What does “venture philanthropy” mean?

How philanthropy is starting to look more like venture capital.

“Venture Philanthropy” is a word that has been popping up more frequently in my conversations, and I realized people were using it to describe different concepts (including myself), so I wanted to clear up the confusion.  

Let’s break it down:

Venture (capital) is: a type of financing that investors provide to early-stage companies, which often have little operating history but significant potential for growth. Venture capital typically funds invention and innovation. 

Philanthropy is: charitable giving, oftentimes to nonprofits, to help a specific cause. 

Venture Philanthropy is: simply applying a venture mindset to philanthropic giving.

I even asked ChatGPT, and here was the answer:

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The last sentence from the above is the part that drives the most confusion - are venture philanthropists searching for a financial return on top of a social impact return? It’s still a bit gray to be honest. The majority of experts I’ve spoken with refer to venture philanthropy as a different strategy for philanthropic gifting, but it is still gifting. I think time will tell how this evolves, and I also think more and more philanthropists will look for both a social and financial return on their capital.  

Regardless, let’s dig a little deeper on the “venture philanthropy” model as it relates to philanthropic gifting:

As this SSIR article reports, “Donors practicing venture philanthropy see their gifts as investments and draw on the analytical rigor of the for-profit world to assess the nonprofit organizations they support.”

In fact, in a conversation I had last week with a nonprofit organization called the “Silicon Schools Fund”, the CEO used the term “investments” when referring to the donations or grants his team has made. (The Silicon Schools Fund funds the creation of new schools that foster innovation and personalization to discover the next generation of schools in America.) And as you may have noticed, this nonprofit purposely calls themselves a “fund” rather than a “foundation” - another venture-like feature.  

From a high-level perspective, there are three ways that “venture philanthropy” differs from “old school philanthropy” and more closely mimics venture capital:

High investor engagement: philanthropists look to back nonprofits where their skill-sets can add value and thus where they can play an active role - many even choose to become members of a board.

Data-driven mindset: philanthropists demand a focus on metrics to determine the effectiveness, or ROI, of their gift - both through financial metrics and other impact-based metrics like ‘number of lives affected’.

Seeks breakthrough solutions to problems: venture philanthropists typically fund earlier-stage, high-risk projects (vs. donating to the Salvation Army, for example); their goal is to challenge the status quo and encourage “outside the box” thinking to find solutions to today’s biggest societal problems. 

There are even accelerators (think Y Combinator) built for non-profit entrepreneurs: Fast Forward is one, with the mission of supporting “tech nonprofits”, which they define as “tech startups building software that has selected a nonprofit business model to scale impact, not profit.”

To summarize: there is a gradual but clear coalescence of the venture and philanthropy worlds, not just in nomenclature but also in business practices and models.

Kasey Lundquist