Virtuous Capital: The Original Sin of Philanthropy

Yesterday, I was pointed to this 1997 Harvard Business Review piece titled Virtuous Capital: What Foundations Can Learn from Venture Capitalists. I read it and am calling it “The Original Sin”!

Thirty years on, it feels like opening a time capsule filled with sharp insights and assumptions that, in hindsight, haven’t aged well.

The article made a case for philanthropy to borrow from venture capital—longer time horizons, active funder engagement, and a focus on organisational strength rather than just projects. And to be fair, those ideas hold up.

Three truths from then that remain true today:
– If funders want lasting impact, they must invest in strong organisations, not just short-term projects.
– Short funding cycles kill momentum and leave nonprofits scrambling for survival instead of focusing on their mission.
– The best funders are partners, not just check-writers—and yet, too often, the relationship stays distant, transactional, and burdened with bureaucracy.

But here’s where the piece shows its age:
– The idea that philanthropy should model itself after venture capital now feels… let’s say, quaint. In 1997, the VC metaphor was seen as fresh and ambitious. Today, we recognise that complex social challenges don’t follow the logic of moonshot investing. Scale-for-scale’s-sake isn’t always the answer.
– The power dynamic was barely acknowledged. The article assumes funders should be hands-on “helping” grantees, but today, there’s more awareness that the real work is shifting power, not just optimising nonprofits like portfolio companies.
– Trust-based, flexible funding wasn’t even in the conversation back then. It’s clearer now that the most effective philanthropy often looks less like a VC term sheet and more like a deep, long-term partnership without rigid, per-determined conditions.

Some shifts take decades—like moving from rigid, project-based funding to trusting organisations with unrestricted support. What’s something you once thought was a breakthrough idea in philanthropy that now feels…well…less compelling?

Originally written for LinkedIn on 5 March 2025. View original →