Philanthropy expert Michael Moody on whether it could work for other nonprofits.
Venture capital investing funds started by some Silicon Valley schools help them raise money for their mission. Is VC a possible answer for other nonprofits? Dr. Michael Moody, professor of philanthropic studies at the Indiana University Lilly Family School of Philanthropy, explains the opportunities and challenges of the concept.
“Starting in the late 1990s there was a big push, especially on the West Coast, toward ‘venture philanthropy’ – adapting venture capitalists’ successful investment principles for use in giving, and reframing giving as an investment seeking social returns, not just financial ones. After some backlash, it fell out of fashion somewhat,” Moody says. “But these programs at Silicon Valley schools show that the core impulse behind this approach to philanthropy remains appealing, especially in places infused by and made wildly affluent through the venture capital-driven economy.”
Innovation of this type can be both high reward and high risk.
“Many fundraising and giving innovations tried by nonprofits and donors hold the promise of huge returns for the beneficiaries, such as some VC funds established to raise money for schools. This promise of leveraging massive benefits for nonprofits out of relatively small donations is clearly appealing, and when successful this approach deserves the praise it will receive,” Moody says.
“However, critics also note a potential downside, including loss of money that could have directly funded the nonprofit if given more traditionally. This especially resonates in famously risk-averse charitable circles,” he says. “Nonprofits often see risk as something to avoid, not as a necessary tool for potential windfalls. So, these investment-based ventures can be controversial as they confront this clash of cultures: nonprofit fundraising vs. for-profit investing.”
Individual nonprofits will need to consider whether this concept is the right fit for their mission and their organization’s specific circumstances.
“Some fundraising and philanthropic giving innovations work well in certain nonprofits but not in others. So, could this approach be used outside of schools? Would this long-term risk-reward calculus be acceptable if the benefitting nonprofit served more urgent and direct human needs, like disaster aid, or rapidly increasing homelessness or gun violence?” Moody asks. “Maybe this sort of venture or ‘big bet’ approach is appropriate for organizations like a climate change research nonprofit, an art museum, or an affordable housing collaborative, but not so much for nonprofits providing crisis legal or medical aid.”
Filed under:
FacultySchool of Philanthropy
View all tags
