SAN FRANCISCO (04/04/2000) - Venture capital has become so plentiful that it was just a matter of time before some spilled over into nonprofit organizations. Silicon Valley VCs have made a few stabs at philanthropy. The most visible has been Sand Hill Road's annual soapbox derby -- where, often, more money is spent on the cars than given to charity.
But now Flatiron Partners, based in New York, is launching two funds to promote what it calls "social entrepreneurship." Flatiron has funded 45 companies, including The Standard. It also maintains a host of business partnerships and alliances. The firm says it will use its financial expertise and large network of contacts to channel money toward needy technology-related causes. The funds mark a departure from the firm's core work of financing startups, but the Flatiron folks are excited about the change, says Fred Wilson, a Flatiron partner who is leading the effort. To appeal to all kinds of givers, Flatiron is launching both a public charity and a traditional venture fund.
The public charity, called the Flatiron Foundation, makes tax-deductible grants to nonprofit organizations. Ranging in size from $200,000 to $500,000, the grants will fund causes in three main areas: spreading technology among children, promoting entrepreneurship among people with historically limited access to capital and encouraging existing entrepreneurs to turn their attention to social problems. The firm also is launching the Flatiron Future Fund, which will operate like a typical venture capital fund. It will take minority stakes in ventures that intend to earn a profit but that have a specific social mission. The fund will finance ventures on a deal-by-deal basis in the hope of turning budding social programs into self-sustaining businesses.
The Flatiron partners will provide the initial capital for both the Future Fund and the Foundation. The firm aims to bring other investors on board though it initially might be difficult to do so. Rates of return from the Future Fund are likely to be far, far lower than the oversized gains to which venture capitalists are accustomed. Wilson says that although high returns help to attract investors, they won't be a priority for this fund. "We will look at the plans with vigor, but we're not focused on the IPO or the quick pop," he says.
"We are looking for good managers - people who are interested in the social good and who are builders."