Supporters Say Venture Philanthropy Still Thrives, Even if Reach Is Limited

Some seven years after “venture philanthropy” entered the language of modern philanthropy in a Harvard Business Review article, such giving remains just a tiny slice of foundation grant making. However, the roughly 200 people who gathered last month at Stanford University to discuss venture philanthropy’s future seemed relieved that it has gained a toehold, even if a modest one, in the grant-making world.

“This is a surreal experience to see all these people sitting together talking about this issue and not simply piling on and attacking it,” Jed Emerson, who for 10 years ran the Roberts Enterprise Development Fund (now known as REDF), said during one session.

Venture philanthropy emerged near the end of the 1990s stock-market boom, and was embraced by newly minted technology executives who thought they had found a better way to support charities. Although the details differ for each fund, most agree on this approach: make long-term grants that support an organization’s ability to carry out its mission rather than financing specific programs — and work side-by-side with the charity to help it achieve measurable results.

The revolutionary language of the early days of venture philanthropy — which rankled many officials at traditional foundations — was largely absent from the summit held at Stanford (though “stodgy” and “traditional foundation” did end up in the same sentence more than once). Much of the discussion focused on ideas that could best be described as conventional, such as collaborating with government agencies to augment private dollars.

In 2002, according to a study by Venture Philanthropy Partners, a fund in Washington, organizations that practice venture philanthropy made grants totaling roughly $50-million. That is less than 0.2 percent of total foundation grant making ($26.9-billion, according to “Giving USA,” the annual yearbook of American philanthropy) in the same year.

Laura K. Arrillaga, director of the $19-million John Arrillaga Foundation, in Santa Clara, Calif., which helped sponsor the conference, cited those statistics in an opening address, but she argued that the influence of venture philanthropists far outstrips their comparatively modest grant-making budgets.

Ms. Arrillaga said her experience as a member of the Silicon Valley Social Venture Fund, which uses a venture-philanthropy approach, had also shaped her recent grant making at her family’s foundation. “While venture philanthropy may play a small role quantitatively, its potential leverage is significant,” Ms. Arrillaga said. “Tens of millions of dollars invested through venture philanthropy can be used to influence tens of billions of regular philanthropic investments.”

The conference made one thing clear: Aside from the basic outline, venture philanthropy means different things to different people.

Some venture funds, including New Profit, in Cambridge, Mass., and NewSchools Venture Fund, in San Francisco, adhere strongly to the language used by venture-capital firms. They want to find promising nonprofit groups that can “go to scale” — expand operations locally or around the country. And, when appropriate, the funds look for an “exit strategy” (financial self-sufficiency at the charity is the holy grail), so that they can redeploy their capital with another organization.

But Lee Davis, co-founder and chief executive officer of the Nonprofit Enterprise and Self-Sustainability Team, a San Francisco group that uses a venture approach to support charities in Central Europe and Latin America, said he had become skeptical about the concept of “scale.”

“If we push organizations to grow, the balance can be thrown off,” he said. “Sometimes small really is beautiful.”

Others noted that even if a charity grows in size and spreads around the country, thanks to the support of a venture philanthropist, it may be no more financially self-sufficient than when it started. The charity’s revenue may not cover its costs, and government and other grant makers may be unlikely to fill the void when the venture philanthropist steps aside.

“Nothing fails like success — no matter what the idea — when you’re trying to add funders on when it wasn’t their idea in the first place,” said Peter Hero, president of the Community Foundation Silicon Valley.

That makes the notion of an “exit strategy” especially challenging, he said. “Venture philanthropy may need to return to some of the tenets of traditional philanthropy,” he said.

Officials at venture-philanthropy funds remain sharply divided on whether they should take seats on the boards of charities they support. The NewSchools Venture Fund does seek board seats, to demonstrate that it is just as “accountable for success” as the organization it is working with, says Kim Smith, the fund’s co-founder and chief executive officer.

But officials at the Robin Hood Foundation, in New York, believe serving on a charity’s board can make it difficult to remain objective when making decisions on grants. “It unnecessarily complicates relationships, and it isn’t the most-important tool in the toolbox,” says David Saltzman, the fund’s executive director. “We’re better off helping them recruit good board members.”

At another session, one speaker challenged a venture-philanthropy principle that had generally been considered sacrosanct: using quantitative metrics to assess results. The session featured two grant makers: Vanessa Kirsch, president and founder of New Profit, and Robert Levenson, founder and chairman of the Social Profit Network, which seeks to link “social entrepreneurs” directly with individual philanthropists.

New Profit adheres to the party line in the venture-philanthropy realm: If one of its grantees fails to hit mutually agreed-upon numerical goals in a period that can be as short as three quarters, Ms. Kirsch would strongly consider ending the relationship.

Mr. Levenson, meanwhile, seeks out individuals who are “really terrific” and gives them virtual free rein. He doesn’t attend board meetings, and he doesn’t ask for any reports. “You don’t ask your dentist all the time, ‘How do you know that’s really a cavity?’” Mr. Levenson says.

While many venture-fund executives spoke candidly about their early missteps, the most pointed criticism of the day came from Paul Brest, president of the William and Flora Hewlett Foundation, which very much remains a traditional foundation. He called the “cost-benefit” analyses that have sprung up in the venture-philanthropy world misguided. (REDF, for example, created a formula called “social return on investment.”)

“The issue is not one of cost-benefit analysis,” Mr. Brest said. “The issue is whether you have enough sense of what you’re trying to do to be able to take risks.”

He also criticized the term “engaged philanthropy,” which is used interchangeably by many experts with venture philanthropy. The problem, he said, is that the term suggests engagement is a worthy end in itself.

“Some organizations are very well run and don’t need our capacity building,” he said. “They need our money.”

Mr. Brest concluded his prepared remarks by quoting from the soundtrack of Free to Be…You and Me, a children’s television special from the 1970s.

And some kind of help is the kind of help
That helping’s all about,
And some kind of help is the kind of help
We all can do without.

The closing session featured candid discussion about venture philanthropy’s future. Katherine Fulton, a consultant at the Monitor Group, in Cambridge, Mass., who specializes in philanthropy, wondered whether the ever-curious technology executives who played such a strong role in creating the venture-philanthropy movement would stick with the approach until meaningful results begin to appear in 5, 10, or 20 years.

“One of the big questions hanging over this arena is, ‘Is this for real?’” she said. “The dirty secret of good strategic philanthropy is that it’s hard work.”

A member of the audience chimed in that more dollars will flow to venture philanthropy when it can point to some clear-cut success stories. He noted that investments in venture capital and leveraged-buyout firms took off in the 1970s, after a small number of groups experienced extraordinary success.

Christine W. Letts, who was a co-author of the 1997 Harvard Business Review article that helped define venture philanthropy, predicted that the $50-million in grants that venture funds awarded in 2002 would rise into the billions over the next 20 years.

“There are some incredible success stories,” she said. “We need to get them out in a way that’s not seen as arrogant or self-serving.”