It’s easy to imagine the world of philanthropy as somewhat one-dimensional. Good people have the money, and they want to give it to good causes. So they write checks for curing brain cancer, or saving the seagulls or whatever, and the do-goodnik organization on the receiving end carries out this worthy work.
Venture philanthropy, as it's typically understood today, is really only a minor departure from that model, with funders thinking and acting more like venture capitalists, but still writing checks and not gunning for a financial return. While impact investing does seek a return, it's generally a modest one.
But there's another model out there that, until recently, has received much attention. There are philanthropies giving money to drug companies like Pfizer and Bristol-Myers Squibb, helping to make the development of new drugs less financially risky for companies that wouldn't otherwise invest R&D dollars in certain areas, especially in the case of rare diseases.
See, drug companies’ priorities are led by demand—so a developing a drug that’ll benefit the 232,670 women who have breast cancer is a higher priority than, say, a drug for the 30,000 people who have cystic fibrosis. So nonprofits that go to bat for these rarer diseases are stuck: Do they give to feel-good efforts that “raise awareness” and academic researchers with limited capacities? Or do they offer research cash to the super heavyweights of R&D, those drug companies best equipped to develop new drugs?
The Cystic Fibrosis Foundation has been rolling with the big players for well over a decade, using its venture philanthropy model to entice drug companies into working on drugs for CF. It’s had a ton of success—Kalydeco, the first CF drug to treat the base cause and not merely the symptoms, was developed with cooperation with the drug company Vertex.
Critics argue that the for-profit motive might be distracting: For example, a year of Kalydeco costs $300,000. Wouldn’t CFF better serve the public by trying to make that drug more affordable? It’s a tough call, because without CFF’s savvy venture model, there would be no drug at all.
And there would be no profits, either. Just this week, CFF announced its intent to sell its royalty rights to CF treatments developed by Vertex Pharmaceuticals for $3.3 billion. While the success and sustainability of traditional philanthropies often relies on interest, dividends, and wise money management, CFF has created what seems to be a spectacularly self-sustaining model of giving. Money in, drug and money out. Lives saved.
Of course, there aren't a lot of places where this model can be replicated, so we want to be careful about generalizing too much from this example. But it is damn eye-opening, and suggests that the spheres of venture philanthropy and impact investing are still likely to evolve in new ways in coming years.
Maybe philanthropy doesn’t have to have that Thomas Kinkade rosy glow in order to contribute positively to the world.