Philanthropy in Economic Development

You may have seen the article in today’s Seattle Times about how the Iacocca Family Foundation (yes, that Iacocca) is investing in a local biotech company. The human interest hook is that Lee Iacocca’s first wife, Mary, died from diabetes, and so the former Chrysler chairman is investing in potential therapies that can cure the disease. But the economic development hook is much more intriguing.

As the article points out, this kind of “venture philanthropy” is a growing trend:

The partnership is an example of how foundations are recasting the model of philanthropy, investing in promising work to advance treatments, both from the commercial sector and academic research. With an equity stake, there’s the potential for a double payoff if the company succeeds.

Of course, our region knows this trend intimately, because the leading proponent of this kind of philanthropic engagement is the Gates Foundation.  They’re a little different, since they have the resources to literally compel large companies and governments to change their basic business models and/or enhance public-private collaboration in exciting new ways.  But even Gates Foundation aside, our region is one of the best in both philanthropic and entrepreneurial achievement: for example, we know we have one of the most generous United Way campaigns in the entire country (King County contributes more to United Way each year in individual donations than any other American county), and we’re (maybe) in the top for entrepreneurship. So you can see the potential to combine those two is huge.  In fact, companies like Microsoft are even celebrating and encouraging this kind of investment by their employees.

One of the reasons that philanthropy can help here is that it’s less profit motivating and more long-view in its investments. We happen to have the distinction of being the state that has the most business starts per capita of any in the country, but also the most business failures. There’s a lot of reasons for that, not all of them bad, but many people say that the biggest reason for the bad business failures is “the valley of death,” that place in a company’s life between start-up and sustainable in which it’s most difficult to get operating capital. Maybe it’s a biotech company that has to undergo long clinic trials before it can commercialize, like the example above. Or maybe it’s a global health organization that is serving a population which can’t exactly pay market rate for the help. Maybe it’s an energy efficiency company that might help our environment and address climate change if it can just get through the last stages of R&D and product demonstration. All of these are examples of companies that have a “greater good” aspect to their work, which might make them attractive investments for venture philanthropy.

Besides the community benefit of those products, however, philanthropy has an interest in broad job creation regardless. Why? Because, as I once heard someone articulately say, “a job is the best social service you can provide someone.” That is, with the right training and opportunity, you can help people lift themselves out of poverty and avoid issues like homelessness and hunger. The Seattle Foundation, for example, identifies “the economy” as one of its six foundations for a healthy community, stating that “a strong economy is the essential engine that fuels all other elements of a healthy community. Without it, our region and its residents cannot thrive.” And so you can understand how philanthropies would see the potential to create a thriving energy efficiency industry in our region as a good jobs creator, particularly for folks who are trying to get a foothold into the economy (lots of potential manufacturing, construction and facilities maintenance/operations jobs).

So how do we make sure that these great tastes start going great together more often (and potentially in a broader range of industries)? A Venture Philanthropy summit/tradeshow? A venture-capital-modeled investment review board, to which start-ups pitch their ideas? An ombudsman of philanthropy to technology? As usual, I’m not sure. But if we can somehow marshal all these resources effectively, it seems to me that it would give our region quite a unique and effective advantage in the global competition that is economic development.

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