Non Profit Venture Capital?

I know, I know, by definition non-profits can’t have venture capital.  That unique form of financing that understands you may not turn a profit at first, but they have faith that one day your product or idea will and big.  These venture capitalists are usually investing in is a new idea or technology capable of opening a new stream of yet untapped market revenue. 

So why is it so difficult to apply this mentality to non profit organizations?  Substitute a “product” with “service” and you have what most performing arts groups “manufacture”.  In yesterday’s article we talked about how difficult it is for new non profits to qualify for grant money and the hoops they have to jump through in order to obtain them.  So why is it more difficult for newer groups to receive funds over established organizations?

First, let’s take a look at some mission statements two of the larger national foundations:

The National Endowment for the Arts
Mission: The National Endowment for the Arts enriches our Nation and its diverse cultural heritage by supporting works of artistic excellence, advancing learning in the arts, and strengthening the arts in communities throughout the country. 2004 annual budget of over $120 million.

The Andrew J. Mellon Foundation Performing Arts Program
Mission: In general, grants aim to strengthen organizations by supporting artistic work and administrative capacity, are awarded on the basis of artistic merit and leadership in the field, and concentrate on achieving long-term results.  Annual giving in the area of performing arts totals approximately $16.5 million.

For these two foundations (and with most) the first big hurdle they set up is that they typically require all prospective grant recipients to present at least one year’s financial data along with their grant proposal.  Well if they’re just starting out they won’t have a year’s worth of financial records and that’s where the story usually stops.  Granted, it isn’t wrong for foundations to require this information, it’s there to ensure their money is going to a legitimate non profit organization and will be handled by individuals they can trust will make prudent management decisions.

But that seems to be the problem these days.  With so many orchestras failing or accumulating large deficits over the relatively short period of the past two years it seems as though there isn’t an abundance of prudent management. Historically, one of the best ways to discover an improved way to do something is allowing it to evolve from scratch, without the burden of conventionality.
 
If you take 5% ($825,000) of the annual budget the Mellon Foundation donates to performing arts organizations and use those funds to initiate new performing arts groups, you could distribute $51,562.50 to 16 new groups to use for start up funds.  You could select from among organizations that submit a typical business plan, looking for those that provide for reasonable financial management while simultaneously providing for a high quality artistic product. 

Then the foundation could track their progress throughout the first year of operation and take those organizations which best accomplished the predetermined criteria for success and investigate their management techniques.  Did they utilize innovative ideas, did they utilize traditional management ideology, or a little from column A and a little from column B?  I’m willing to bet the results would be more valuable than the tiny financial investment and could be applied to the entire industry on a much larger scale in one degree or another.

Too bad foundations don’t offer orchestras venture capital.