What is venture philanthropy?

enture philanthropy is a concept very much in vogue but without a commonly agreed upon definition.

In the strictest sense, venture philanthropy connotes nonprofit organizations that invest directly in for-profit companies. But we find that definition limiting, leaving out many disease research organizations that are taking a new, more outcomes-driven approach to philanthropy, whether or not they are investing in for-profit entities.

Wikipedia has a broader definition with which we generally agree, saying venture philanthropy “takes concepts and techniques from venture capital finance and high technology business management and applies them to achieving philanthropic goals.” It lists among the elements of venture philanthropy:

• willingness to experiment and try new approaches;
• focus on measurable results—donors and grantees assess progress based on mutually determined benchmarks;
• readiness to shift funds between organizations and goals based on tracking those measurable results;
• giving financial, intellectual, and human capital;
• focus on capacity building, instead of programs or general operating expenses; and
• high involvement by donors with their grantees.

Another analyst says that “at the center of this model is the concept of treating funding as an investment rather than as the traditional concept of a charitable grant, with corresponding expectations of return on investment, operating efficiencies, and management oversight.” Return on investment may be financial (in the case of an investment in a for-profit company), to be reinvested in the foundation's research agenda, but it is also importantly a social return on investment—the advancement of a promising therapy down the pipeline toward patients.

We also agree with the observation of a venture philanthropist of our acquaintance, who believes venture philanthropy is synonymous with a shift from reactive to proactive philanthropy. She calls it “philanthropy with an opinion.”

Nonprofit role in medical research

Although private philanthropy is only a small share of overall spending on medical R&D in the United States (less than 3 percent), its flexibility and focus on outcomes can have an outsized impact on the medical research enterprise. Free of the pressures of publication and career advancement in academia and the bottom-line imperatives of the private sector, and driven by the desire to deliver results to the patients they represent, nonprofit foundations are ideally positioned to make relatively high-risk investments that could significantly move a field of research forward and increase the likelihood that other parties will also invest.

FasterCures has identified many ways in which foundations are already doing this; among them are:

• developing pre-clinical tools that benefit the field and aid in translation, such as biomarkers and animal models;
• bringing focus, management, and accountability to academic research;
• creating strategic partnerships with industry (in some cases directly investing in companies); and
• providing access to a patient community and resources through registries, biorepositories, and clinical trials networks.

By providing financial incentives, along with other benefits, such as access to patients and disease expertise, nonprofit foundations that fund research can change the culture and structure of the medical research enterprise. Read more in Measuring and Improving Impact: A Toolkit for Nonprofit Funders of Medical Research.