Guest Post: How Our Foundation Applies Startup Thinking To Philanthropic Investing

Philanthropists and their teams strive to make the greatest impact with philanthropic capital and ensure that their impact is sustainable. It’s a desire that runs through the philanthropic sector, and which guides strategy, grantmaking, reporting, and the way we all do our work.

Applying startup principals to testing and launching new solutions can be an effective and fast way to drive innovation.

A new model worth exploring

Nobody is disputing our intentions, but unfortunately many of our ventures and their outcomes don’t always match up, even when we start with the end in mind.  So why aren’t more innovative solutions reaching the intended audience and why is it so difficult to measure return on philanthropic investment?  What is missing to deliver our goal of doing good and doing well?

Perhaps we need to pause and look at new models that are working to define problems and successfully deliver sustainable solutions that reach the intended audience.  A new model worth exploring is the “venture studio”, developed by the technology startup investment community and potentially a new model that could change the way donors work with grantees to fund and develop products instead of programs.

Terms like “venture studio” might make some people nervous, and that’s understandable. After all, private and public charities live in a world where they are measured by their “charity score” and maintaining low overhead in relation to their “charitable activities”, not by the products or services they deliver. In a community where there is desire for innovation, but at the same time there is distrust of the investments that are needed to make innovation work, there is a need for new ideas and opportunities to do more for the causes we serve.

After all, success and wealth generation is not created by thinking small and avoiding risks.

In the technology world a venture studio works to identify problems and support expert teams to develop solutions and ultimately build startups that can evolve and thrive long-term. They ensure technology investment goes further, faster by surrounding teams with experts in building new ventures. Many startups don’t have the experience or expertise to test their assumptions and deliver the best value for investors. They make mistakes. Venture studios exist to support startup teams in avoiding common mistakes and delivering better value for the cause and investors. It works. Everybody benefits.

It turns out venture studios can deliver impact for philanthropists, too.

Let’s take a look at how it worked for us.

Three Lakes Foundation is a private foundation dedicated to improving the lives of individuals affected by pulmonary fibrosis. The problem we solve is that an estimated 1.5 million respiratory disease patients require supplemental oxygen therapy each year and many patients and clinicians report significant issues with access, use, and affordability. In 2020, we did what most foundations do, we ran an innovation challenge to surface the most promising oxygen device innovators. It yielded several early-stage opportunities for investment. 

We now faced a new challenge: How do we assess the opportunities and determine which teams and product concepts should receive additional investment?

We determined we needed to step back and deeply assess, validate, and prepare to invest in the most promising opportunities.  What besides money do the teams need to develop a company capable of delivering a product to address the myriad of issues?  Our decision was not to jump into the next phase but pause and work with a venture studio. Their name, appropriately enough, is Further Faster.

What we found together is that the oxygen device marketplace is challenging for new companies because of how the space is legislated. Our conclusion? It’s not a product innovation issue, the regulations need to be fixed first.

It’s not the conclusion we’d hoped for. We wanted to invest in startup oxygen companies. But it wouldn’t have helped. Instead, our deep research work with Further Faster has:

• Guided a change in strategy, which focuses beyond product opportunities.
• Allowed us to fund the development of an industry and supplier working group in collaboration with disease advocacy groups and policy experts to understand their challenges and develop solutions to improve the market.
• Preserved our charitable and investment capital that would have been wasted on new product investment for future investment once we have worked to address the adverse market conditions.
• Allowed us to leverage our ability to convene and fund research related to these specific problems, resulting in a healthier market that can support better products and service to patients.
• Created the opportunity for innovators and entrepreneurs to connect with industry leaders to explore business opportunities, through the working group.

Maximizing Our Impact 

Foundations and family offices want to do high-impact strategic investing, using a range of investment sources that typically include philanthropic funds.  Most organizations don’t have the internal team and resources to do the required diligence it needs to understand the underlying issues and inform optimal early-stage investments.  These gaps in resources can lead to languishing timelines, bad decisions, and missed opportunities.

Partnering with a venture studio gave us the opportunity to leverage dedicated, agile, and proven expertise to guide our portfolio of impact companies through each difficult stage of launching a company. This staged approach ensures the ability to be strategic from the beginning. It saves time, money and sets up each opportunity to minimize errors, optimize capital and ultimately increase the probability of sustainability and maximum impact.

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