Philanthropy is already undergoing a transformation. Under the traditional grantmaking model, a foundation or family office typically would review a number of grant applications, approve those proposals that fit best within its priorities, write a check, and later receive periodic reports from the grant recipient on the social impact of the grant. This traditional model, while still useful in many situations, is largely passive and is being supplemented with, and for some funders even replaced by, a more proactive one. Some foundations, for example, make clear that they will not accept unsolicited grant applications. Instead, they will actively seek out nonprofit organizations or non-governmental organizations (“NGOs”) that engage in the types of charitable work that fit within the foundations’ vision, mission, or areas of interest.
Other foundations will engage in so-called “Venture Philanthropy.” In the most general terms, Venture Philanthropy applies the principles of venture capitalism to the philanthropic world. This concept is not new and is known by various other names, including “Angel Philanthropy,” “Catalytic Philanthropy,” “Enterprise Philanthropy,” “Strategic Philanthropy,” “Impact Investing,” and “Philanthrocapitalism.” Venture Philanthropy began with the realization that making grants, while still important and relevant, is not the end-all, be-all in solving many of the world’s problems. Rather, some of the more complex issues may require an outcome-oriented, market-based approach.
In contrast to grantmaking, Venture Philanthropy tends to involve “high engagement” on the part of the funder. Thus, rather than receiving an annual report from the fund recipient, the venture philanthropist may take on a partnership role and bring to bear hands-on management skills or technical knowledge to the venture. The types of support may include not only financial capital, but also such areas as management skills, market studies, trend analysis, and business development. This “partnership/management” model fosters greater accountability and transparency on the part of the recipient with respect to the venture. The ensuing enterprise tends to be more business-like, entrepreneurial, and results-oriented.
Finally, there is an emerging group of funders that are not foundations at all, but are organized at limited liability companies (“LLCs”). The Chan Zuckerberg Initiative, established by Facebook founder Mark Zuckerberg and his wife Priscilla Chan in December 2015, is a highly-visible example of this. While the Chan Zuckerberg Initiative still engages in traditional grantmaking, it also makes investments in startup ventures. It holds itself out on its Website as “a new kind of philanthropic organization that brings together world-class engineering, grant-making, impact investing, policy, and advocacy work.”[1]
We have a similar vision here at the ProtoStar Group. While we also engage in traditional grantmaking, we look for opportunities to challenge organizations, even nonprofit ones, to be more entrepreneurial. We recognize that not all mission-oriented projects lend themselves to generating revenue; vaccinating a million children in a third world country will not bring a return on capital, but would be structured more appropriately as a grant. However, there are some ventures that do. For example, M-KOPA provides affordable solar energy to millions of low-income people in remote parts of Africa who do not have access to the electrical grid. Amongst its investors is GreyGhost Ventures, whose mission is to “invest in innovative, early-stage enterprises that contribute to the well-being of low-income communities in emerging markets and provide an attractive financial return.”[2]
Another possibility for the ProtoStar Group is to incubate prototype projects and launch them as star entities that are socially responsible and self-sustaining – hence the portmanteau “ProtoStar.” The resulting entities may include nonprofit organizations, benefit corporations (“B Corps”), and commercial companies that are not only profitable, but also socially responsible. Depending on the nature of the enterprise, ProtoStar may retain an equity interest.
This incubator model is different from the types of “incubators” that have become popular recently. Many of those “incubators,” such as the Nonprofit Hub, provide shared office space and facilities to allow nonprofit organizations and for-profit companies alike to collaborate on developing ventures that make a social impact.[3] Rather, ProtoStar’s incubation model seeks to develop projects and ideas in-house.
Perhaps one of the best examples of a foundation that has successfully used the incubation method to launch new and innovative projects is the Benton Foundation. Originally established in 1948, the Benton Foundation is the legacy of U.S. Senator William Benton, the founder of the advertising agency Benton & Bowles and publisher of the Encyclopedia Britannica. He believed in the power of the media in furthering education and citizenship and famously admonished his trustees to “favor those things which seem risky, unorthodox, hazardous, and even unlikely to succeed—but which, with success, offer more than ordinary promise and in some cases very exceptional promise.”
The Benton Foundation subsequently became an “operating foundation” under the leadership of Senator Benton’s son, the late Charles Benton. Amongst its many accomplishments as an operating foundation was the successful launch of several organizations using the incubation method. As stated in the Benton Foundation’s Website:
The Benton Foundation has often served as a laboratory for exploring the potential of new communications technologies and techniques to help solve social problems. The intent has been to incubate these projects and build them to independence (or completion) as a Benton Foundation legacy. The Connect for Kids project was launched as its own nonprofit organization in 2003, a testament to the viability and success of this incubation strategy.[4]
The Benton Foundation was also responsible for incubating OneWorld United States (“OWUS”) and launching it in 2005 as an independent nonprofit, tax-exempt organization. OWUS became part of a network of news-gathering organizations “to harness the democratic potential of the Internet, to promote human rights and sustainable development, and to leverage the potential of information and communication technologies for development.”[5]
ProtoStar’s incubation model is unique in the sense that it seeks to combine the best of both the nonprofit and commercial worlds. Like the Benton Foundation, its primary goal is to incubate projects that have a social mission, be it in children’s education and athletics, senior/elder care and well-being, music and arts, or mental health and suicide prevention, to name a few sample areas of interest. But similar to commercial incubators, such as Idealab, ProtoStar believes that entrepreneurship could open up new possibilities that result in nonprofit organizations becoming self-sustaining. In some cases, a for-profit company could be launched so that ProtoStar might even realize a significant return on its investment.
By engaging in the incubation method, ProtoStar hopes to perhaps help transform philanthropy.
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[1] http://www.chanzuckerberg.com/.
[2] http://www.grayghostventures.com/.
[3] http://lincoln.nonprofithub.org/.
[4] http://www.benton.org/.
[5] http://oneworld.org/.
