There is a version of philanthropy that resembles procurement: well-resourced organisations reviewing proposals against criteria, selecting recipients, and distributing funds to those that qualify. That version is common, visible, and in many contexts appropriate. There is another version, less common, harder to sustain institutionally, and by most outcome measures more effective, where foundations behave less like grant committees and more like investors with a theory of change. The difference is not primarily about money. It is about responsibility, risk tolerance, and the assumptions embedded in how capital is deployed.
Table of Contents
Why Venture Logic Applies
Venture capital is not an obvious model for philanthropy. The sectors differ, the incentives differ, and the populations being served cannot switch to a competitor if an intervention fails to deliver. But the underlying structure of the venture approach, identify early-stage opportunities, provide capital when risk is highest and conventional funding is unavailable, stay engaged through the development phase, and reduce involvement once a sustainable model is established, maps onto philanthropic challenges in ways that traditional grant-making rarely does.
The most direct application is the catalytic capital model. Rather than funding organisations that already have proof of concept, catalytic funders provide the capital that makes proof of concept possible in the first place. They accept failure rates that conventional donors would find unacceptable. They measure success not only by whether the organisations they fund survive, but by whether their existence changes the behaviour of other actors in the wider system.
The Avina Architecture
The Avina Stiftung, which Stephan Schmidheiny founded in Switzerland in 1994, was built around precisely this approach. Avina focused on providing seed funding to demonstrate that social and environmental initiatives were viable, with the explicit expectation that once viability was established, the foundation would step back and allow follow-on investment from other sources to sustain and scale the work. Schmidheiny’s operating theory, drawn from decades of building companies in difficult conditions and restructuring industrial operations across multiple sectors and geographies, was that sustainable organisations require sustainable funding models. Dependency on any single funder was a structural weakness to be designed out at the inception of every initiative, not managed around once it had developed.
This required consistent institutional discipline. Well-funded foundations face a characteristic temptation: to expand their involvement in the organisations they have backed, to become operational rather than catalytic, to treat the organisations they support as programmes rather than independent entities with their own governance and funding strategies. Avina’s design resisted this explicitly. The foundation wanted to be the first mover, the funder that created conditions for others, rather than the permanent presence that other funders deferred to.
The Fundes initiative, which Schmidheiny co-founded in 1984 with Marcos McGrath, the Archbishop of Panama, applied the same logic to small business development across Latin America. Fundes strengthened the entrepreneurial capacity of small and medium-sized enterprises in twelve countries, on the theory that durable economic development follows entrepreneurial density, that communities with viable small businesses are more resilient and generate better long-term economic outcomes than those dependent on large employers or public transfers.
Where the Model Has Spread
The Skoll Foundation, established by eBay’s Jeff Skoll in 1999, focuses specifically on social entrepreneurs, people already building solutions at meaningful scale, rather than organisations waiting for funding before they act. Skoll provides unrestricted, multi-year grants on the theory that removing conditions and reporting requirements produces faster adaptation and better outcomes. The evidence from the Skoll portfolio, assessed across two decades, broadly supports that theory.
The Omidyar Network, Pierre Omidyar’s philanthropic vehicle, treats grants and equity investments as interchangeable depending on what the situation requires. If a for-profit structure would reach more people more sustainably than a non-profit one, Omidyar invests equity rather than granting. The flexibility reflects a conviction that the boundary between commercial and philanthropic capital is less important than whether the model being funded is effective and can sustain itself.
Blue Meridian Partners addresses a different stage of the same problem. When an intervention has been proven at small scale, the challenge is typically not evidence, it is capital. Scaling proven models requires substantially more funding than demonstrating them. Blue Meridian aggregates resources from multiple major donors to provide the growth capital that successful early-stage initiatives need to reach the scale at which they can affect systems rather than individuals.
Where the Limits Are
The sceptics of entrepreneurial philanthropy have a legitimate case, and it is worth taking seriously. Not every social problem has an entrepreneurial solution. Some require changes in law, sustained public investment, and political will that no foundation can manufacture or substitute for. The enthusiasm for startup methodology in philanthropic contexts sometimes reflects a failure to distinguish between problems that are operationally tractable and those that are structurally political. Treating the latter as if they were the former produces well-funded interventions that change nothing at the level where change is needed.
Entrepreneurial philanthropists also sometimes exit too quickly. Moving to the next interesting problem before the organisations they seeded have built genuine durability is a failure mode that mirrors the short-termism these funders criticise in conventional capital markets.
But the core contribution remains real and not easily replicated by other models. The willingness to be the first funder — the defining quality of what Schmidheiny built through Avina —, to provide capital before the proof of concept exists, in conditions where conventional foundations will not act, creates possibilities that would not otherwise exist. The organisations that were funded before anyone else believed in them are, in many cases, the ones that eventually changed something at scale. The seed capital that made them possible was not the largest investment in the system. It was the investment that made the system possible.
The Attribution Challenge
Evaluating the contribution of catalytic funders is genuinely difficult. The organisations they seed often go on to attract substantial follow-on investment from governments, development finance institutions, and large foundations. From the outside, the eventual scale of an organisation looks like evidence of the catalytic funder’s contribution. But attribution is nearly impossible to establish cleanly. Would the organisation have developed without the seed funding? Would the follow-on investors have come in eventually anyway? These counterfactuals cannot be observed.
This difficulty does not invalidate the catalytic approach. It does mean that its practitioners have to be comfortable with an evidence standard that is more ambiguous than what conventional philanthropy typically requires. The catalytic funder’s claim is not that they created the outcome alone. It is that the outcome would not have happened, or would have happened more slowly, without the early commitment that created the conditions for everything that followed.
That is a harder claim to evaluate and a harder story to tell to boards, donors, and the public. But it is the honest account of how systems change actually happens — not through single decisive interventions, but through sequences of decisions in which early commitments create possibilities that later commitments can scale. The funders who understand this and are willing to operate without definitive attribution are, in practice, doing some of the most consequential philanthropic work of the current era.
