Thoughts on Venture Philanthropy: A Patient-Centered Investment Thesis

Venture Philanthropy in biotechnology is as close to a patient-centered investment thesis as there could be. It allows investors and non-profit disease associations working on behalf of patient populations to consider risk, outcome, exit, time horizon, deal sourcing, and non-financial intangibles differently than a traditional venture capitalist. When a non-profit organization engages in venture philanthropy (VP) it is working for patient groups, who presumably, raise money for “research” and awareness for their collective cause. We — patients and families — are most certainly not limited partners (LPs) backing a venture capitalist. Instead, we trust that the association (or associations) is operating wholly for the benefit of the patient population.

Ultimately, venture philanthropy can provide a strategic opportunity for non-profit organizations and foundations. Notably, it is a revenue stream when it works. Importantly, venture philanthropy models should only be one use of resources across a diverse portfolio of charitable giving and investing for Foundations. In the case of disease associations or scientific operations, VP can often have the most effect when it is used to complement strategic scientific grants, patient assistance and clinical improvements.

Historically, foundations have relied on donations or grants to drive operations and resources for charitable giving. VP runs counter to that thinking. When a foundation chooses to invest it is a very explicit signal that the organization expects a return. Sometimes, that signal can drive criticism to the non-profit organization pursuing venture philanthropy. Non-profits are, by definition, not profit seeking, so while there is revenue to be had via VP, it can suggest to donors that the organization may not be operating as likely anticipated. It is in the interest of non-profits using venture philanthropy to stand with extreme transparency in their methods. Organizations should very clearly lay out their goals for the venture philanthropy model and who is operating fund. The non-profit must also cope with the liabilities that come along with investment. The best exit, like traditional investments, should be weighed on a case-by-case basis.1

One thing is fundamentally true for venture philanthropy: there is no one-size-fits-all model. Each disease association operates in different markets, ecosystems, scientific infrastructures, and patient populations. 2 In many cases, venture philanthropy may not be the appropriate model to pursue because the foundation may not be able to provide the intangibles required that come along with financing or because the non-profit may not be able to provide the operational support expected along with an investment. Further, foundations may not have the critical mass of capital required to operate a successful fund.2

When the model does work, however, the potential upside for the foundation’s operating and research budgets is enormous.

Near the end of my time in business school, I spent a term working on a capstone project: Venture Philanthropy in Biotechnology for Unmet Medical Needs. I was committed to sharing some output from that project after talking with several venture philanthropists. The above is an amended except from that project. The references imbedded refer to conversations with venture philanthropy operators outside of the cystic fibrosis space, but are withheld for the privacy of the interview.