By John Quinterno
While questions remain about the impact and viability of venture philanthropy, a model rooted in the business world that attracted considerable attention in the 1990s, it has enriched philanthropy by challenging mindsets that have hindered nonprofits from developing organizational capacities to achieve their missions.
Traditionally, philanthropic foundations have preferred to fund innovative programs rather than innovative organizations. Environmental factors have caused foundations to provide short, limited grants to a wide mix of nonprofits. This creates underfunded organizations devoid of the organizational infrastructure needed to sustain, improve and replicate programs. Because nonprofits are not rewarded for developing their organizational capacities, they often ignore management issues, limiting their ability to effect social change.
Venture philanthropy developed in reaction to this dynamic. As individuals who earned fortunes in the 1990s turned their attention to philanthropy, they feared they might give money away without achieving lasting impacts.
A desire for long-term success and accountability led some individuals to rethink traditional philanthropic approaches, and they drew inspiration from the private sector.
Groups such as New York City’s Robin Hood Foundation modeled themselves after businesses and incorporated such practices as accountability, performance measurements, due diligence, management assistance, adequate funding, niche areas and long-term partnerships into their grantmaking.
A major problem with venture philanthropy is that it is young, ill-defined and untested. A 2001 study by the Morino Institute, a venture philanthropy in Reston, Va., identified 40 groups that had incorporated venture philanthropy into their grantmaking. Most of these groups, clustered in areas with technology sectors, were young and had awarded few grants.
It also is not clear if venture philanthropy can achieve its purpose. While applying business practices to nonprofits sounds promising, there may be no way to measure success.
The private sector uses financial criteria, but nonprofits exist to generate social returns. Although groups such as San Francisco’s Roberts Social Enterprises Fund have attempted to develop measures, quantifying social impacts remains difficult.
In spite of its limits, venture philanthropy has forced traditional foundations to reevaluate their grantmaking, and at least two North Carolina foundations have reappraised their work in response.
In 1995, the Mary Reynolds Babcock Foundation in Winston-Salem launched an organizational development program to increase the effectiveness of nonprofits, while the Triangle Community Foundation in Research Triangle Park has created an Entrepreneurs Philanthropic Venture Fund that taps donors partial to the venture philanthropy model.
By highlighting organizational difficulties facing many nonprofits and attempting to remedy them, venture philanthropy has enriched the philanthropic world and, even if it achieves no other successes, has caused some traditional foundations to rethink their grantmaking and help nonprofits develop the structures necessary for success is significant.
Unless more foundations follow this lead, nonprofits’ promise for meeting social needs will remain untapped.
John Quinterno is assistant director of the Program on Southern Politics, Media and Public Life at the University of North Carolina at Chapel Hill.