Wealth Insights

Where Philanthropy Meets Capitalism

Business techniques are enhancing the way that foundations and nonprofits see their causes—and their results.

No longer content with simply writing checks and attending galas, a new generation of philanthropists has different ideas about how to give. These benefactors — dubbed “philanthrocapitalists” — take an entrepreneurial approach to giving.

Using the lessons they’ve learned in business, philanthrocapitalists aim to make philanthropy more efficient and effective by treating their charitable donations as investments and their foundations as companies. They are looking for long-term “returns” in the humanitarian or social issues where they invest.

Some trace the trend’s heritage to wealthy families of old New York who founded hundreds of public libraries and played big roles in public health initiatives. In 1915, for example, The Rockefeller Foundation established the Yellow Fever Commission, which led to the development of a vaccine for the disease by 1936.

Today’s examples are in the same vein. The Bill and Melinda Gates Foundation uses its money to create market incentives for drug companies to better serve the needy, rather than simply paying for the drugs they need. They also partner — as businesses might — with other organizations already working on the issues they hope to address. In most cases, these foundations or nonprofits keep a close eye on metrics to track the effectiveness of their donations.

Another example of the goodness-maximization strategy of philanthrocapitalism is the XPRIZE Foundation. Its contests, with million-dollar prizes, are intended to inspire inventors to spend time and money in areas it deems worthy, such as global learning and climate change.