New Venture
Philanthropy
The Model
Remember, you (investors) are using what are earmarked philanthropic dollars as capital for these ventures in marginalized communities. This is accomplished by mobilizing your Donor Advised Fund (DAF), family office, or foundation monies, wherever they exist, as Program Related Investments (PRIs) in marginalized communities that generate sustainable and transformational solutions in these communities.
Program Related Investments is a term used by the IRS indicating alignment of mission between the not-for-profit granting tax-deductible status and the corresponding use of those funds. Any and all potential returns in the form of interest on debt, dividends paid to owners, or participation in a future liquidity event accrue to the donor’s DAF, not to the donor, making their DAF a potential evergreen fund.
​​If you don’t already have a DAF set-up, you can use one of these mission-aligned DAFs:
NEW Venture Philanthropy, in the options of funding new business start-ups or accelerating existing businesses, fits between banks and venture capital – a chasm of approximately $5 million. It is currently a vacuum for aspiring entrepreneurs in marginalized communities. Here is a diagram of how and where NEW Venture Philanthropy fits into this angel and venture capital vacuum:
Simply the nature of the struggles in these communities makes friends and family bootstrapping either not an option or, at best, a “network of kin” ask vs. “network of exchange” opportunity. In many cases, the “kin” well has run dry in marginalized communities. The traditional “skin in the game” required of financial investors is a real barrier for many of these entrepreneurs and just another obstacle to enabling entrepreneurs in marginalized communities.
Philanthropic dollars sitting in DAFs can be used in three ways, two of which are considered private placement of gifts or capital, and one that is a public offering for raising capital. Here is an explanation of each option for NEW Venture Philanthropy:
​Grants
(private gifts)
These are no or few-strings-attached gifts to start-ups with no expectation of return of principle or interest to the donor fund. These can come from community economic development budgets or from donors wishing to give an entrepreneur some seed or kick start capital. Join the NVP Guild to participate!
​PRI Loans or Equity (private placement)
-
These can be loans to start-up ventures at lower-than-market interest rates (accruing to the DAF, not the donor) and with friendly maturity terms and default provisions so as to not threaten the potential of the start-up enterprise during its journey to sustainability. These can also be equity investments in those same ventures with no promise of returns, dividends, or a future liquidity event. Like all equity investments, these are placed fully at risk by the DAF, as directed by the donor. Join the NVP Guild to participate!
​Reg CF Investments (public placement)
​o These Regulation Crowdfunding (Reg CF) investments are channeled through a FINRA-approved portal for public placement whereby non-accredited and accredited investors alike can invest smaller sums of money in a shared approach to capitalize either a start-up or accelerating existing business, with more normal rights to debt and equity returns. DAF’s, foundations, family offices, or individuals can participate within guidelines set by FINRA. Think a small or mini-public offering for debt or equity.
o This is a great way for an entire community of customers to become owners of businesses they either love or want to see prosper in their community! You can learn more at www.equityvest.org.
o This option is best used by existing businesses because there is a $12-$15K investment normally required for all legal, accounting, and marketing expenses associated with the listing of an enterprise for public placement through a Reg CF portal.
All the above are viable and meaningful NEW Venture Philanthropy options through which aspiring entrepreneurs in marginalized communities can gain access to capital to launch their businesses.