STATE BEHIND IN VENTURE PHILANTHROPY
By Doris Rubenstein, PDP Services
CityBusiness, July 31, 2000

Creative minds in new-economy businesses in Texas, California, Virginia and other parts of the U.S. are putting their ideas and their money together to experiment with innovative ways of bringing about social change. The concept is called "venture philanthropy", but there are few signs of it in Minnesota at present.

Minnesota has been a leader in traditional business philanthropy, with companies like General Mills, Target, and 3M leading the way in support of the arts and culture, education, social services, etc. The fact is, though, that the New Economy businesses are not following that lead. It may be that New Economy executives are looking for a different way of performing philanthropy, and they just haven’t found it yet. Could venture philanthropy be the answer?

What is venture philanthropy anyway?

According to the June 1, 2000 issue of The Chronicle of Philanthropy, venture philanthropy is a "movement that seeks to apply some of the techniques of venture capitalism to the non-profit world." Some of these techniques, as outlined in a defining paper published in the March-April, 1997 issue of the Harvard Business Review ("Virtuous Capital: What Foundations Can Learn from Venture Capitalists") are:

1. Taking risks with careful management
2. Creating performance measures for long-term outcomes
3. Developing close relationships between the donor (venture philanthropist) and the non-profit (investee) organization
4. Commitment to long-term funding of initiatives
5. Commitment to major funding for initiatives and organizational infrastructure
6. Identification of exit strategy for the venture philanthropist.
   

Who are some of these venture philanthropists and what are they doing?

Mario Morino, a retired software executive in Reston, VA, has founded the Morino Institute there. The Morino Institute describes itself as "both catalyst

and facilitator to help individuals, institutions and communities understand opportunities and risks presented by the Internet. It supports and collaborates with other organizations to enhance their own effectiveness; it also incubates and launches new initiatives." Recognizing that the information age is quickly making old-economy skills obsolete, and that technology in and of itself is not a solution for all of today’s problems, the Morino Institute seeks ways to make networked interactive communications technology an enabling tool for social change.

Minnesota professionals in the field of venture capital (venture capitalists, investment bankers, corporate leaders, eg.) can take a lesson from their counter-parts in Silicon Valley who joined forces and funds to form the Entrepreneurs’ Foundation. The Entrepreneurs’ Foundation, as its mission statement declares, seeks to inject philanthropy into the corporate culture of Silicon Valley and to make the community stronger "by applying venture capital principles to scale-up successful non-profit organizations."

Why do they feel that this is necessary? Do successful non-profits really need to be scaled up?

Professionals and active volunteers and donors to non-profits have long known that the demands on their organizations, especially those in the health and social-service areas, have grown rapidly, despite the unprecedented growth of the economy and generally-perceived prosperity of most Americans. This is as true in Minnesota as in the rest of the country.

A recent report by Community Wealth Ventures for the Morino Institute confirms and explains the pressures on non-profits. As reported Chronicle of Philanthropy, "Their work, which once supplemented government efforts, has now in many cases taken the place of government. In fact, they’ve become their community’s principal service provider for many human needs. However, resources have not increased in proportion to their increased responsibility."

Just as for-profit venture capitalists don’t invest in companies with long histories of profitability, the Entrepreneurs’ Fund does not support major, established charities. For Minnesota, it means that main-line arts and education institutions should not bank on getting support from a venture philanthropy fund, regardless of how innovative the specific program might be.

On the other hand, newer groups with a track record that want to try something new to improve or expand their existing program would be prime candidates for venture philanthropy. But they might be surprised to have a member of the venture philanthropy group express interest in becoming a part of their board as a condition of the grant. For the non-profit, this is not business as usual and may or may not be allowed, depending on their by-laws.

Another take on venture philanthropy is the developing area of social entrepreneurism. Social entrepreneurism has two faces: Businesses that engage in socially-responsible business practices; and non-profit organizations that operate profit-making enterprises to fund and further their exempt activities. Taken in the context of social entrepreneurship, the enterprise may be involved in new economy activities, often with a technology orientation.

Minnesotans interested in social entrepreneurism have a leading resource at close hand, the Eden Prairie-based Institute for Social Entrepreneurs offers information and sponsors conferences on subjects in the field. The Northland Institute, based in the Minnetonka, assists entrepreneural non-profits in their missions as well as training and support for social entrepreneurs.

Venture philanthropy and social entrepreneurism are characterized by risk. For those who find their profits too dear to be subjected to risk even when given charitably, they can still follow the path of responsible and strategic individual or business support to non-profits.

It’s time for Minnesota to stop our slide in philanthropy ratings, try some new techniques, and regain our reputation for business innovation and generosity.