In 2021 I completed my doctoral research on venture philanthropy and graduated. A few years prior I was considering degree programs and talking with academic advisors about graduation requirements. One aspect of the doctoral process I found paralyzing and exhilarating in equal parts was the idea of contributing original research to the field. It was a programmatic requirement. The dissertation is the capstone deliverable for most terminal degree programs. I had many areas of research I was interested in to wrap up my study of public administration. When it came time to enter the capstone process, a multi-semester course you remained in until you completed your dissertation, I was filled with self doubt. Did I have anything important enough to share with the broader scholarly community?
My doctoral study spanned the pandemic. Just like everyone else, I was navigating new online meeting platforms, working from home, and absent mindedly eating too many snacks. My husband and I picked up a new hobby, binge watching tv. One of my immediate favorites was Billions on Showtime. The premise of the show is about a hedge fund manager, Bobby Axlerod, who finds himself in a series of legal perils as a function of his business practices. The near constant cat and mouse game he plays with District Attorney character, Chuck Rhodes, made for an entertaining and stimulating hour on Sunday each night. One episode, a new character is introduced, Taylor Mason. Taylor had a new approach to making investment decisions and is driven by conscience. The firm was ultimately divided to add a different type of investment model for customers interested in investing in environmentally and socially responsible companies. Have I lost you yet? You might be wondering what any of this has to do with my dissertation. Watching Billions was my lightbulb moment. The show taught me that there was a subset of the population interested in only putting their money into companies that were intentionally focused on having a positive impact, not just increasing their revenue.
Meanwhile, from 9:00-5:00 I was talking with senior leadership colleagues and my board of directors about revenue. Like so many organizations in the pandemic, we were concerned about financial sustainability. Our ability to deliver programs was dramatically altered and we knew our operational model needed some adjustment. This problem wasn’t necessarily new, but the sense of urgency was. I’d participated in plenty of strategy sessions focused on identifying new revenue generation opportunities. We tried a few new things but it was certainly an ongoing discussion. What if there was a connection? Might the needs of the nonprofit for new revenue streams and the interests of investors have something in common?
Venture philanthropy, as I described it in my study, is the acquisition of a major gift from a donor used to fund a mission-related business. The profits of that business, once expenses are paid, would be channeled into an affiliated nonprofit organization. Let me give you an example. A youth-serving nonprofit organization receives a $1 million gift from an individual donor to start an ice cream shop. The concept of the business goes through the same vetting process as any new business idea to evaluate viability and ultimately receives the green light once due diligence is done. The donation is used to rent the space, purchase the equipment and the product, and complete all initial licensing and regulatory requirements to start a new business in the town. The ice cream shop hires individuals from the local community and provides a product that another business in the town does not currently offer, ice cream. After the three months, the ice cream shop is profitable and the $10,000 per month generated is able to funnel back to the youth-serving nonprofit. The donor is stewarded by hearing about the profitability of the ice cream shop. Maybe there is a donor recognition event that takes place there. As a result of the ice cream shop, the nonprofit is now seeing an annual increase of $120,000 in revenue. The donor learns about the ways the nonprofit is using the new income to advance its strategic initiatives. It’s the ultimate impact story.
In my research, I note the potential implications on the nonprofit. Identifying the business opportunities and providing support to cultivate the donor represent additional strains on the organization. So too does supporting the business from concept through opening. The need to consult the appropriate tax advisors and legal counsel are important to protect the organization’s nonprofit status and to advise the donor on the tax deductibility of their gift, but it’s all possible.
I’ll admit, I haven’t put the concept into practice, but I’d love to. I’m open to conversations with organizations who are interested in the concept because I believe there is tremendous merit to the idea. My motivation in writing this blog was to push the boundaries beyond standard best practices to help nonprofits grow. The more organizations that grow, the great social impact they can have, in all sectors of nonprofit service. All over the country, nonprofit organizations are coming to the realization that donors want to have a demonstrable impact. This model could be transformational for donors, nonprofits, and the communities they serve.
Want to read more? Here is a link to the full research paper.
