Venture Philanthropy Remarks - Delivered at the CompassPoint Retreat
By Sally Osberg 06.09.01

What is Venture Philanthropy?

Confession: what I thought prior to entering field of philanthropy, what I think now.

Venture philanthropy (strategic philanthropy, entrepreneurial philanthropy, or even new-economy philanthropy and hyperagency philanthropy) and principle distinction:

Behind venture philanthropy is a successful entrepreneur-at its most fundamental level, venture philanthropy reflects the philosophy, experience, values, knowledge, and modus operandi of the successful 21st century entrepreneur.

This is stating the obvious for those of us who live and work in Silicon Valley:

The connection between how a high-tech entrepreneur has created wealth and how he or she applies that experience and the values that inform it to her or his personal philanthropy.

3 H's: Hubris. Hope. Humility.

• Hubris-One extreme of the spectrum; arrogance in judgments regarding prior philanthropic efforts, nonprofit sector in general. You run across such folks, but they are not-thank goodness-the norm.
• Hope-Mediating value; truly believe they and their philanthropic efforts can effect positive societal change.
• Humility-best understand that their contributions are relatively small, but that with the right partners-social entrepreneurs, great non profit organizations-those contributions can yield major benefits. Jeff's "whole lot of good from a little bit of good."

• Often accumulated quickly; knowledge basis (not natural resource control)
• High tech entrepreneurs are often young, not usually rooted (ie., born, raised, emotionally based) in the location (community) in which they have worked and succeeded; in fact, they think of the world less in local than in highly distributed, global terms
• High tech entrepreneurs also bring an engineering mental model to their philanthropy. Believe, that:
  • Problems can be solved if well defined;
  • Leverage will increase chances of success-right tools and resources applied to the job
  • Scalability will yield greater impact -multiplier effect, effectiveness squared
  • Measurement-verifiable, often quantifiable means of assessing impact.

• Organizations with a proven track record.
• Empowerment. Those with the greatest potential.
• Leverage. Multiplicative effect. "A whole lot of good from a little bit of good."
• Scalability.

• Basic structure: Organized funds. 5-10 year horizon. Each limited partner invests. No cross-over but timing overlap among funds.
  • Traditional foundation/donor processes: Grant-making cycles; annual payout thresholds/projections based on assets; somewhat fluid, but really quite predictable.
  • Venture P process: Roberts Enterprise Fund-Multi-year funding for 5 portfolio organizations
• Marketing events (2 to 3/yr)/deal searches/approaches by entrepreneurs. Networking game.
  • Traditional philanthropy. Also a networking game: who's funding whom for what. Social entrepreneurs approach funders continuously,
  • Venture P. Effort to identify, once area of focus identified, most promising social entrepreneurs, organizations. Direction for VP is much more pro-active in this regard-
• Portfolio of investments: at 50% of fund, complete. Comprised of 20-30 cos.
  • Portfolio of grantees. Some examples of ongoing foundation support: very few that do so consistently to select group of lead agencies (ie., Packard F), some examples of competitive cycles (ie., Hughes Institute Precollege Science Initiative CIRCLEs)
  • Portfolio of investees. Limited number. High commitment to developing capacity. Understanding of support for long term (5 years)
• Intense screening-people game. Entrepreneur viewed as product, market, management team experience, other investors-- and review process: deals.
  • Philanthropic due diligence. Proposal review. Scrutiny of need/program, project/organizational capacity and track record. May include analysis of team (Board, management). Check for 501c3, audited financial statements. traditional view that nonprofit organizations made up of middlemen who divert resources from intended targets and spend too much time and money on fundraising
  • Venture foundations and philanthropists focus on strength of social entrepreneur; acknowledge importance of the team; much more focused on capacity issues.
• Financing CIRCLEs. Early stage-People game. See people as multipliers-1,000X return on initial investment (seed, 1st CIRCLE); Later stage (2nd, 3rd); Mezzanine-Money game (less involvement in building, liquidity anticipated in 12-18mos. IPO/sale)
  • In foundation world, organization/social entrepreneur always in the fundraising cycle; as grant comes close to concluding, social entrepreneur initiates contact with donor, attempts to demonstrate rationale for continued funding. Sometimes successfully, sometimes not.
  • VP-continued expectation of funding to sustainability.
• Responsibility by VC partner; Champions deal, carries out due diligence (with help of 2-3 other partners), helps orchestrate presentation to partners, takes seat on board, helps build the company. Partners generally have 5-10 cos, sometimes 12-13.
  • Through Board members who are also themselves significant donors and fundraisers, nonprofits have something equivalent to the VC partner champion; only rarely, however, does even the most devoted donor have the kind of deep knowledge of the nonprofit's business-its work, its client base and their needs, its finances, its impact, its sector and its standards (nothing really equivalent to Wall Street's valuations of industries and benchmark companies).
• Regular, constant feedback via weekly meetings..Benchmarks. 5-10 years to build successful company. Top-tier VCs don't take on cos unless they think they will go public.

Here to stay. How to make the most of the opportunity presented for deeper relationships with funders-how, in effect, to co-construct the field.

Threats-overly high expectations. A distinction should probably be drawn between visions, and visionary goals. Visionary goals may be achievable within some compass, visions may endure. Robin Hood Fund: eradicate poverty in New York City.

Evolving rapidly. Many versions and variants. Darwinian adaptations taking place-ranging from the Roberts Enterprise Fund as pretty faithfully patterned on venture capital model, to Jim's Arbutus venture, example of hyperagency: that Jim is after no less than a redesign, dare I say re-engineering? -of the nonprofit fundraising paradigm. Debate over evolving SROI models, and difficulty of monetizing/quantifying results, to which philanthropic dollar costs also constitute overhead. Other trend seems to do with VP's focus on issues of poverty, equity, what traditionally has been the domain of the human services sector; medicine and the environment come in se cond; doesn't seem as attracted to the arts and education-which are perhaps more associated with old-guard philanthropic interests.

Shared knowledge. Greater respect and understanding between donor/investor and grantee/investee. Greater impact for communities. Jury is out-lots of learning underway, which may be the best of all indications that something positive is afoot, that we're all engaged, thinking, struggling to truly make a difference.