.

Key values of venture philanthropy

The following are some of the common elements they identified (although each element is not necessarily found in every venture philanthropy initiative):

Targeting systemic change through collaborative, strategic capital allocation
A focus on scaled or scaling interventions at a sector level, as opposed to single organizations.
Use of a blended investing approach, combining the use of grants and return-seeking investments

Use of a multi-stakeholder focus to promote collaboration amongst key players within a sector
Long-term engagement with grantees and investees in alignment with a systems change mindset
Agile M&E encourages swift adaptation of interventions as needed based on outcomes

Venture Philanthropy Models

It is worth noting that while there exist varying frameworks for the implementation of venture philanthropy, most tend to be a hybrid of the existing frameworks.

Performance Evaluation Based on Metrics

One way to build impact accountability -- a key feature of venture philanthropy -- into an agreement is to use a Social Return on Investment (SROI) approach. Used by organizations such as the Robert Enterprise Development Fund (REDF).

By assigning monetary values to the impact generated by an investee, it becomes much easier to assess the performance of an investment. In addition, the rigorous SROI process encourages an evaluative approach in which well-performing interventions can be further grown and under-performing areas re-assessed.

High Engagement

This model is, just as it sounds, characterized by a close relationship between the venture philanthropy organization and its capital recipients. Often, the venture philanthropy organization has its own growth methodology which it helps its recipients implement. A board seat is sometimes also part of the equation, for more frequent oversight and to ease a more hands-on approach.

New Profit is one example of a venture philanthropy organization that takes such an approach. They actively support service delivery of their recipients' work, focusing on education, economic empowerment, early childhood development, and public health impact areas. To date, they have invested in a high-engagement way in over 500 organizations

Giving Circles

The essence of this model relies on pooling funds together, whether those funds are pooled by high net worth individuals or a group of organizations, or both. This pool of funders makes decisions on where and how to allocate that capital.

Social Venture Partners (SVP), founded in 1997, is one well-known example of such an approach. Partner affiliates of SVP, of which there are 40+ today, also play a role in the capacity-building side of venture philanthropy, while the central office of SVP conducts training on topics like venture philanthropy itself.

Hybrid Models

As mentioned at the outset of this section, venture philanthropy doesn't have to be just one thing. Some organizations take a hybrid approach to their strategy. This could mean leveraging both a nonprofit 501(c)3 structure and a for-profit LLC structure to facilitate the support of both such types of entities. Omidyar Network is one of the most well-known organizations that has adopted this approach.

Another hybrid model leader, the Skoll Foundation, takes a very diversified approach to venture philanthropy through its own Program-related investment strategies and also through its work to advance the ecosystem of venture philanthropy.

Importance of venture philanthropy and associations

Venture Funding in Impact Markets

The capital market for impact-driven enterprises is not as refined as the market for traditional commercial entities, especially in cases where there is a high expectation of an impact return on the part of the funder.

Many social sector enterprises face great difficulty when attempting to grow exponentially the reach of their impact into new markets. Venture philanthropy aims to fill such gaps in this sector, structuring funding-for-scale opportunities. The following are some of the ways in which venture philanthropy aims to act as a catalytic force for the impact sector:

Identifying systemic change opportunities and the players capable of co-creating that change
Using innovative funding structures to meet the needs of mission-driven enterprises and other high-risk impact ventures
Taking a long-term approach to growth capital, allowing investees the time to scale
Accompanying investees in non-financial ways by supporting capacity building and providing access to other resources essential for growth
Incentivizing impact performance through clear expectation-setting and successful impact management

Venture Philanthropy Organizations

TONIIC

Toniic is one of the leading impact investor organizations in the world, promoting the understanding and strengthening of the ecosystem. In this report they outline the state of the field of impact investing and venture philanthropy, highlighting its importance for social enterprises in need of early-stage risk capital and capacity building support.

European Venture Philanthropy Association

Founded in 2004, the EVPA is one of the foremost players in Europe and the world in venture philanthropy. They have nearly 300 member communities worldwide, which helps them achieve their mission of maximizing societal impact through increased collaboration and know-how in venture philanthropy. Their website also boasts an extensive repository of resources, tools, reports, and other resources.

Venture Philanthropy Partners

Focused regionally on the Greater Washington Area and improving children's lives, Venture Philanthropy Partners takes a high engagement approach with its investees.

Their strategy involves four stages: partner identification, engagement, investment, and advising. You can learn more about their approach here and their investments here.

LGT Venture Philanthropy

LGT is an independent charitable foundation that works with organizations that are directly contributing to the achievement of the SDGs. In addition to providing capital, they work with investees to support their growth and viability.

Each organization in their portfolio much meet rigorous criteria, including mission-alignment and readiness to scale. You can read more about their investment criteria here.

Road to impact first

Key to the success of any venture philanthropy effort is the ability to manage the immense amounts of data that flow back and forth between stakeholders, from beneficiaries, to investees, to the funders themselves.

Impact accountability means not only being able to put in place and agree on an impact measurement plan, it means being able to implement it in an effective and efficient way. Sopact's cloud-based impact data management platform can help plays in this ecosystem manage their data easily and for better results.

From defining a Theory of Change to identifying metrics, analyzing data, and reporting on it, all in one place, the Impact Manager can help scale the impact data management capacity of any organization. Because the venture philanthropy sector tends to be highly collaborative, it is a highly targeted solution for all sector stakeholders. Click below to get in touch with our team of impact experts to start scaling your impact strategy.

High impact philanthropy

It used to be that wealthy donors were happy sending an annual check, trusting in charitable organizations to use funds effectively. Now they want to be more involved and more targeted in their giving. Many of them use family office services. Family offices are private wealth management advisory firms that serve ultra-high net worth families.

Increased wealth: Over the past 30 years, the wealth within the Forbes top 400 has increased from $125 billion to $2.29 trillion today. According to Forbes, there are ~2,208 billionaires, collectively worth $9.1 trillion. Among them are 259 newcomers who made their fortunes in everything from wedding dresses to children’s toys to electric cars. Now, what is the impact of these new wealth owners on the impact investment space? And, who is driving the change?

There are two main currents Generation and Gender.

Generation: Younger wealth holders are more socially and environmentally conscious. According to the 2014 Deloitte Millennial survey, nearly 30% of Millennials believe the number one priority is to improve society. They believed businesses could do more to address society’s challenges of resource scarcity (56%), climate change (55%), and income inequality (49%). Nearly 40% of GenX/Y millionaires give more than $30,000 annually to charity versus 6% of the baby boomers.

It is estimated that 98% of the time the next generation inherits wealth, they switch advisers. • Among the ultra-high-net-worth individuals, a growing percentage are women. by 2030, roughly two-thirds of private wealth in the US will be held by women. Attitude towards investing among female advisers: Female advisers report to be more interested than their male counterparts in using sustainable investing funds by a margin of 59% to 34%.

This is certainly a welcome change. The families who live together through Donor Advised Funds want to target those funds to have a measurable social impact. They are becoming 'high impact philanthropists.' How might Donor Advised Funds engage these high impact philanthropist?

Donor-advised funds

Donor-Advised Funds help families or individual donors decide target areas by asking strategic questions like:

what is your charitable mission?
what resources (money, time, skills, assets, etc.) are you contributing?
do you want to align or structure your giving toward a particular outcome?

Impact Measurement

Social impact measurement and communication on behalf of donors is a tool to drive engagement with philanthropists, encouraging recurring donations. This practice is nurturing - when donors see tangible changes brought about by their participation, it increases their desire for continued charitable giving. Think of it as planting a seed and nurturing it to grow into a great tree that keeps giving.

Donor Advised Funds hold the potential for strategically planned impact on local communities. This impact is the product of thoughtful financial advice, alignment with donors' missions, leveraging resources such as Guidestar, and targeted giving practices.

But if someone were to ask your Donor Advised Fund, what is your impact? or how can you get more donors engaged in the process? - would your answer be able to go beyond general output analysis?

A general output analysis simply looks at the number of activities performed or the number of beneficiaries interacted with during a program. For example, let's say an intervention provides better access to drinking water for a local community through an innovative water filter solution. Several filters delivered last year would be an output of activities. But it does not describe the impact.

Impact in this example could be indicated by tracking the rate at which water-borne disease was reduced, comparing against baseline or benchmark data to demonstrate such progress.

How can Donor Advised Funds show a deeper impact demonstration? They need to manage better processes to acquire impact data so that it can be leveraged to communicate that impact has been and will continue to be created. Ideally, stakeholders at every level should be able to access, understand, and learn from those data. In short, the leveraging of technology can help in impact assessment and communication Impact management tools like Impact Cloud can do just that, enabling users to

design a custom impact framework
collect the data for selected metrics from donation recipients
analyze visualized data charts for quick insights and quick sharing
develop impact demonstration reports

Funds can improve their engagement by effectively sharing impact data with high-impact philanthropists, driving recurring donations. As significant participants in funneling funding within communities, impact tracking and engaged philanthropists can collaborate towards building better communities. Because in the end, building better communities (in other words, creating an enduring impact) is what players in this sector aim to do.

Conclusion

Impact investment is still relatively a new approach. There are many innovative approaches still needed to truly improve social and environmental impact. Venture philanthropy can provide the necessary risk capital that often impact funds cannot. Venture philanthropy can be a road to impact first investment.

Resources

TABLE OF CONTENTS

Venture
Philanthropy