Terms such as “venture philanthropy,” “impact financing” and “program-related investments” have grown more common, and each has a focus on achieving measurable, social impact alongside financial return.
These model descriptors are often lumped together and considered interchangeable, though they differ slightly in terms of enterprise financing, according to Jeff Cooper, a local entrepreneur and private investor.
For instance, venture philanthropy can be more of a long-term investment, and program-related investments have an established timeframe. Venture philanthropy is an effective way of using capital to create good in the world, Cooper said, adding it uses traditional principles of venture capital financing but with an emphasis on impact, rather than wealth.
It’s more of an involved approach to measuring a business’ social impact, he said, where the funder is more connected with the nonprofit’s operations and goals, such as by serving on its board.
Cooper, executive director of The Richard Petritz Foundation and managing director of New Venture Resources, advised thinking of venture philanthropy as an evolving methodology where investors consider both business and social impact variables to achieve financial goals and help create value.
“Every project we do, we really have to work with the entrepreneur or nonprofit management to think about what is practical, valid and reliable as well as measuring its impact,” Cooper said.
Jibu, a local-based for-profit private water distribution company, has goals of making money and providing charitable impact by training and financing locals in East Africa to provide affordable drinking water.
“People tend to think you have a pocket for giving and a pocket for making money, and you almost feel guilty combining the two,” co-founder Randy Welsch told the Business Journal in 2015. “Why not make money that gets recycled back into your cause?”
Success is about the creative use of capital to get the critical mass necessary to make a dent in a particular social problem, Cooper said.
“The primary purpose from the social enterprise or business’ point of view is to grow value for all of its stakeholders, including its investors,” he said.
There is no one set definition for venture philanthropy, but the concept is worth considering, said Abby Laine Sienkiewicz, interim executive director at the Center for Nonprofit Excellence.
“I would say it’s more popular than it was probably five to 10 years ago, [along with] related terms such as ‘social impact philanthropy,’ ‘angel philanthropy’ and organizations looking at program-related investments more than traditional grant sources,” she said.
It’s positive to consider different ways to have social impact, she said.
“I think it’s good we’re looking at the traditional grantor and grantee relationship and that, really, it’s about results, impact and outcomes,” Sienkiewicz said. “I think if that’s what we can focus on — and I think that has been the trend — then we are setting up organizations for success to serve their constituents.”
Textiles West at Cottonwood
Cottonwood, a 501(c)3, aims to support and grow arts in the region through learning, exhibits, performances and studios for rent. Currently 96 artists have space in the building; the center includes five co-working areas. Although Cottonwood functions to serve the community and runs almost exclusively on its own earned revenues, executive director Jon Khoury said it turned to venture philanthropy.
The Petritz Foundation provided Cottonwood $12,000 to purchase a high-end, large-format printer for Textiles West that would be devoted to fiber art, design and education.
“We have a track record of making our own investment in social change, and now what we’re doing is showing the new metrics of the money that was loaned to us,” Khoury said. “Those numbers are jumping through the roof because we’ve already proved the most important point — that social change can come through the arts and it can be done in ways that people wouldn’t typically predict.”
And it’s a neat mix of business and art, he said.
“It’s not just about teaching people how to hem a pair of pants,” Khoury said. “We’re making people remember what it is to actually put your hands on something, but also giving them the tools to potentially create things with the most state-of-the-art equipment.”
Classes and lectures are occurring through the program and serving about 60 customers a month. The goal is to double those numbers by the end of 2017, Khoury said.
“We want to see how it evolves, because you have to be responsive to where the needs are socially and practically,” he said.
Blue Star Recyclers
Founded in 2009, the 501(c)3 has recycled almost 12 million pounds of electronics, keeping hazardous material out of landfills, and employing people with disabilities, including individuals with autism.
Although Blue Star is not funded through venture philanthropy, founder Bill Morris said the company is a social enterprise that falls under a “social venture” and social impact umbrella.
A social enterprise is a nonprofit or for-profit that uses business methods to achieve social impact, Morris said, but instead of asking taxpayers for funding, it asks its customers.
“I think a social enterprise marries the very best of philanthropy with the very best business practices,” he said. “We engage the community with a product and service that they pay a fee for, and then we utilize the earned income to fund the mission of employing people with disabilities.”
Traditionally nonprofits primarily receive income through grants and donations. But as of the end of 2016, Blue Star is 95 percent self-sustaining, Morris said.
“We view success as being closer to self-sustaining and less dependent on outside funding,” he said. “That allows us to set our own expectations and not be tied to the goals of the funder.”
Venture philanthropy doesn’t just give money away, but can be a friendlier, more flexible funding source for businesses, Morris said.
“They might be willing to loan money to a social enterprise, say with only a 2 percent interest, first-year interest only, and if times get tough might be able to pay interest only, where the bank can’t do that,” he said.
“But what a venture philanthropist expects in return is social impact that is measurable.”
The company provides 40 jobs in Colorado, 24 in Colorado Springs; it has reached more than $6 million in earned income that goes right back into the community.
A person with a disability who is entitled to Medicaid Social Security disability insurance benefits saves the taxpayer $18.30 an hour when working at Blue Star, Morris said.
“Because when they’re earning income, they are taking less taxpayer benefit income,” he said, adding, “They’re not being served in programs funded by taxpayer dollars, and we have saved taxpayers just under $2 million since we opened.”