Venture Philanthropists and "Philanthropreneurs"

In the last fifteen years, a huge amount of new wealth has been created which is influencing philanthropic giving. This year, as never before, the line between philanthropy and business is blurring. A new generation of philanthropists has stepped forward, for the most part young billionaires who have reaped the benefits of capitalism and believe that it can be applied in the service of charity.1 In the past, the rich endowed their estates upon passing. Now not only do they want to give their money away while living, but want to play an active role in doing so. Drawing on their success in business, new economy philanthropists apply market principles to their philanthropic efforts and view grant-making through a venture capitalist lens. They treat charity as "social investment" for which they expect to realize a measured social return (and often a financial return) and thus have been dubbed "venture philanthropists."

The venture philanthropy adapts the six tenets of venture capitalism: high funder engagement; multi-year funding; risk-return analysis and risk management; exit strategies; capacity building of the funded institution and measurable performance results (social and financial retuns). The first venture philanthropy fund is attributed to the Robin Hood Foundation in New York City and was founded in 1988, yet venture philanthropy as a funding approach was not popularized until the late 1990s. Between 1998 and 2000 a groundswell of new venture philanthropy funds were endowed; several then folded in early 2000-2001 when economic contractions reduced their asset base. There was also a settling period when funds and foundations built their own internal capacity to deliver grants using an investor or venture philanthropist approach. In the early years, language broadened to include terms like, "strategic funder," "engaged philanthropist," "social investor," "social angel," and "philanthropreneur." By the mid-2000s venture philanthropy funds and foundations using the approach become an ingrained part of the funding landscape and it become resoundingly clear that the culture of philanthropy was changing forever.

The approach of "philanthropreneurs" reflects the culture of the business that brought them their wealth: information technology, with its ethos that everyone should have access to information. By their way of thinking, the marketplace can have the same level-the-playing-field impact, and supply the world's poor with basic needs like food, sanitation and shelter.2 This generation of philanthropists is globally-oriented and thus interested in funding international development programs, a major difference from pervious generations. In the last ten years, "Venture Philanthropy Funds" or "Social Venture Capital Funds3 ," nonexistent ten years ago, today have formidable endowments and engaged founders.

Leading business innovators such as Pierre Omidyar (founder of eBay), Gib Myer (Mayfield Fund), Larry Page and Sergei Brin (co-founders of Google), Jeff Skoll (first president of eBay), Bill Gates, (Founder Microsoft), Steve Case, (co-founder of America Online), and Klaus Schwab (founder of The World Economic Forum) are focusing of their giving on social entrepreneurship. Therefore, this new type of philanthropist has become a serious contender in development funding which until recently has been dominated by governments.

The market-based approaches such as social enterprise and BoP strategies make these initiatives a natural funding match for new philanthropists. In fact, it is difficult to discern whether the rise of social entrepreneurship has fueled the growth of venture funds or visa-versa. Although many venture philanthropists have sector orientations, the bulk of their funding goes to support social entrepreneurship and market-based approaches, as opposed to traditional nonprofits or development projects. For example, Acumen Fund invests in water, health and housing by providing some grants, but largely loans and equity investments to social enterprises.

  • 1. Strom, Stephanie, What's Wrong with Profit, New York Times, November 13, 2006
  • 2. Ibid.
  • 3. Also known as Venture Philanthropy Funds