Venture Philanthropy: Definition, Operation, and Origins

Definition

Venture philanthropy applies principles of traditional venture capital (VC) financing to philanthropic endeavors. It is commonly used in the context of charitable startups, green companies, or B corporations, as venture capitalists offer expertise in these areas.

Key Takeaways

• Venture capitalists sometimes use their resources for philanthropy.
• They inspire and direct change by shifting their focus from capitalism to philanthropy.
• They may offer support through coaching or board management.

Operation

Venture philanthropy uses VC principles to invest in start-up, growth, or risk-taking social ventures. Unlike impact investing, it prioritizes social good rather than profit. Investor oversight and tailored financing are common, as major donors often sit on the boards of supported organizations and are involved in operational aspects.

Venture philanthropists offer non-financial support, such as executive advice and marketing through their platforms. Success is measured based on overall social impact.

Other Considerations

Various forms of venture philanthropy exist, including private foundations, government or university grants, investing institutions’ philanthropic arms, and charities. Grant-based investment, which encourages innovation, is prevalent in the United States.

Origins

The term "venture philanthropy" was coined by John D. Rockefeller III in 1969. It arose due to the perception that traditional financing mechanisms did not adequately support non-profit organizations or socially beneficial industries.

As climate change and environmental concerns gained prominence, venture philanthropy grew. However, impact investing, which pursues profit and social responsibility, has gained ground. Initiatives like carbon emissions markets and subsidies for sustainable businesses aim to bridge profit-driven markets with socially responsible practices.