Virtuous Capital: Combining Capital with Management

from George Kay

Virtuous Capital: Combining Capital with Management

Venture philanthropy, like the venture capital it evolved from, involves not just giving money to a cause, but giving their management experience as well.  It is easy to just write a check and move on, but venture philanthropy involves a much higher engagement.    It combines traditional business practices with a charitable cause.  Metrics and data are used to measure the effectiveness of programs.  Business plans and strategies are developed to ensure the charity has a defined purpose.  Often, the donor will require changes in personnel or the establishment of financial controls.  All of these methods are used to improve the effectiveness of the charity.  The venture philanthropist can make these changes to an existing organization, or create their own from the ground up.

Thomas Siebel made his fortune as the founder of Siebel Systems Inc, a successful software company.  Siebel noticed the destruction the methamphetamine epidemic was having on Montana’s teenage population, and decided that action needed to be taken.  One option he had as a man of wealth would be to donate a sizable amount towards public services announcements, and let established organizations handle the problem.  Instead, he used the business techniques honed from his time at the helm of Siebel Systems, and created the Meth Project.  With the Meth Project, Siebel hired marketing, advertising and PR firms to create an advertising campaign to raise awareness among teens on the dangers of meth.  He used marketing techniques such as focus groups to test which advertisements had the best results.  He used benchmarking, taking statistics on drug use and crime relating to meth use and addiction.  Using these methods, Siebel was able to get the best bang for his buck.  As a result of the Meth Project, “between 2005 and 2007, meth use in Montana dropped 45 percent among teens and 72 percent among adults, while meth-related crimes fell 62 percent.” (Kramer, 2009)

A similar venture philanthropy story can be found in Venture Philanthropy Partner (VPP).  VPP teamed up with See Forever, a foundation that operated charter schools.  Before VPP, See Forever “didn’t have any sort of governance or long term strategy,” (Van Slyke, 2009).  Although it was managed by a undoubtedly caring and involved team, they did not have the business sense required to operate an institution of their size.  When VPP teamed with See Forever, they did not just give their money, they gave their expertise.  VPP suggested changes in their organizational structure, moving the principal (and math teacher) into the role of Executive Director.  They advised on alternative methods of funding, such as government grants.  They recruited executives from prior business connections to join the See Forever team.  VPP suggested that See Forever expand to not just getting its students into college, but setting up alumni associations to ensure that they not only graduate but thrive in college.

Although many people do not have the time or ability to give more than money to charitable organizations, when it is possible, venture philanthropists can give so much more than just funding.  The long term relationships created when venture philanthropists partner with charitable organizations help by guiding, advising, and managing the organizations they support.  On the contrary to just donating money, this gift is priceless.

 

 

 

 

Sources:

Kramer, Mark, R. 2009. Catalytic philanthropy. Stanford Social Innovation Review, Fall.

Van Slyke, David M.; Newman, Harvey K. 2006. Venture philanthropy and social entrepreneurship in community redevelopment Nonprofit Management & Leadership, 16 (3): 345-368

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2 thoughts on “Virtuous Capital: Combining Capital with Management

  1. smithcherylm November 12, 2012 at 3:42 PM Reply

    George, I think you raise a really important point about the difference between venture capitalism and pure nonprofits. Nonprofits typically come into existence because they see a social need that is being underserved. While they have good intentions and their aim is to make sustainable changes in a community, they often lack the resources and management knowledge to bring their social mission to fruition. Simply generating the funding demanded does not create a recipe for success and it is for this exact reason why millions of dollars have most likely gone to waste despite good intentions. It is often believed that the root of failure was lack of necessary funding to support the social mission and initiatives (Perry, 2012). While funding may often be a challenge, the reality is donors often see the downward spiral a nonprofit is headed towards and choose to take their funding to a place where they feel it will be more impactful. Is this wrong? Not necessarily, as donors spending significant sums of hard earned money want to make sure it is impactful. But instead of stepping away only to watch an organization they once supported fall to pieces, why do they not step in and do more than just throw money at an issue? This is where venture philanthropy plays a significant role in the growth and sustainability of nonprofits.

    Venture philanthropists not only provide funding but it also provides the much needed business and management guidance so many nonprofits lack. Business savvy investors offer their guidance, expertise and business knowledge to help create a more sound business platform for nonprofits to create a sustainable organization. This provides a much more impactful contribution to social efforts than simply throwing money at an issue. The case study of Tom Cousins and the creation of ELCF is an extreme example of venture philanthropy put into practice. Rather than providing funding to organizations he felt were not aligned with his philanthropic interests and set up for success he created one on his own utilizing his extensive business background to establish a sustainable organization (Van Slyke, 2006). This created changes and platform for growth in the community that would last much longer than the short term efforts of many nonprofit organizations.

    It is essential that nonprofits, while they are not intended to deliver returns, be managed and established in a manner that will not only generate the funding necessary to continue doing good, but also create sustainable changes in the communities they serve. Venture philanthropy is a step in the right direction to achieving this goal. The only caution is that this should not lead to the loss of nonprofits true mission. It is important that venture philanthropists influence the organizations for positive changes and do not use the influence of their funding to change the direction of nonprofits away from their original intent. If this relationship is managed appropriately venture philanthropy can have a major impact on the success of social initiatives.

    References

    Perry, Richard, 2012. Six Reasons Why Non-Profits Fail. Passionate Giving.

    Van Slyke, David M.; Newman, Harvey K. 2006. Venture Philanthropy and Social Entrepreneurship in Community Redevelopment. Nonprofit Management & Leadership, 16(3): 345-368.

  2. tlhill2012 November 23, 2012 at 9:29 PM Reply

    George – good summary. You capture the value and the promise of venture philanthropy well. Two questions to ponder:
    1) Why isn’t it growing faster? Is it just a matter of time? Or is there something else going on? One issue might be the role of stakeholders in many nonnprofits – and the essential solo-ness, or exceptionalism at the heart of venture philanthropy. Why should we trust one investor (or a small group) to solve a social problem. They may be smart, dedicated and rich, but do they really have the answer? This is partly a question of style – a question that reflects a common worry in the nonprofit community. But there may be some substance here as well: Might social change generally require entrepreneuial teams and broad investment for success? If so, how does management change?
    2) Measurement is critical to venture capital and also venture philanthropy. How can we measure social impact as powerfully and routinely as we do financial returns?

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