According to International Venture Philanthropy Forum (2001), just as the “new economy” is revolutionizing the global capital market of the for-profit sector, the emerging field of “venture philanthropy” is poised to have a significant impact on the face of philanthropy around the world. Venture philanthropy is an emerging field of philanthropic “double bottom-line investment” that combines the practices of long-term investment and venture capital models of the for-profit sector with the mission-driven principles of the nonprofit sector.
NPOs (Non-Profit Organizations)
The International Center for Not-For-Profit Law defined a non-profit organization (NPO) is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals (Gary M. Grobman, 2008). Examples of NPOs include charities (i.e. charitable organizations), philanthropy, trade unions, and public arts organizations. Most governments and government agencies meet this definition, but in most countries they are considered a separate type of organization and not counted as NPOs. They are in most countries exempt from income and property taxation.
Contexts, Definitions and Characteristics of Venture Philanthropy
In the mid-1990s, modern forms of VP emerged in the USA, and spread to Europe about five years ago. However, the very first modern VP organisation is arguably the Phyllis Trust (now known as Andrews Charitable Trust), set up in 1965 by Briton Cecil Jackson-Cole. The Trust played an important role in the creation and growth of a number of charities, including Oxfam, ActionAid and Help the Aged. UK and other European venture philanthropists have adapted and evolved the American model to reflect differing socio-political and funding environments. For example, most American venture philanthropy is grant-based, whereas in Europe there is a broader spectrum of financing, such as loans and surplus sharing mechanisms, often used in combination with grants. Europeans also typically are more open to investing in initiatives that are not registered charities – such as social enterprises, social businesses or individuals – in part stemming from the varying legal forms of organisation and charitable tax relief in different countries. European VPs also are more likely to actively seek to work in partnership with other funders or government to advance their mission (Jamkit and Philanthropy UK, 2009).
VP still remains a small percentage of total grant-making regardless of its rapid growth over the last 10 years, even in the USA. In 2001, there were only 42 “high-engagement” VP organisations, together making grants of about $50m, less than 0.2% of total foundation grant-making. However, Venture Philanthropy Partners found that compared to the 50,200 charitable foundations in the USA making a total of $27.6 billion in grants in 2000 Foundation Center. Yet whilst VP remains limited in size, its influence continues to grow as larger, traditional grant-makers adopt some of its key principles(Jamkit and Philanthropy UK, 2009).
Jamkit and Philanthropy UK (2009) defined Venture philanthropy (VP) is an approach to charitable giving that applies venture capital investment principles – such as long-term investment and capacity-building support – to the voluntary and community sector. According to Wikipedia, Venture Philanthropy, also known as philanthrocapitalism, takes concepts and techniques from venture capital finance and high technology business management and applies them to achieving philanthropic goals (Tierwriting.com, 2010). VP is a form of ‘engaged’ philanthropy.
According to the European Venture Philanthropy Association, the key characteristics of European venture philanthropy are (Jamkit and Philanthropy UK, 2009):
Moreover, due to Tierwriting.com (2010), Venture philanthropy is characterized by:
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Willingness to experiment and try new approaches.
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Focus on measurable results: donors and grantees assess progress based on mutually determined benchmarks.
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Readiness to shift funds between organizations and goals based on tracking those measurable results.
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Giving financial, intellectual, and human capital.
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Funding on a multi-year basis - typically a minimum of 3 years, on average 5-7 years.
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Focus on capacity building, instead of programs or general operating expenses.
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High involvement by donors with their grantees. For example, some donors will take positions on the boards of the non-profits they fund.