Venture Charity: Bringing the Startup Model to Philanthropy

Igor Makarov discusses Venture Charity: Bringing the Startup Model to Philanthropy

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There’s no denying that our world has problems. From the challenges of climate change to the ongoing struggle against global poverty, it often feels that there are too many obstacles and too few solutions.

All of this brings a question: why not apply the methods of big business, especially from the tech world, to philanthropy? As with startups and venture capital, investors with deep pockets could fund promising projects aimed at tackling pressing problems. The only differences would be scope and return: for one, these would be philanthropic pursuits, such as bringing potable water to underserved populations or malaria nets to vulnerable areas. For another, investors could expect more modest returns, rather than sky-high valuations of tech unicorns like Facebook or Uber.

Aside from that, venture charity (or venture philanthropy, as it is known in some circles) is indeed a viable model for societal problem solving. Let’s examine what a sustainable, impactful model of venture charity would look like.

The case for venture charity

It’s a well-worn truism that, in order to make money, one must already have money. The same is true for social entrepreneurs. In order to expand their services and model and to reach more people around the globe, a charity–like a business–must have capital. After all, hiring staffers, testing out services or products, and piloting new programs are all very money-intensive.

It certainly doesn’t help that charities are often underfunded. Lately, fundraising has seemed to level off; according to one 2011 survey, there was a wide gap in donations between the richest (who contributed an average of 1.3 percent of their income) versus the poorest (who contributed 3.2 percent). Overall, Americans are giving less to charity than a decade ago, dropping by close to 11 percent: in 2005, the average charitable donation was $1,024, while in 2015, the average donation was $872.

To make matters worse, even when charities do receive much-needed money, these funds often come with strings attached. Perhaps concerned by lists of unreputable organizations or dedicated to certain causes, people tend to reserve their donations for specific causes. Unfortunately, earmarking your funds for a single cause often causes more trouble than good: for instance, one popular program (like Smile Train’s cleft palate initiative, which gives free surgery to children in need) might receive all the funding–while other, equally important programs wither away.

But perhaps the most important argument for venture charity concerns its potential to create lasting, permanent solutions. As investor Henry Blodget writes in Slate, using the venture charity model goes beyond simply investing in one-off endeavors, such as putting down a few million dollars to start a school or hospital. Instead, venture charity can help incubate new, beneficial technologies that can solve deep-seated problems at a fraction of the cost, such as the Barsha pump, a low-tech solution that uses kinetic energy to transport water to higher elevations.

Moreover, don’t forget that many young minds (specifically Millennials and the generation behind them) are highly committed to doing good. A Deloitte survey of 7,800 rising Millennial leaders from 29 different nations reinforced this perception: 50 percent of Millennials said that they would take a pay cut to work for a company that matches their values, while 90 percent want to use their skills for good. Yet meaningful work is important, even when you don’t consider only Millennials: those who feel that their work creates positive impact are more likely to feel inspired and productive, up to three times more so than dissatisfied employees.

What would venture charity look like?

Clearly, there is a pressing need for funding philanthropy in the same way that high net-worth investors fund startups. But this model isn’t new: there are already a number of venture charities operating today.

One promising organization is the Acumen Fund. Following in the model pioneered by large, established foundations like the Rockefeller Foundation or the Gates Foundation, Acumen sponsors social enterprises that are both financially sustainable and scalable. Like the Gates and Rockefeller Foundations, Acumen works with entrepreneurs, many of whom are locals who must deal with the pressing societal problems they aim to solve on a daily basis. As with venture capitalists, Acumen seeds and incubates startups, seeking out high-growth social enterprises to nurture and back.

One area that may be worthy of emulation is that of benefit corporations, or B-Corps. In essence, benefit corporations have their philanthropic purposes built into their business model, be it sustainability, eco-friendly supply chains and manufacturing, or high labor standards that prevent exploitation or child workers. Not only does this go hand-in-hand with the socially aware nature of most Millennials, but investors may give less pressure to B-Corps to turn profits. After all, the list of B-Corps is full of household names, including Patagonia, Warby Parker, and even Etsy–all of which are doing very well financially.

Yet this raises a question: what about returns? There’s a great difference between investing in a company like African Renewable Energy Distributors, which franchise out small, solar-powered carts (used as device chargers and mobile credit kiosks), versus a large pharmaceutical company. In the case of the former, returns will very likely be less than the latter, if only by design.

Perhaps we can take a page from the Gates Foundation, as ever the leading edge of venture charity and next-level philanthropy. In 2015, the organization invested some $52 million in CureVac, a medical company that seeks to use mRNA (DNA’s lesser-known counterpart) to basically guide human bodies to fight off infectious diseases and conditions. Unlike angel investors, groups like the Gates Foundation don’t necessarily seek to make huge profits off their bets (though they sometimes do, especially when it comes to funding new vaccines). Instead, the goal is to speed up development and bring finished, safe products to the market faster than they normally would be–perhaps saving lives in the process.

For all the doubt surrounding it, venture charity is a well-worn, admirable path with plenty of past precedents to recommend it. Collaborating with the private sector can yield faster, more effective solutions than going it alone (this is true for both government institutions as well as non-governmental organizations). After all, isn’t it time that more organizations incubated and encouraged effective social enterprises, whose measures aren’t necessarily growth in revenue, but an increase in the lives benefited and touched for the better?

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