Venture Philanthropy – What is it and how do You Attract it to Your Nonprofit?
Venture Philanthropy is a buzzword for forward thinking and impact donations that weed through the web of charities and give to the most sustainable and innovative. With a total of 1.5 million nonprofits registered at any time in the United States, what makes an organization truly sustainable, and hence worthy of investment, is its revenue plan. Nonprofits that depend on gifts and grants alone are vulnerable, and subsequently unsustainable and unattractive to the modern philanthropist.
Nonprofits that proactively search for means to make money like true entrepreneurial endeavors are much healthier, much more sustainable, and much more attractive to investors. Those investors, the venture philanthropists or social entrepreneurs, are redefining American giving and the new nonprofit. What exactly is venture philanthropy, and how can you as a nonprofit attract it to your organization?
Venture philanthropy defined
Sometimes referred to as social entrepreneurism, philanthropists may choose to provide startup capital and loans to organizations that provide a social service and kick back revenue to pay for the investment. They usually have a mission focus, to improve a certain community or to promote environmentally friendly technology, for example. They then often use the investment payback to fund more projects in the community. Hence they operate as nonprofits themselves, or they can still write off their giving as a tax break.
Where did the idea come from?
The Venture Philanthropy idea has roots in the turn of the millennium dot com era, when the economy was booming and a few individuals thought they could save society’s problems with smart investment. Many couldn’t and floundered quickly, just like the dot coms. Many could, however, and proved VP as a viable means to help small and big nonprofits alike with good business plans and social improvement ideas get ahead.
How venture philanthropy works
Direct giving to targeted initiatives
One of the largest pure philanthropy VP initiatives in the country is San Francisco’s Tipping Point. They attract a network of philanthropists to an open fund that grants local nonprofits who are most effective at achieving the goal of eradicating poverty. Staff spends 100 hours identifying which nonprofits will have the greatest impact, and claim that, through targeted investments in those organizations, they achieve much more. Since 2005, they have invested $80 million in the Bay Area to help more than 300,000 people in need. Their grantees receive more than 50% of their operating revenue from the program.
Investment funding in solid revenue models
One or two large donors can make tremendous impacts. Forbes exposed a family who personally financed a cure for a rare muscular dystrophy disorder, Duchenne. The family formed a nonprofit and invested in the best drug trial available, ultimately developing a cure for their son and hundreds of thousands of other boys with the same disorder in only 12 years. (Visit CureDuchenne.org) The family received an equity stake in the company, and is receiving its return on investment not only in their son’s health, but in their financial backing.
Steps to take to attract venture philanthropy
You need one of two (or better both) factors to attract VP: a fantastic social impact that shows tremendous amounts of money saved to the community, and/or a fantastic revenue model that proves an investment in your work will pay back to the venture philanthropist. To do that, you need to think outside of typical development plans that look for philanthropic donation mixes and sell yourself with hard numbers, just like business would. Ask yourself these questions to get started:
- What is our benefit to the community in real dollars? To calculate this, you can use a number of different economic models and public data. For example, if you offer healthy food counseling, how much money are you saving the community via diabetes and heart disease prevention? If you are a conservation organization, what is the value of your ecosystem services to the community? If you work in youth services, how much do you save the criminal justice system by keeping at risk youth out of jail? You most likely have a hard value to the community, and you should spend some time calculating it.
- Where in our mission and programs is there room for collecting revenue? Could you possibly develop an online store? Could you lease or rent a parcel of land you own? Could you sell a service to interested community groups? Could you develop a YouTube feed or online educational service that generates memberships? Think of your organization as a business, not just as a social service!
- Develop a solid business plan with your proven benefits to the community and/or revenue model, and reach out to venture philanthropist networks (Venture Philanthropy Partners, for example) and forward thinking donors. This is a good strategy for approaching younger donor prospects as they worry about investing enough in their retirement funds, etc. They could receive a portion if not all of their initial “donation” back.
To attract new funding, or even just to make your organization more sustainable, try applying solid revenue models and impact statements – think of your work as an entrepreneurial business as opposed to just a charity!
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