In October 2005, Google.org -- the philanthropic arm of the audacious search engine company -- announced it would give not only to nonprofits, but also to companies that accomplish some social good.
Google, whose corporate motto is "Don't be evil," has funded the Google Foundation with $90 million and committed 1 percent of the company's stock and profit to Google.org. The company is committed to funneling as much as $175 million into Google.org during the next three years.
"The goal of both pots of money is to do good in the world," says Google's lawyer, Betsy Buchalter Adler, who sees this two-pronged approach as the latest trend in charitable giving.
While the Google Foundation has not yet announced which for-profit ventures it will fund, it already has created a $5 million "partnership" with the Acumen Fund, a nonprofit committed to market-based approaches to global poverty. In the past, Acumen has invested in mills that have provided 800,000 East African families with anti-malarial bednets and given microfinance loans to 12,000 women in Pakistan.
Microlending appeals to these philanthropists because it offers them a triple bottom line for their investment. "You've done more than just helped one cause, you've expanded the pool of capital and the pool of opportunity," says Adler, a partner in San Francisco's Silk, Adler & Colvin. The firm represents only nonprofit organizations and has helped many of the newly wealthy in Silicon Valley who want to take the huge sums of money that venture capitalism generated and apply not only the money but the philosophy to philanthropic ventures.
West Coast entrepreneurs helped popularize "venture philanthrophy." Now they are innovating again and, rather than just giving to charities, are also "microfinancing" and even "microlending" towards the greater good. Google's doing it. So too is another of Adler's clients, Pierre Omidyar, the founder of eBay whose $10 billion net worth made him the 18th richest American on Forbes September 2005 list.
In June 2004, Omidyar radically changed the legal structure for his foundation so that it could invest in for-profit firms that benefit society. The Omidyar Network now divides its $400 million into two funds; one is a 501 (C) (3) tax-exempt organization; the other is free to finance for-profit ventures. In a posting on his blog, Omidyar explains, "We realized that legal structure -- for-profit versus non-profit -- wasn't all that relevant to what we believed in. What was important was our simple core belief: that every individual has the power to make a difference."
The Omidyar Network has invested about $15 million in microfinance ventures, including giving to the United Villages of Cambridge, Mass., which develops software and hardware to bring electronic communication to remote areas of nations such as India and Cambodia. Pierre Omidyar and his wife, Pamela, also gave a $100 million gift to their alma mater, Tufts University, last November to create a fund for investment solely in microfinance initiatives.
Clients like Google and Omidyar want to "use the market to do good things," Adler says.
Interest in microfinancing comes after frustration with "venture philanthropy," which enjoyed a heyday during the 1990s technology boom. Entrepreneurs awash in new money believed that the principles of venture capitalism could be transplanted to grow charitable causes. The instigators of this revolution grew frustrated when they faced the stark reality of measuring results in ventures that seek to achieve social goods -- a far more complicated process than merely crunching numbers.
"Things become very faddish," says Allen Grossman, a Harvard Business School professor who co-authored "Virtuous Capital: What Foundations Can Learn From Venture Capitalists," a March 1997 article in the Harvard Business Review that is credited with spawning the revolution. "Everyone was talking about it, everyone was embracing it as the next flavor of the month."
But there was more hot air than action, as revealed by a 2002 survey by Venture Philanthropy Partners, a Washington, D.C., foundation that supports programs for children. Founded in 2000 by Mario Morino, a software pioneer, VPP raised a $30 million fund. But VPP's survey found only 42 venture-philanthropy organizations in 2001, making grants totaling about $50 million -- less than .02 percent of all grants that year. Organizations that monitor charitable giving, such as the annual Giving USA report, don't track venture philanthropy because the term is so amorphous.
Today, the term "venture philanthropy" is sniffed at as a fad -- but it's one with an afterlife. Just as the Atkins diet dealt a lasting blow to carbs and the Cosmopolitan fueled a legion of straight-up cocktails, the tenets of venture philanthropy have lasting power -- suggesting that even if microfinancing isn't the next hot trend in philanthropy, it too may have some long-term impact.
The world of charitable giving now embraces venture philanthropy's hands-on management and benchmarking of performance. And Grossman notes, "the dialogue has shifted considerably." Foundations today are less concerned with the program or ideology of their grantee -- often called an "investee" in the semantics of venture philanthropy -- and more focused on how they can encourage nonprofits to scale up their operations to meet their potential.
Phil Buchanan, executive director of the Center for Effective Philanthropy in Cambridge, Mass., is not a fan of applying business analogies to the nonprofit world. "They are often more alluring in concept than they are functional in reality," he says. But CEP's survey of 30,000 grantees of 100 foundations during the last three years showed that most new foundations have opted for the basic venture philanthropy model of high engagement, strategic planning and measuring performance by a matrix.
Could charitable microfinancing have even greater reach?
Mark Kramer of the Foundation Strategy Group in Boston has long been a critic of venture philanthropy. But, he declares, the use of for-profit investments, such as microfinance, for social good is "tremendously powerful and influential, and long overdue: Commercial solutions are much more sustainable."
Google's founders certainly have aimed high: The company's founders put their commitment to philanthropy into the prospectus of Google's widely popular initial public offering in August 2004 and declared that they hoped their charitable mission "will eclipse Google itself in overall world impact."
To subscribe, click here.