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Virtuous capital: what foundations can learn from venture capitalists.
C W Letts1, W Ryan, A Grossman
1John F. Kennedy School of Government, Harvard University, Cambridge, MA, USA.
Harvard Business Review
|February 6, 1997
Summary
Foundations should invest in nonprofit organizational needs, not just programs, to improve effectiveness. This includes providing hands-on support and longer grants, similar to venture capital, to build nonprofit capacity.
Area of Science:
- Nonprofit Management
- Philanthropic Studies
- Organizational Capacity Building
Background:
- U.S. foundations and nonprofits face persistent social problems despite dedicated efforts.
- Nonprofits report slow progress due to limited resources and a focus on program innovation over organizational needs.
Purpose of the Study:
- To explore how foundations can enhance the effectiveness of nonprofit organizations.
- To propose a shift in foundation funding strategies to include organizational capacity building.
Main Methods:
- Comparative analysis of foundation practices and venture capital firm strategies.
- Recommendations for foundations and nonprofits to foster organizational strength.
Main Results:
- Foundations' overemphasis on program design has led to deteriorating nonprofit organizational capacity.
- Venture capital's model of capital investment, monitoring, and management support offers a benchmark for foundations.
Conclusions:
- Foundations should expand their mission to invest in the organizational needs of nonprofits.
- Implementing hands-on partnering skills, expert assistance, longer grant terms, and specialized grants can build nonprofit capacity.
- Nonprofits should clearly articulate needs, seek long-term funding, and develop plans justifying sustained support.