Practicing venture philanthropy

Increasingly, individuals are taking a more hands on, engaged approach to philanthropy. Some refer to it as venture philanthropy, due to its similarity to venture capital. Venture capitalists invest in early stage, rapidly growing companies. They play an active role advising the companies and usually serve on the board of directors. Venture capitalists expect management to use capital wisely, grow, and, eventually, achieve specific benchmarks.

Set priorities

Like venture capital, venture philanthropy represents a more deliberate and thoughtful approach to giving. Venture philanthropists regard donations as investments. Rather than support general funding for a large charitable organization, venture philanthropists are more likely to become engaged in a specific fundraising initiative that is meaningful to them. At the same time, they expect the organization to achieve results.

Consider having a family giving policy or charitable mission statement. Prioritize the causes you wish to support financially. What will give you greater satisfaction - making a lot of small donations or focusing on a few causes and making larger investments in those? Think of your donations as a finite pool. Evaluate donations the same way that you analyze investments. Where will you have the greatest chance of achieving your philanthropic goals?

Align your interests

Since venture capitalists invest alongside the company founders, everyone's incentives are aligned. Venture philanthropists also favor having their interests aligned with the organizations that they support. Matching grants or challenge grants are an example of this trend.

Do your homework

Like venture capitalists, venture philanthropists conduct due diligence to ensure that organizations use resources efficiently and effectively. Charity Navigator (www.charitynavigator.org) provides information on an organization's financial health and its transparency practices. It also highlights the percentage of donations to an organization that are used to cover administrative and fundraising expenses. Donating to organizations that spend a low percentage of donations on these expenses means that the dollars invested can have a greater impact. The percentage of donations spent on administration and fundraising should also be available in a charity's literature.

Focus on specific appeals

Charities are aware of this new trend and have changed the way they interact with donors. The organizations provide progress reports on major initiatives and communicate results in literature. Charities are also changing the way they seek support from donors at all levels of the giving spectrum. There are a greater number of specific appeals. For example, in its literature, an organization may present a list of needs and assign a dollar amount to each. Here are some examples:

• Pay for a new van to deliver meals to the needy

• Fund one year of tuition at a private school for an underprivileged student

• Provide a specific number of vaccines for children in an underdeveloped part of the world

• Underwrite the development of a correspondence course for the visually impaired

Organizations investing in donors

According to Susan Bottum, Vice President at HUB Philanthropic Solutions, nonprofits should simultaneously invest in their donors - invest the time to gain a better understanding of which programs or aspects of the organization appeal to each donor. "When a donor's interests are strongly aligned with an organization and its mission, there are great outcomes for both."

• Nancy Doyle is the founder of The Doyle Group and is the author of Manage Your Financial Life: A Thoughtful and Organized Approach for Women.