- Venture Philanthropy
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I have been thinking recently on how the charitable sector mirrors the corporate sector. This thought process was triggered by an article I read in the NY Times and then by a blog posting on Tactical Philanthropy.
The NY Times Magazine article, Self-Made Philanthropists shares the story of one couple who approached philanthropy from a Venture Capital perspective. This article highlights how Venture Capital investors are shaping the way people invest in philanthropic projects. The Tactical Philanthropy blog was on how foundations are struggling with this new approach to philanthropy because “business matrixes” are being applied to measuring social outcomes. So even though foundations in North America are larger than some of the GDP’s of whole countries, this new form of philanthropy is shaking the “foundations” of major philanthropic funding bodies.
I find several things interesting about the new approach to philanthropy -the angst that it is causing traditional foundation models, the response of philanthropic investors seeking transparency and accountabilities from their investees, and the creativity that is being generated by philanthropists and within the charitable sector to report back on the social impact generated by the philanthropic investment.
The Sandlers who are the focus of the NY Times piece, wanted to support effective investigative journalism so this is what they did, something that few others had done:
They chose a path… Rather than give money to someone who approached them, they did the approaching. Rather than finance an organization that already existed, they started their own outfit. They found a star to run it. They seemed almost to relish the thought that they risked failure with this new, unproven model of journalism, though if truth be told, they don’t think they’ll fail. And they gave a lot of money — $30 million for the first three years, with the expectation of continuing that commitment, if not more, for years to come. It’s hard for philanthropists to make a big difference if they’re not willing to spend some serious money, the Sandlers say.
On one level Herb and Marion Sandler are part of the new wave of philanthropists that Matthew Bishop of The Economist calls “Philanthrocapitalists”: wealthy entrepreneurs who are applying to philanthropy the same principles that made them successful businesspeople. They make big bets, demand results, take risks, want some control over how their money is spent and so on. The quintessential philanthrocapitalist, of course, is Gates, but many others are now following his lead, trying to forge a new kind of activist philanthropy. Even among the philanthrocapitalists, though, the Sandlers stand out. Herb, in particular, can sound nearly contemptuous about how other philanthropies go about their business. Mainly, it seems, they don’t do it the way he and Marion do.
But what makes them so sure their way is better?
A statistic I read a few years ago, stated that 4 out of every 10 start-ups make it to year three, and then only 2 of those make to year five. Unfortunately I have not found a statistic that states how many start-up charities there are and of those how many make it beyond years three and five (if someone knows this information please share). What I do know is that in Canada the average age of a charitable organization is 29 years old and that there are over 500 registered charities to every 100,000 Canadians (see the NSNVO study in the resources section of this website). These stats are based on a 2003 survey. If we were to do a very (admittedly) unscientific extrapolation, with 1,000,000 people in Calgary there are just over 2,000 registered charities. In 2002 there were approximately 800,000 people in Calgary. So in just over 5 years the number of charities has grown by just over 25%.
Is it better for society to have more selection of charitable services, or is it better for society to have fewer charities that are addressing more needs? How does supply and demand actually play out in the charitable sector - is it donor driven (revenue stream), is it client driven (end user seeking services), is it government driven (cut backs to various sectors requiring charities to fill the gap), or is it collectively driven (social networking)?
As a philanthropic investor, do you have the time to research where your charitable dollars are going? According to the Sandlers, they spent as much time researching one of their recipients as they did in preparing for an S&L acquisition!
If the Sandlers are a new breed of philanthropists, not only are they changing the face of the charitable sector by creating organizations that address their needs, they are also investing resources in identifying organizations and projects that fulfill their philanthropic objectives. But most especially, they have identified what those objectives are!
Depending on your objectives, creating a new charity may help reach your goals, but ultimately will it be better for society? It is generally understood that resources are finite. As more and more charities are created to fill niche markets, it seems to me that we will see a wave of mergers and acquisitions simply because a new breed of philanthropic investors are changing the way charities do business.