We connect donors to learning resources and ways to support community-led solutions. Learn more about us. After all, by definition, any venture could just as easily fail as succeed. But what is venture philanthropy and how does it work? It stems from the idea that the same practices and principles employed by venture capitalists can be used in the social sector and toward philanthropic goals.
To get behind venture philanthropy, you must first understand how it started. By , venture philanthropy was firmly placed in the lexicon when Harvard Business Review examined how foundations could learn from venture capitalists and explored venture capitalist strategies such as risk management, performance measurement, and relationship management for philanthropic pursuits. While there were bright spots, there were also growing pains. Yes, pooled resources helped community-based organizations grow more efficient, and interesting work has attracted many otherwise uninvolved people into philanthropy.
But scale? Not so much. These included problems with grantee relationships, underlying power dynamics, and a blanketed approach over all enterprises without tailoring any tactics to the specific needs of grantees. Eventually REDF addressed these issues by implementing improved communication systems about expectations and strengthened their collaborative efforts. Venture Philanthropy Today As venture philanthropists learned and cultivated the practice, it became more about the collective effort than the capital.
As are unrestricted funding and a focus on outcomes. Moreover, venture philanthropists help strengthen capacity and build upon already existing strong infrastructures by not only providing financial capital, but advisory services. Think of it more like a partnership with a purpose than a venture with an investment goal. Venture Philanthropy vs. Impact Investing Venture philanthropy and impact investing share some similarities; both utilize investment capital for philanthropic efforts.
She Chairs Kids in Philanthropy, a not for profit that engages children and their families in hands on volunteering opportunities and aims to develop empathy and a social conscience in children. Amanda and her husband have invested in Hireup, a company that gives Australians with disability the power to choose their own support workers and manage their own care.
Hireup brings online technology and social networking to the disability sector by creating a platform allowing people with disabilities to connect with support workers online. Hireup was an attractive investment given its strong team, its inbuilt social purpose of empowering people with disability and its compelling and highly scalable business model in the context of the NDIS.
Amanda and her husband have also supported Machinam, a business that brings together problem-based learning, real life context and digital technology to provide an alternative to traditional high school maths textbooks that is engaging and relevant to students' interests, and is mapped to the Australian Curriculum. Co-founded by three female engineers, Machinam has the potential to increase engagement in STEM and prepare high school students for the future of work, whilst running as a scalable business.
After holding several positions in funds management, asset consulting and superannuation consulting, John co-founded the Australian office of Grantham Mayo van Otterloo LLC in During this time John completed his PhD in social enterprise and development, investigating the intersection of finance and poverty alleviation. Since John, together with his wife Sue, has managed the McKinnon Family Foundation, a private ancillary fund that focuses on support for the environment, poverty alleviation and social enterprise development.
Both John and Sue are keen to maximise use of their assets, which means investing the corpus as much as possible in line with their values and the mission of the foundation. Hence they have been at the forefront of impact investing. John sits on a number of boards including the Australian Environmental Grantmakers Network and two social enterprises.
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Philanthropy and impact investing: This is the difference January 17, reading time: 8 minutes by Eloise von der Schulenburg, LGT VP When does grant funding make the world a better place, and when do investments? Philanthropy and impact investing: Does the world need both? And what is the value of each approach? Tom Kagerer: Yes, the world needs both, since they are complementary approaches on a spectrum of financial and impact returns.
Whether to do so through an equity investment — as we do in impact investing — or a grant — as we do in philanthropy — often, among other factors, depends on the economic situation of the target group. If a company is operating in an environment with a high concentration of customers with sufficient buying power, a market-based solution is often a good strategy.
In this case, an equity investment into a for-profit company is a good way to support the growth of such impactful solutions. But if you are aiming to improve access to quality healthcare in remote communities in Liberia, for example, you are faced with a very different scenario. There is a low concentration of people and extremely low purchasing power. So, they probably have very little or no money to spend for better healthcare or education.
Tom Kagerer: Exactly. There are billions of people in the world with minimal disposable income, which is why their ability to pay for services is extremely limited. This is why LGT VP focuses on supporting non-profits that have developed products and services that are high in quality and free for their clients.
Can you give us an example? Tom Kagerer: Of course. What about government? Tom Kagerer: In a context in which most clients have no disposable income, non-profit organizations working hand-in-glove with governments have proven effective and efficient.
Our portfolio organizations typically work in strong partnership with government to provide services such as good healthcare or education. A well-placed grant to an organization with a strong model can have a catalytic effect on the wider system. After deploying funds, they measure impact and may refine their strategy.
This is an outcome-oriented form of charitable giving that goes beyond simply granting money to worthwhile causes. Impact investing is similar in that investors set goals, deploy capital, and measure and manage impact. However, impact investors also expect their contributions to result in financial returns for themselves alongside social or environmental benefits.
Impact investors support revenue-generating initiatives rather than programs that distribute funds until they run out. Although sustainable investing diverges from charitable giving in its focus on financial returns, some argue that it offers advantages over philanthropy. For example, it may be more feasible to sustain impact initiatives when capital can be used repeatedly to continue creating positive social and environmental outcomes.
Sustainable investing may also be more scalable , and it allows organizations to generate impact with capital that was previously dedicated only to making money. First, impact investing still faces some challenges , from providing suitable investment options across the risk spectrum to clarifying regulatory views of the industry and developing standardized management tools.
Although none of these challenges should prevent an organization from aligning its portfolio with its mission, these challenges may require extra effort and resources for organizations to fully transition to impact investing.
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