Has Venture Philanthropy Passed Its Peak?

As someone with roots in product marketing, I can’t but help to see the similarities between the fashion curve of popular products and the adoption curve of venture philanthropy. And we have, in my opinion, passed the summit of that curve for venture philanthropy.

When we founded Strategic Grant Partners in 2002, partnering with outstanding leaders who have powerful ideas to improve the lives of struggling individuals and families in Massachusetts, the term venture philanthropy was new. You had to explain to people that it referred to taking techniques from venture capital and applying them to achieving philanthropic goals

Today, terms like social investing, social entrepreneurs, and social impact are common. Grants that require measurement and outcomes are ubiquitous. Finding the “new” new thing is the primary occupation of several well-intentioned philanthropies. There has been a dramatic shift in philanthropic dollars to high-risk startups, diverting money away from traditional nonprofit organizations. Even our government thinks of itself as a social investor, using taxpayer dollars to fund higher-risk social ventures through its Social Innovation Fund.

How do you know when you have crossed the top of the fashion curve? Quality wanes dramatically. In fashion, a good example was the downturn of Tommy Hilfiger, an ultra “flash in the pan” brand that was clearly at its end when it showed up at discounters such as Marshalls and Kohl’s and on middle-aged guys who frequented WrestleMania.

In philanthropy, we are seeing a lot of early-stage nonprofits with ideas and leadership that aren’t ready for prime time. Unfortunately, many are getting funded. Some talented and not-so-talented social entrepreneurs are getting hold of sizeable amounts of money to give their idea a go. This trend is reminiscent of the 1999-2000 Internet funding bubble.

Another indication that the end is near is when there are multiple variations of the same idea, or when the ideas themselves are on the periphery or so amorphous that it’s hard to know what the idea is, exactly. The number of tangential education-related nonprofits that claim that they will substantively change educational outcomes for kids is staggering. Many are doing good things for kids, but they don’t have meaningful, measurable impact and are diverting philanthropic dollars from organizations and interventions that have true impact.

Since venture philanthropy firms subsist on finding the next new thing, we continue to feed the beast—a beast that is already well sated. What’s worse, funders have become weary of making grants to existing grantees, feeling they should have become financially sustainable without them.

The good news is that never before have the stronger nonprofits attracted such impressive talent. In the early days, renegade social entrepreneurs like Pat Lawler of Youth Villages or Gerald Chertavian of Year Up were few and far between, and it took them years to attract the kind of talent they needed to scale. Today, the landscape of early and mid-stage nonprofits looks quite different, with experienced mid-career leaders making the shift to nonprofit management and a wave of young business-school types choosing to make their careers in nonprofit ventures. Strong, well-led organizations like Youth Villages, Year Up, and Big Brothers Big Sisters of Massachusetts Bay are proving every day that some nonprofits have what it takes to deliver real impact.

What this means is that when we find something that works, we should stick with it, not move on to the next hot thing. More than stick with it—we should double down on the best of the best, the organizations with great leaders than have actually figured out how to change the world. Making our most successful grantees more successful is one of the best ways we can deploy capital.

Read more stories by Joanna Jacobson.