Some Charities Adopt Capitalism's Virtues

A new breed of social entrepreneurs is administering doses of bottom-line thinking to traditional philanthropy in order to make charity more effective, the New York Times reports.

Efforts are appearing across the philanthropic landscape as business-minded donors — epitomized by Bill and Melinda Gates and their foundation — treat their charitable contributions more like venture capital investments. Others in the field say an even bigger step towards capitalism is sometimes needed to have the greatest possible impact. Grameen Bank founder Muhammad Yunus calls this next step the "social business," and says the goal is to create ventures that turn a profit, rather than just pay for themselves.

Only 144 of the more than 200,000 nonprofits established since 1970 had grown to $50 million or more in revenue by 2003, according to a study by the Bridgespan Group. With the rising influence of social entrepreneurs in philanthropy, many nonprofits have sought to generate revenue to become more self-sustaining. Mozilla, the nonprofit that developed the open-source Web browser Firefox, decided that it needed a for-profit unit to accelerate its business activities. Likewise, chose for-profit status to be able to easily make investments in for-profit companies.

While still rare, other nonprofits have crossed over to become mainly profit-seeking businesses. Founded in 2005, In2Books, for example, struggled as a nonprofit program that used books and online tools to enhance skills of inner-city students. In 2006, the program's founder, Miles Gilburne, attracted like-minded angel investors and bought ePals — a for-profit company — to expand on the original mission of In2Books. EPals is now primarily a for-profit enterprise, allowing it to more easily attract financing for growth.

The failure rate for entrepreneurs — whether social or purely capitalist — is high, but ePals' backers are betting that it is worth the risk. "These kinds of opportunities to do well and do good at the same time don't grow on trees," said ePals investor Mitchell Kapor. "But I do think that ePals could be one of them."

Steve Lohr. "A Capitalist Jolt for Charity." New York Times 02/24/2008.