In 1997, Christine W. Letts, William P. Ryan, and Allen Grossman rocked the world of philanthropy with their groundbreaking article "Virtuous Capital: What Foundations Can Learn from Venture Capitalists." Letts, Ryan and Grossman put a framework around the burgeoning trend toward organizational effectiveness in foundations, and it is safe to say that the world of giving will never be the same. The article introduces the concepts for translating venture capital investment practices to the nonprofit world by focusing on the practices that have made venture capitalists and startups so successful in the new global economy. The authors hope to draw foundations and their grantees into similar, close relationships in which the ultimate goal is increasing the grantee’s organizational capacity. The end result is intended to establish healthy nonprofits that can adapt in a competitive leisure-time environment. This new style of giving is called venture philanthropy.

Some of the specific venture capital practices "Virtuous Capital" suggests foundation philanthropists adopt are focus on organizational capacity-building, giving larger amounts of money over longer periods of time, giving value-added or professional pro-bono administrative assistance, establishing a close working relationship, using performance measures, and managing risk as well as designing an exit strategy so that the nonprofit is not left in a resource crunch at end of the grant term.

When I decided to return to school to earn my master’s degree in museum studies and administration my goal was to get into a position where I could help museums attend to their internal structures and organizational dynamics, in addition to their programs and services. During an internship in the summer of 1999 I began reading about venture philanthropy and it became a natural subject for my thesis project. This article, and it’s sister, "Helping Art Museums Get on the Venture Philanthropy Boat," a piece designed for the venture philanthropy audience, are the products of my research in which I set out to understand how venture philanthropy could be used as a tool for enabling art museums to alleviate resource dependency. How? Through venture philanthropy’s focus on building organizational capacity and effectiveness.

Findings for the project were extreme, to say the least. "Virtuous Capital" was published in 1997, and new philanthropies, including venture philanthropy, are being explored by some extremely high-level donors—such as Paul Brainerd, formerly of Aldus Software, founder of Social Venture Partners (SVP) in Seattle—and reported widely in the media. According to Michael Kesselman, a consultant to philanthropy working in the Bay Area, the article and practice of venture philanthropy have had great impact in the philanthropic community, stimulating people to think about their giving differently and to get involved in their philanthropic work. Despite this new trend in a major funding community, sixty percent of the senior development staff randomly surveyed for the project had not heard the term venture philanthropy. Furthermore, the majority of those respondents who had heard the term were not familiar enough with it’s meaning to define venture philanthropy or accurately describe it’s aspects.

This is the result of a failing we in nonprofits live over and over again. We don’t have enough time in the working day to seek out opportunities that might alleviate the pressure on organizational resources: time, energy and money. Venture philanthropy is a tool that museums might use to break the cycle of depending on foundation-contributed resources to the extent that museum staff will do anything to get another grant—even develop a new program when the organization doesn’t even have the capacity to sustain existing programming. How is the tool supposed to work? The key is building organizational capacity; adaptive capacity—the ability to develop, implement, analyze, adapt, and even discontinue—programs. When an institution has strong administrative infrastructure, it also has the ability to support adaptation. Unfortunately, museums, and particularly art museums—with dual responsibilities to their collections and their audiences—have little time, energy or money left to deal with administrative support work such as strategic planning, marketing or financial analysis, info/tech planning, or human resources auditing. This is where venture philanthropy’s unique goals become most useful. Not only are these foundations giving money, they are giving expertise. At the grantee’s request, foundation donors and staff will donate their time and professional expertise to the nonprofit to help with capacity-building administrative projects. Together, (usually the grantee’s Executive Director and foundation representative) develop their work plan and evaluative measures by which to mark progress, then set about working toward their mutual goal.

There are issues inherent in this new process, however, that deserve consideration prior to recommending that museums throw themselves into the arms of venture philanthropy foundations. The concern cited most often—in interviews, surveys, and literature—is that venture philanthropy, by virtue of involving foundation staff in the administrative work of the grantee, will endanger the sovereignty of the grantee’s governance. This is, indeed, a serious concern, but case studies and responses from several interviewees informing this project indicated that the issue of imperiled governance may not necessarily pose an obstacle to museums’ involvement with venture philanthropy. Firstly, only one of the five venture philanthropy foundations (The Entrepreneurs’ Foundation) studied in the process of this research specifically preferred to work at the board level. The other foundations felt that working at the staff level alleviated concerns about undue influence, simultaneously allowing closer relationships and the chance to get more accomplished. Secondly, as Development Director James (Jim) Weidman of the Saint Louis Art Museum (SLAM) suggested, museum are "fishbowls" and many volunteers, members, donors, and members of the public, feel a sense of ownership through their involvement, and museum staff members do their best to incorporate the needs and desires of all these stakeholders. Therefore, adding an additional foundation interest would not be inappropriate, but a matter of adding another stakeholder, which is routine in current museum environments—as long as the museum and foundation have decided on a common goal and means to achieve and measure it. However, Weidman pointed out that adding another stakeholder’s interests requires time and attention few museums have to spare, which made a strong argument toward encouraging venture philanthropists to provide funding for additional staffing to support new initiatives. He posited that if venture philanthropists offer substantial, long-term grants that help fund staff for projects, it "would be extremely helpful... because we do need support to move in new directions." Michael Kesselman, formerly of the Koret Foundation in San Francisco, now working with strategic and venture philanthropy in the Bay Area, agrees that agencies are too overloaded to come up with projects that will sell to foundations, and has taken measures to address the problem. In his newly-established position as a consultant to philanthropy, he is providing extra manpower by doing the legwork to bring grantors and grantees together.

My survey supported the position that nonprofit staff need extra support to take on additional work projects, including the capacity-building administrative projects featured in venture philanthropy. Simultaneously, it confirmed the need for this work. Only 28 percent of the respondents’ museums had strategic plans in place, and almost half of those plans were between four and twenty years old. Considering this, I feel one must ask if it is ethical for museums to operate without strategic or financial planning, or with outdated and outmoded plans in place—scenarios that venture philanthropists could help rectify. The authors of Philanthropy and the Nonprofit Sector in a Changing America, suggest that venture philanthropy is not instigating new practices, but placing a framework around events already happening in the nonprofit sector. This research project bears out the hypothesis that the new form of philanthropy is "bringing logic and a sense of order to changes which are already taking place and which are likely to be much more important in the future." The Peninsula Community Foundation (PCF), Rinconada Ventures Foundation, SVP Seattle and SVP Arizona have all helped nonprofit organizations with crucial administrative projects impacting governance, such as strategic and financial analysis and planning, marketing and e-commerce strategy. Furthermore, they helped with these projects because the nonprofit grantees felt they were the areas of greatest need, and specifically requested foundation assistance.

As in all collaborations, institutions working together should do so carefully, ensuring that neither institution works outside of its mission or abilities, and that the combined work relationship is ethical. This concern was addressed by Executive Director Sterling Speirn of the PCF, who suggested that if governance and ethics are of great concern, the foundation and museum might seek third party consulting, or choose to discontinue working together.

There are three main goals venture philanthropists pursue in grant relationships: furthering Social Return On Investment (SROI), helping the nonprofit grantee increase organizational capacity, and helping them generate increased revenue. These match the goals of today’s museums. SROI, which can be described as providing a societal benefit, is equivalent to the sentiment of public service and trust promoted in many museums’ missions. Increasing organizational capacity and generating revenue are crucial to the achievement of providing social return on investment (SROI) and bringing in vital unrestricted income.

Museum stakeholders should not be intimidated by the semantics of venture philanthropy such as "metrics," SROI, FROI, or the fear that venture philanthropists, many of whom made their fortunes in the for-profit world, will want "harder" measurements. On the contrary, a number of foundation officers interviewed pointed out that it is easier to measure some actions than others, and indicated that they try to make "good grants" whether or not their success or failure will be easy to measure. For example, PCF funds a program that helps low income families develop savings for the future. Some aspects of the program are easy to quantify, such as the number of families served and the amount of money they save each year. Others are more complex and intangible, such as hope for the future, that the foundation has not yet found a way to measure. Yet Speirn did not imply that the foundation is uncomfortable with the grant because there are intangibles involved. Therefore, it seems that the nature of the arts should not dissuade venture philanthropists from funding art museums. Nor should it keep art museums from pursuing venture philanthropy funding.

On a practical level, high-engagement philanthropy—as venture philanthropy is described by foundation officers—does take more resources than more traditional grant formats. It takes more time, since one of the goals is to foster a close working relationship between foundation and museum. Working on administrative projects together also involves museum staff time and effort. The larger grant and longer time intervals suggested in venture philanthropy are meant to not only increase the grantee’s stability during the project period, but to make pursuing such a grant worthwhile to the organization. Part of what venture philanthropy hopes to change is the need for nonprofit leaders to spend all their time fundraising, which leaves little time for leading the organization. The dual aspects of providing help building organizational capacity and granting funds generously are meant to accomplish a modicum of institutional ease. Venture philanthropists then hope leaders might take some time from their fundraising activities to nurture their organizations. However, museum leaders will need to determine whether or not high-engagement philanthropy will benefit their institutions. To find out if the increased amounts of time and energy involved in venture philanthropy are worthwhile, they should first use this study and foundation reports such as Venture Philanthropy: Landscape and Expectations to understand what venture philanthropy practices encompass and how they may be useful.

Perhaps the largest single obstacle that museums will face approaching venture philanthropists is the fact that these foundations have been working in the health and human service fields. Although museums are educational institutions and provide respite and inspiration for the human spirit, arts organizations are perceived to be distant from the front line physical health issues venture philanthropists have been working with. However, with the exception of the Social Venture Partners in Arizona, whose commitment to these issues is narrowly defined, the foundation staff interviewed recognized that the arts play a significant role in societal and personal health and for that reason might be considered for venture philanthropy grants. Social Venture Partners in Seattle (SVP Seattle) has gone as far as taking preliminary, investigatory steps to add the arts and arts education as a focus area of giving. The fact that SVP Seattle is taking this step is significant because it has served as the model for similar organizations, such as Arizona Social Venture Partners, Austin Social Venture Partners, and other Partner groups beginning to form across the nation. Thus, it is possible that a researcher in the near future might find SVP Arizona more agreeable to the concept of funding arts organizations.

In sum, the practice of venture philanthropy in foundations provides a new spectrum of opportunities for art museums to consider. Museum leadership should be aware of the opportunity, and aware that all four of the museum development staff members interviewed anticipated that convincing their board of trustees to try a new philanthropical format like venture philanthropy without a prior successful museum case would be a monumental challenge. However, Weidman and Shelli O. Smith, former Director of the Maritime Museum at Long Beach stated unequivocally that if museums are going to survive the twenty-first century, they will need to become more flexible institutions. In the name of that higher cause, museum leaders need to thoroughly consider if their institutions are suited to experimenting and learning a different and highly-involved type of philanthropy. New philanthropies, including venture philanthropy are burgeoning forces in the funding marketplace. Active, responsible museum leadership must become familiar with new these new formats so that they do not neglect opportunities for major donations of both funds and professional assistance.