How do you diversify the sources and types of funding for venture philanthropy funds?

1 Benefits of VPFs

VPFs offer several benefits for both social investors and social entrepreneurs. For investors, VPFs can help diversify their portfolio, mitigate risks, and leverage their expertise and network. For entrepreneurs, VPFs can provide a reliable and patient source of capital, as well as access to valuable resources and guidance. VPFs can also foster a culture of innovation, accountability, and collaboration in the social sector, and help scale up effective solutions for social problems.

2 Challenges of VPFs

However, VPFs also face some challenges and limitations in their operations and impact. One of the main challenges is to balance the financial and social returns of their investments, and to measure and communicate their outcomes. Another challenge is to attract and retain qualified and committed staff, who can manage the complex and dynamic nature of VPFs. A third challenge is to deal with the legal and regulatory uncertainties and constraints that may affect VPFs in different contexts and jurisdictions.

3 Sources of funding for VPFs

VPFs can utilize a range of sources and types of funding to finance their activities and investments. Philanthropic foundations, high-net-worth individuals, corporate social responsibility programs, and public sector agencies are all potential sources of funding. Foundations may provide grants or donations, HNWIs may allocate some of their wealth to social causes, CSR programs may contribute a portion of profits or assets, and public sector agencies may offer funding, subsidies, tax incentives, or guarantees. In addition, some foundations may invest directly or indirectly in VPFs, or create their own VPFs as a subsidiary or a separate entity. Similarly, HNWIs may become involved in VPFs as founders, partners, board members, or advisors. Companies may partner with VPFs to support projects or sectors while public sector agencies may co-invest in certain areas or themes.

4 Types of funding for VPFs

VPFs can also use various funding instruments to support their portfolio organizations and projects. Equity gives investors a share of profits and losses, as well as control and influence over strategy and governance. Debt requires borrowers to repay the principal and interest over a specified period of time, with conditions such as grace periods, repayment schedules, interest rates, and collateral requirements. Grants are non-repayable funds for a specific purpose or activity, with requirements such as reporting, monitoring, evaluation, and impact measurement. Hybrid instruments are combinations of equity and debt or equity and grants or debt and grants that have different names and structures, like convertible debt, revenue-sharing agreements, or performance-based contracts.

5 How to diversify funding for VPFs

Diversifying the sources and types of funding for VPFs can help them achieve objectives such as enhancing their financial sustainability, reducing their dependence on a single donor or investor, increasing their flexibility, expanding their reach to more sectors and regions, and aligning their funding with their mission and values. To diversify their funding, VPFs should conduct a comprehensive analysis of current and potential sources, develop a clear and compelling value proposition for target funders and investors, build and maintain strong relationships with existing and prospective funders and investors, seek partnerships to facilitate access to diverse funding opportunities, and experiment with new and emerging funding instruments and models that match their needs and goals.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?