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Venture Capitalism and the Impact on Funding Charities


In recent years, the has been an increase in the interest and involvement of venture capitalists in social issues. One of the recently published surveys by the Global Impact Investing Network (GIIN) that the investing done for both societal and financial gains (often called impact investing) has gained momentum to where assets under management grew to a global total of nearly $114 billion. High returns are a significant motivator for an investor. The same investing survey from GIIN revealed that impact investors look to manage risk, prepare businesses for scale investors, and test new regions or models by purposely focusing on below-market-rate returns. There are many ways to be an impact investor, and venture capitalists like Mark Stevens have the opportunity to do more than just sink a lot of money into social impact programs or charities.


The Giving Options for Venture Capitalists


Even though money can go a long way to help charitable causes, the networking options, skills, and expertise of venture capitalists are just as desirable (and equally valuable) as their funds. When partnering with organizations, business leaders expand the change to spur social change. There are four primary ways this can be accomplished.


1. Handle the charity project like a VC pitch.

All too often, social projects and charitable causes are undervalued and criticized for a lack of proper management. Even with the best of funding, too many fail to meet their most basic goals and objectives. As an example, it was reported that after the 2010 earthquake, the Red Cross spent nearly 25% of the Haiti donations covering internal expenses. The final impact for the nation of Haiti was a total of six homes that were rebuilt. The organization never revealed the details of where the $125 million in donations went. There are operational costs with any organization, even a charity, but many individuals believe that charities need to display more transparency with their spending and more efficient in the distribution of funds. Venture capitalists have a unique perspective, both as a successful business owner and financial guru, making it important for these investors to treat social projects the same way they would when evaluating a startup that has requested funding. This expertise could contribute to more scalable and long-lasting projects. A charity, just like a startup, could initially operate with a viable product approach that been tested on a small scale, proving the potential success to venture capitalists. Prior testing before large-scale implementations can save money and time, as the organization will benefit from the hands-on learning that occurs with each success or failure. Venture capitalist funding could also be earned based on the areas of proven success and the sustainability of future efforts.


2. Achieve growth and impact at scale.

The inside knowledge and years of expertise that venture capitalists often have are invaluable to a nonprofit looking to make a mark. Many nonprofit organizers are ignorant of the steps it takes to grow a full-fledged enterprise, so being able to partner with venture capitalists is not just about the financing. The knowledge and experience these individuals bring to the table becomes a vital part of a strategy that will help the organization grow and scale to reach maximum social impact. All while remaining on solid financial ground. Investors can support projects in scale-up efforts by encouraging new and innovative ways of thinking, by helping establish networks and connections and supporting the early stages of project replication. Not all projects need to be up-scales, so the venture capitalist becomes a voice of reason and influence for the most successful ventures.


3. Share the connections and expand the startup network.

The network of a venture capitalist is one of the most valuable things that an investor can bring to a nonprofit organization. The individuals, whether clients, vendors, partnerships, or other startup investments, are foundational seeds where the charity can grow new investments and partnerships for both financial and human capital needs. For the investor, connecting innovative startups and nonprofits creates a partnership that will encourage and help them scale together. Charities can gain potential donors, new ideas, and increased credibility in the community, while startups can improve their commitment to corporate social responsibility and expand their customer base. Venture capitalists often have large company portfolios, so these connections are generally easy to make and beneficial to all.


The Helping Hand


Though a charity can benefit from the investments of both a venture capitalist and a partnership with a startup, the nonprofit itself can have a significant impact when investing in startups that work in the same industry. It will take the experience of an investor to guide mutually beneficial relationships together, but the long-term benefit of a charity taking donations and investing them into a future success is a wise idea. In a way, the charity becomes a venture capitalist looking to further the organization’s impact in future areas.


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