Venture Capital from Philanthropists for Inventors
Why would venture capital be available from philanthropists for inventors? Social or philanthropic venture capital has become a rapidly growing form of charitable giving.
What exactly is philanthropic venture capital and what would make venture capital from philanthropists for inventors a possible source of funding for their ideas? A philanthropist is a person who provides funds for socially valuable or charitable causes. It is assumed in the definition that the motive of the philanthropist is simply to do good. This is true of the new movement of social venture capital, but there are some differences from the standard charitable gift model.
The major difference in philanthropic venture capital and simple charity is the commitment of the philanthropist to the success of the venture. In the past, a charitable donation might be given with no strings attached. “Here,” says the philanthropist, “go do good with this money.” The venture capital model follows the basic venture capital formula of tackling projects that have much risk and uncertainty, and yet promise great returns. The venture capitalist provides value added funding to his projects. In other words, they assume some of the responsibility for making sure the project is profitable.
The venture capitalist exercises his responsibility actively, in many cases, by supplying management expertise and network assistance along with funding. By assuming partial control of the business venture, they bring their considerable skill to the goal of profitability. So, it is easy to question philanthropic venture capital as being a bit misleading. If a great return on investment is the goal of the philanthropist, it hardly could be considered philanthropy.
The answer lies in the definition of success and profitability. The metrics that define success to the philanthropist are not necessarily financial in nature. If someone has a good idea, and this idea will improve humanity in any socially important way; it is the ability to bring this benefit to the public in an affordable manner. It is the realization of the project that is the measure of success in this type of venture. The bottom line return on investment is left to the concern of those involved in financial affairs and not charitable ones.
This explains why venture capital from philanthropist to inventors is a distinct possibility in the start up funding search. It is true, however, that the invention is going to have to be shown to be something that is going to bring a positive good to some segment of humanity. Like any other venture capital deal, control of the operation will be given up to some degree or the other, but this also brings skilled managers with a proven track record and a commitment to success. It will, ultimately, depend on the nature of the invention if it is going to attract the interest of a philanthropic venture capitalist.