Conglomerate Blog: Business, Law, Economics & Society

As Christine notes below, Google.org, the philanthropic unit of Google, announced the focus of its core initiatives and more details about its strategic plan yesterday. The focus on the “venture capital model” that DotOrg (as the NYT reports Google employees refer to it) will be using is not particularly innovative. This model, frequently known as venture philanthropy or strategic philanthropy, has been kicking around for the past 10 years or so. Although it has been embraced primarily by a handful of New York and Silcon Valley grantmakers, the concept’s origins date back to an outstanding 1997 Harvard Business Review article, "Virtuous Capital: What Foundations Can Learn from Venture Capital," by Christine Letts (Harvard Kennedy School), William Ryan (author, consultant, and researcher) and Allen Grossman (Harvard Business School). Here’s a description:

U.S. foundations and nonprofits work diligently on behalf of society's most needy and yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support, and stay involved long enough to see the company become strong.

This model as been used by several other grantmakers, including, the Edna McConnell Clark Foundation, Omidyar Network, and even the Goldman Sachs Foundation (my former employer), to name just a few. Although it’s worth noting that critics argue that venture philanthropy is just a new name for old practices that well-run charities and foundations have always employed. Less charitable (no pun intended) critics of the approach describe it as a fad driven by wealthy venture capitalists and dot com types who smugly assume that their skills transfer to a field in which they had no experience.

But what seems interesting and new to me are some of the areas that Google.org plans to “invest” (i.e., make grants). Some of their priorities seem to address important problems/issues that few foundations, at least to my knowledge, are devoting significant resources toward addressing. For example, the Develop Renewable Energy Cheaper Than Coal (RE<C) and Accelerate the Commercialization of Plug-In Vehicles (RechargeIT) initiatives come to mind. As they describe these projects, RE<C is a collaborative effort within the company to produce a gigawatt of renewable energy capacity for less than it costs to produce it by burning coal. RechargeIT will work to reduce carbon emissions, cut oil use, and stabilize the electrical grid by accelerating the adoption of plug-in hybrid electric vehicles and vehicle-to-grid technology.

The most interesting (and innovative) thing about Google.org, however, is its legal status. Unlike every corporate foundation that I’m familiar with, Google.org is not an exempt, nonprofit entity recognized under 501(c)(3) of the Internal Revenue Code. (Although it’s important to note that Google.org manages the Google Foundation which is a 501(c)(3) private foundation facilitating grants to nonprofits.) As such, it will be interesting to see if the DotOrg part of the enterprise uses its status (and the accompanying freedom from IRS restrictions) to innovate bringing both private and nonprofit resources to bear in order to generate societal benefits. It seems to me that the extent that Google.org relies exclusively (or even primarily) on partnerships with or grants to nonprofit organizations (who remain subject to nonprofit law and regulation), the real opportunity for true innovation of the model they tout remains limited. But as of today, the jury is still out.

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As Christine notes below, Google.org, the philanthropic unit of Google, announced the focus of its core initiatives and more details about its strategic plan yesterday. The focus on the “venture capital model” that DotOrg (as the NYT reports Google employees refer to it) will be using is not particularly innovative. This model, frequently known as venture philanthropy or strategic philanthropy, has been kicking around for the past 10 years or so. Although it has been embraced primarily by a handful of New York and Silcon Valley grantmakers, the concept’s origins date back to an outstanding 1997 Harvard Business Review article, "Virtuous Capital: What Foundations Can Learn from Venture Capital," by Christine Letts (Harvard Kennedy School), William Ryan (author, consultant, and researcher) and Allen Grossman (Harvard Business School). Here’s a description:

U.S. foundations and nonprofits work diligently on behalf of society's most needy and yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support, and stay involved long enough to see the company become strong.

This model as been used by several other grantmakers, including, the Edna McConnell Clark Foundation, Omidyar Network, and even the Goldman Sachs Foundation (my former employer), to name just a few. Although it’s worth noting that critics argue that venture philanthropy is just a new name for old practices that well-run charities and foundations have always employed. Less charitable (no pun intended) critics of the approach describe it as a fad driven by wealthy venture capitalists and dot com types who smugly assume that their skills transfer to a field in which they had no experience.

But what seems interesting and new to me are some of the areas that Google.org plans to “invest” (i.e., make grants). Some of their priorities seem to address important problems/issues that few foundations, at least to my knowledge, are devoting significant resources toward addressing. For example, the Develop Renewable Energy Cheaper Than Coal (RE<C) and Accelerate the Commercialization of Plug-In Vehicles (RechargeIT) initiatives come to mind. As they describe these projects, RE<C is a collaborative effort within the company to produce a gigawatt of renewable energy capacity for less than it costs to produce it by burning coal. RechargeIT will work to reduce carbon emissions, cut oil use, and stabilize the electrical grid by accelerating the adoption of plug-in hybrid electric vehicles and vehicle-to-grid technology.

The most interesting (and innovative) thing about Google.org, however, is its legal status. Unlike every corporate foundation that I’m familiar with, Google.org is not an exempt, nonprofit entity recognized under 501(c)(3) of the Internal Revenue Code. (Although it’s important to note that Google.org manages the Google Foundation which is a 501(c)(3) private foundation facilitating grants to nonprofits.) As such, it will be interesting to see if the DotOrg part of the enterprise uses its status (and the accompanying freedom from IRS restrictions) to innovate bringing both private and nonprofit resources to bear in order to generate societal benefits. It seems to me that the extent that Google.org relies exclusively (or even primarily) on partnerships with or grants to nonprofit organizations (who remain subject to nonprofit law and regulation), the real opportunity for true innovation of the model they tout remains limited. But as of today, the jury is still out.

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