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November 14, 2017; NewCo Shift

The concept of venture philanthropy as a concept has been around for a number of years and has been both praised for its promise and berated for its challenges. NPQ covered its ins and outs as long ago as 2001. So to see Gabe Kleinman on NewCo Shift offer his reasons why venture philanthropy or something like it should be more common isn’t in itself worthy of note. However, Kleinman frames his argument in the context of partnership between philanthropy and nonprofit, and that discussion is always worth having.

Kleinman argues that philanthropists should invest in nonprofit ideas in the same way venture capitalists do in entrepreneurs: Find a potentially game-changing idea or team and back them, both with financial support and by helping them build their infrastructure through management, operations, HR, and more. Get involved for the long haul and serve as a partner, he says.

There are a few things Kleinman would like foundations and other venture philanthropists to think about. The first is that foundations should consider hiring people who have experience creating and managing nonprofits. This has some potential, because the foundations would have people with real life experience helping make decisions and the nonprofits would be talking with people at the foundation who actually know what it’s like to run a nonprofit.

He further suggests there should be teams of people with capacity-building expertise at the foundation so this assistance can be aligned with the financial investment. Foundations should not leave it to external consultants, Kleinman says, but should bring real expertise onto their staff and then share that with the nonprofits they have invested in. This could offer the nonprofits access to a level of expertise they might not otherwise be able to afford. On the other hand, it could read that the foundation is saying “We have determined that there is one way a nonprofit should function, and we are sending our experts to you to make you do it that way.” Is the foundation a real partner offering help, or is it getting into paternalistic micromanagement?

Kleinman concludes with three more ideas for foundations to consider.

  • Providing long-term funding that amounts to a percentage of the organization’s annual operating expenses would represent the ultimate trust in that nonprofit.
  • Is there some value to taking a seat on the board of the nonprofit? It demonstrates partnership at a very deep level, but also represents potential duality-of-interest issues. What happens when that representative learns something about the nonprofit that might have an impact on the foundation’s interest in investing or in their reputation? The duty of loyalty requires them to keep it confidential, but their duty to the foundation as employer requires them to tell.
  • Consider adopting a portfolio of nonprofits all working within the same arena. In this way, they can have a broad impact and they can hedge their bets, a little, knowing that some of the nonprofits in the portfolio will succeed and some will not.

There are a few foundations that claim to do some of the work that Kleinman is suggesting here. REDF uses a portfolio-like structure to invest in social enterprises working with people who are homeless, the Mary Black Foundation has given unrestricted operating support as a surprise gift to agencies they fund (a whopping $1,000 each, but nice nonetheless), and Venture Philanthropy Partners adopt what they consider to be an innovative, aggressive, and results-oriented approach to investing.

So, in some ways, Kleinman’s article is the same old argument that foundations—and venture capitalists in particular—can help nonprofits. The negative spin is that it represents another way of saying that without the help of businesspeople, those poor nonprofits won’t know how to do it right. On the more positive side, elements of the approach represent a real sense of the need to understand the world of nonprofit organizations and partner with them in helpful and meaningful ways. In these times when cuts to government funding and other financial challenges loom, having this dialogue about how we can work together to achieve communal goals is very welcome.—Rob Meiksins