Social Entrepreneurship Blog
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.
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
“How Do You Measure Success in Social Philanthropy?” Case Example
By Bareeq AlBarqawi
Last month, the Knight Foundation announced that it would be giving $1.3 million in grants to technology projects in order to get more people involved in developing their communities. The Knight Foundation decided to split this money into four different grants:
1- $590,000 given to Change by Us, a project of CEOs for Cities, to help expand their website so more citizens can suggest ideas on how to make their cities better and more livable. Also the money will help in integrating the website with social media and making it available for other cities to adopt.
2- $250,000 to Good360 which is an online marketplace for nonprofits to post their needs, find products, and communicate with sponsors, both individual and corporate.
3- $236,000 to DailyFeats which is a site that allows people to take small steps towards a goal that will improve their health and well-being. They plan on using these extra funds to expand its outreach and measuring results and seeing what works and doesn’t work for their site.
4- $225,000 to OpenGovernment.org, a project of the Participatory Politics Foundation. This site is a free, open-source website that assists people to track current policy proposals under consideration by city councils and helps to communicate with local elected officials.
In addition, the Knight Foundation published a new report titled, “Digital Citizenship: Exploring the Field of Tech for Engagement,” which outlines successful online projects while mentioning the challenges ahead for organization that had to work in implementing similar tools as the organizations mentioned above.
This is social philanthropy at its best, however, how will the Knight Foundation measure the success of its grants? Will they base it on the successful implementation of the projects that this money will help fund or based on the impact made on the community? If the latter, how will that be measured? Will it be based on website traffic, the number of donations, the number of donors, or how much closer the organization has gotten to its goal if outlined specifically? This goes to show that to measure success in this field, you may have to look at more than one variable or aspect of the work.
Personally, I believe that since these grants are focused on increasing civic engagement, then to look at that locally. Many of these websites are broken down locally into different cities and I believe that looking at these cities individually and gauging what impact they have had may be something to look into. It is hard to base the actions within a city on a website alone, but engaging their website visitors to get their feedback, perhaps through social media, will prove to them they are doing a good job or not.
It is a very tricky transaction to maneuver around when you are giving funds to an organization doing a great thing for the community and to know that your money is making a big difference. In addition, the Knight Foundation published a report to assist these organizations complete their projects, but how effective is this strategy? I do believe that, in comparison, catalytic philanthropy is much more efficient; however, this may be an easier way for the Knight Foundation to do their business. Many foundations out there do not have the manpower or time to provide these organizations someone who could help them on the ground in strategy implementation so this is a less involved method of aid. It is helpful, but I do not feel that it compares with the impact that can be had using catalytic philanthropy which solves many problems as they arise.
Draper Richards Kaplan Foundation
William H. Draper, III and Robin Richards Donohoe began investing together in the venture industry in 1994 concentrating on building companies in India. In 2002, they created the Founders Fund which invested 14 million dollars from 2002 to 2012 in thirty non-profit organizations. Over the life of the fund, the portfolio of 30 organizations was able to generate an additional 270 million through philanthropic and revenue streams. (1)
One non-profit that was a member of this fund is KIVA, an internet based micro lending institution that petitioned Draper Richards Kaplan for grant money in 2006. After receiving the request, the fund responded by asking KIVA how they planned to grow and helped connect the non-profit with existing micro lenders. Said one of KIVA’s co-founders of the fund, “They actually helped us shape our business model…They were just really really involved and engaged.” (2) With the fund’s help, KIVA has since become one of the prominent non-profit organizations in the world, and has facilitated the lending of $310 million in 210 countries around the world.
As with any venture capital firm, socially motivated or otherwise, some investments fail. In several cases, the organization realizes that it cannot realistically achieve the goal that it set out to achieve or that it cannot achieve the level of funding that it needs to achieve its goal. In these cases, the foundation will discontinue funding and move on to another opportunity.
After experiencing this kind of success with KIVA and other organizations funded by the Founders Fund, the foundation wanted to continue its social mission on an even larger scale. The foundation recognized that it had limited capital to invest relative to the number of social entrepreneurs in the market for funding. So, in 2010, the foundation enlisted the help of ex-vice chairman of Goldman Sachs, among others to raise $36 million dollars to fund additional organizations looking to achieve social missions. This is significant because of the typically fragmented structure of the philanthropic landscape. It is much easier for an aspiring philanthropist to start his own foundation than it is for him to find people to invest along with him.(2) The foundation is creating pool of funding that can be used for greater, more focused impact rather than fragmented funding that is often times ineffectual.
Another benefit of this model is that it not only pools dollars, but it pools experience. The foundation is helping to create a network of non-profits that can depend on each other for support, and that provide insight into what makes an effective business plan in the non-profit world. The foundation uses this knowledge base to stretch the leaders of organizations to develop the right business plan and to think about metrics and a growth strategy…not things that traditional non-profits focus on. Typically socially motivated organizations seek to achieve their social mission in the near term and lack focus to ensure sustainability. The foundation helps them to make sustainability of their organization and funding a reality.
Expanding Your Reach; Empowering Individuals
One-year-old start up company Solar Sister is making big strides in improving the lives of African women by using cosmetics company AVON’s model of “business in a bag” to distribute solar energy in Uganda, Sudan, and Rwanda (2). The organization empowers African woman by providing them a means of income (pedaling solar powered lamps to their villages) as well as providing rural African families a renewable light source. As 95% of homes in rural villages in Uganda lack electricity this mission is clearly an important one (1).
The business-in-a-bag model usually shares a common criterion. The organization provides entrepreneurs with ongoing training, offering financing or consignment models for entrepreneurs’ initial inventory. It will have systematized promotion and marketing strategies, such as branded uniforms and strict protocols that incorporate penalties for rule-breaking (3). Lastly, it helps entrepreneurs develop a reputation as authoritative service providers within their community. Though some of this organizations use micro-lending and mirco-financing, Solar Sister does not (2).
When considering the market for non-profits and areas of new social ventures we see the trend shifting in a more sustainable direction. As The Wall Street Journal article “Strings Attached; Along With Their Big Bucks, Rich Donors Want to Give Charities Their Two Cents” validates philanthropy is no longer as simple as Warren Buffet’s style of “handing over tons of money to a trusted organization”. This is now considered to be “an old-school way of charitable giving”. So what are our other options?
In an interview Katherine Lucey, Solar Sisters founder, argues that the new market of non-profits is not just helping to improve lives, but providing the tools and the foundation needed for individuals to improve things themselves (2). This model is more durable and sustainable, “we are providing woman the opportunity to be entrepreneurs” Lucey argues. Solar Sister has developed 177 “entrepreneurs”, at least 50% of them are young entrepreneurs who will become tomorrow’s leaders in their communities and countries (1).
In organizations like Solar Sister, their business model has been designed for success. As the major issues arising in non-profits and social ventures are largely funding and marketing, Lucey feels your organization should inherently assist with this. Donations, fundraising, grants, etc can only go so far. Working with the business-in-a-bag model, this allows the sustainability and some of the funding of the organization to be pumped through the organization’s missions and efforts (2).
Just as in the theory behind catalytic philanthropy when a need appears you don’t try to throw money at the problem to make it go away, you must kill the root of the problem. In the example of Thomas Seibel, founder of Seibel Systems Inc, he did not just donate money to a cause, he started his own cause in a effort to change lives. This model is inherently sustainable. Just like Lucey, she saw a need in Africa and did not just provide money, but provided a platform by which hundreds could change their OWN lives (3).
The future and demand of social missions lies in addressing the root of problems, not just their effects. Non-profit organization are shaping into a different brand of organized philanthropy. Room for growth and expansion lies in efforts that come full circle.
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