Venture Philanthropy: A People-Centered Approach to Economic Development

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what is venture philanthropy

Venture philanthropy applies the principles of venture capital to address societal issues and transform communities. Here’s how Arch Grants puts these principles into practice to fuel future economic growth in St. Louis.

If there’s one thing we can agree on, it’s that nobody agrees on how to create economic growth. That shouldn’t be surprising — successful and sustainable economic development is a monumental challenge. In St. Louis, we’ve primarily used public place-based investments — like tax increment financing — to revitalize our city.

But at Arch Grants, we’ve chosen venture philanthropy, a people-based development model that combines the principles of venture capital with charitable giving in order to address big societal issues. Our investments in our entrepreneurs reflect our confidence in their ability to substantially improve lives and solve problems around the world, and to transform the economy of St. Louis and spearhead the next wave of economic development in our region. Here’s how:

Nurturing Entrepreneurs’ Potential

First and foremost, our model of venture philanthropy generates investment for social good by betting on the potential of people. As practitioners of venture philanthropy, we work to catalyze economic growth in St. Louis by giving grants to early-stage companies and entrepreneurs.

Venture philanthropy provides a distinct advantage over other economic development models. It allows people or organizations with capital to create change outside of government or public funding sources, which, though effective in the long term, struggle when it comes to short-term economic growth. By contributing to businesses directly, we can bypass bureaucratic hurdles and make nimble investments that contribute to a climate of entrepreneurship.

At Arch Grants, we give $50,000 to founders with defined visions for their startups and a desire to grow their business here. These companies are quickly able to expand their operations, hire from St. Louis’s wealth of young talent, and bring economic growth to multiple areas of the city.

Investing Locally, Growing Together

Venture philanthropy may be an investment in people, but it’s also a commitment to a place. Because venture philanthropy doesn’t offer returns in a traditional sense, organizations that use this model must find partners who share their vision for social good. At Arch Grants, we work with individuals and family foundations — as well as larger companies and institutions — to secure localized funding and buy-in for our mission. We’ve found that St. Louisans are fiercely proud of their home and happy to contribute to projects that will revitalize the city over time.

For this model to be sustainable, however, we need to see some kind of social “return” on our investment. That’s why, in exchange for our funding, we require that Arch Grants recipients run their business in St. Louis for at least a year. In addition to the $50,000 grant, we offer introductions to potential investors, vendors, and partners around St. Louis, helping companies strengthen their networks here and motivating them to stay after the year is over. In asking our entrepreneurs to set up operations here, we’re asking them to share our vision and grow their businesses with the city.

Providing Objective Mentorship

The final component of our venture philanthropy model is advisory — but not financial — partnership. That is, we don’t take equity in or loan money to any of the companies we invest in. When we don’t have a financial stake in the game, we’re able to create a different relationship with our entrepreneurs, one based on mentorship instead of the potential for profit. We’re singularly focused on the best interest of the entrepreneur, and can therefore quickly build trust.

We’ve found that financial uninvolvement helps us tackle problems more effectively as they arise. If an entrepreneur comes to us on the brink of bankruptcy, for example, we’re able to make choices that may affect the company’s short-term profitability, but might save the business in the long term. As a result, founders trust us to do what’s best for them — not what’s best for our bottom line.

Venture philanthropy has a valuable role to play in St. Louis’ economic growth. By investing in people, their ideas, and their goals, we’re investing in an innovative future for our city.

The Arch Grants Global Startup Competition takes place every year. Check out the impact of their venture philanthropy based economic development program in St. Louis.