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Nonprofits have the power to protect the communities and environment in which we live. Unfortunately, a nonprofit's capacity to do good is directly correlated to the capital at their disposal—and many organizations are seriously underfunded.
Research shows that less than 25% of nonprofits have six months' worth of cash reserves. In fact, the majority of nonprofits have just enough capital to cover their overhead for a mere three months—an issue venture philanthropy is desperately hoping to change.
With venture philanthropy, for-profit companies invest in the nonprofit sector. By funneling capital to these organizations, they're better equipped to change their communities for the better. Below, we explain what venture philanthropy is, how it works, and whether it would be a good choice for your organization.
What is venture philanthropy?
Venture philanthropy is the practice in which venture capital firms invest in nonprofit organizations or socially responsible startups. Rather than typical venture capital funding—where the main benefit is strictly profits—venture philanthropy helps promote social good.
Venture philanthropy can be part of a larger corporate social responsibility (CSR) program, or as a standalone venture. Many times, a venture capital firm will invest in those organizations that perform the very change they want to see happen—whether it be through low-income housing, racial equity, accessible healthcare, meal distribution, or a new initiative to fight climate change.
Many times, a venture capital firm offers far more than capital to help get an early-stage startup or nonprofit off the ground. Venture capitalists (VCs) play a key role in operations and decision-making, often doubling as board members for the organization. These investors help the nonprofit founders increase their capacity building programs, launch new marketing campaigns, publish financial reports and forecasts, or help develop systems and processes.
The history of venture philanthropy 📈
The phrase "venture philanthropy" was first coined in 1969 by industrialist John D. Rockefeller III. At the time, he described it as the "imaginative pursuit of less conventional charitable purposes than those normally undertaken by established public charitable organisations." The Rockefeller Foundation gave its very first grant to the American Red Cross shortly after. Today, total grantmaking awarded by the foundation exceeds $17 billion. Other foundations, like the Bill and Melinda Gates Foundation, have followed suit, awarding $5.8 billion to 1,300+ grantees.
With that being said, a VC does not need to be a multi-billion-dollar corporation—or one of America's most prominent billionaire families—in order to take part in venture philanthropy.
VCs of all sizes can take part in socially responsible investing in order to bring about change.
For example, the Robin Hood Foundation in New York helps fight poverty in New York City by funding early-stage nonprofits. Since its beginning, it has funded over 900 organizations. Plus, it helps these organizations in the areas of board recruitment, fundraising, and leadership development.
Venture philanthropy vs. impact investing 🙅
Venture philanthropy and impact investing are two phrases that are often confused, but they refer to two distinct practices.
With impact investing, firms diversify their portfolios by investing in organizations that strive to create a positive social impact. Although they’re investing in green or socially responsible decisions, a strong financial return remains the end goal.
Venture philanthropy, on the other hand, does not strive to flip a profit. Instead, the venture fund will typically offer grants to different nonprofits, social enterprises, or social entrepreneurs (which, in turn, serve as a tax deduction for the VC firm). While it's a high-engagement relationship—with the VC offering guidance in addition to upfront cash—a financial return is not the end goal.
4 benefits of venture philanthropy
Venture philanthropists help nonprofits build safer communities, launch green initiatives, and support a number of social causes. Here are just a few key benefits of venture philanthropy.
1. It develops a better leadership team ✊
Many nonprofits lack the funding needed to invest in professional development for their employees. This can be drastically different from for-profit organizations, which invest an average of $1,273 annually per employee in professional development and continuing education.
Fortunately, philanthropic funders often work closely with the nonprofits they fund, offering mentorship and guidance to the executive director and other staff. This can help offer the training and professional development necessary to build better managers and improve the overall culture of the organization.
2. It builds long-term solutions ⏰
Every nonprofit needs funding to bring about change.
Their ability to get the job done doesn’t doesn’t always rely on how much money they can raise, but when they raise it.
A partnership with a VC firm can mean a steady stream of cash flow for an organization—something that's extremely rare within the nonprofit sector. With roughly 30% of all annual giving occurring in December (and 10% coming the last three days of a year), many organizations find themselves facing budget cuts in the spring and summer months. Receiving financial support from VCs—rather than individual donors—creates a steady cash flow year-round. This, in turn, allows the nonprofit to invest in the tools, technology, and platforms they need to do their jobs.
3. It widens the nonprofit network 🌎
Nonprofits depend on their donor network—and often, the size of that network—in order to reach their campaign goals. While this network will organically scale through fundraising events, marketing campaigns, and paid-for ads, it can be a slow growth process.
Venture capitalists expose their nonprofit partners to their own personal and professional networks. This creates a larger donor pool and ultimately a larger financial return for the organization.
4. It can bring about radical change 💃
The funds brought in through venture philanthropy can far outweigh what a nonprofit can raise through individual charitable giving. This, in turn, sparks radical change at a rapid rate.
This has been proven in the public health space, where American philanthropists have funded life-changing medical research. In the 1990s, the Cystic Fibrosis Foundation (CFF) invested in a pharmaceutical research company that eventually created the first drug to address the root cause of the disease. Other philanthropic organizations, like the Michael J. Fox Foundation and Multiple Myeloma Research Foundation, helped fund groundbreaking research for Parkinson's disease and multiple myeloma, respectively.
Venture philanthropy can help nonprofits create positive change
Nonprofits rely on individual and corporate giving to create positive change. Unfortunately, many nonprofits are underfunded, which negatively impacts the organization's ability to train new managers, subscribe to the right tools and technology, reach a broader donor base, and ultimately accomplish their annual goals.
Fortunately, venture philanthropy is striving to change that. Venture philanthropy is a practice in which a venture capital firm funds a nonprofit or socially responsible startup. This offers tax-deductible grants and positive public image for the VC firm, while impacting the causes they care most about. The nonprofit acquires capital, mentorship, and access to the VC's professional network, which can help them surpass their fundraising goals.
Even with a venture capital partnership, nonprofits still need the right tools to get the job done. Givebutter is the world’s first completely free end-to-end fundraising platform that brings together everything you need to successfully raise funds, track progress, and engage your supporters. With more than 130 free features, Givebutter can help you promote events, thank donors, and ultimately change your communities for the better.
Ready to see how Givebutter can help you hit your fundraising goal? Launch your free account to get started.
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