Venture Philanthropy: A People-Centered Approach to Economic Development
Venture philanthropy applies the principles of venture capital to address societal issues and transform communities. Hereβs how Arch Grants puts these principles into practice to fuel future economic growth in St. Louis.
If thereβs one thing we can agree on, itβs that nobody agrees on how to create economic growth. That shouldnβt be surprising β successful and sustainable economic development is a monumental challenge. In St. Louis, weβve primarily used public place-based investments β like tax increment financing β to revitalize our city.
But at Arch Grants, weβve chosen venture philanthropy, a people-based development model that combines the principles of venture capital with charitable giving in order to address big societal issues.
Our investments in our entrepreneurs reflect our confidence in their ability to substantially improve lives and solve problems around the world, and to transform the economy of St. Louis and spearhead the next wave of economic development in our region. Hereβs how:
Nurturing Entrepreneursβ Potential
First and foremost, our model of venture philanthropy generates investment for social good by betting on the potential of people. As practitioners of venture philanthropy, we work to catalyze economic growth in St. Louis by giving grants to early-stage companies and entrepreneurs.
Venture philanthropy provides a distinct advantage over other economic development models.
It allows people or organizations with capital to create change outside of government or public funding sources, which, though effective in the long term, struggle when it comes to short-term economic growth. By contributing to businesses directly, we can bypass bureaucratic hurdles and make nimble investments that contribute to a climate of entrepreneurship.
At Arch Grants, we give $50,000 to founders with defined visions for their startups and a desire to grow their business here. These companies are quickly able to expand their operations, hire from St. Louisβs wealth of young talent, and bring economic growth to multiple areas of the city.
Investing Locally, Growing Together
Venture philanthropy may be an investment in people, but itβs also a commitment to a place. Because venture philanthropy doesnβt offer returns in a traditional sense, organizations that use this model must find partners who share their vision for social good.
At Arch Grants, we work with individuals and family foundations β as well as larger companies and institutions β to secure localized funding and buy-in for our mission. Weβve found that St. Louisans are fiercely proud of their home and happy to contribute to projects that will revitalize the city over time.
For this model to be sustainable, however, we need to see some kind of social βreturnβ on our investment. Thatβs why, in exchange for our funding, we require that Arch Grants recipients run their business in St. Louis for at least a year.
In addition to the $50,000 grant, we offer introductions to potential investors, vendors, and partners around St. Louis, helping companies strengthen their networks here and motivating them to stay after the year is over. In asking our entrepreneurs to set up operations here, weβre asking them to share our vision and grow their businesses with the city.
Providing Objective Mentorship
The final component of our venture philanthropy model is advisory β but not financial β partnership. That is, we donβt take equity in or loan money to any of the companies we invest in.
When we donβt have a financial stake in the game, weβre able to create a different relationship with our entrepreneurs, one based on mentorship instead of the potential for profit. Weβre singularly focused on the best interest of the entrepreneur, and can therefore quickly build trust.
Weβve found that financial uninvolvement helps us tackle problems more effectively as they arise. If an entrepreneur comes to us on the brink of bankruptcy, for example, weβre able to make choices that may affect the companyβs short-term profitability, but might save the business in the long term. As a result, founders trust us to do whatβs best for them β not whatβs best for our bottom line.
Venture philanthropy has a valuable role to play in St. Louisβ economic growth. By investing in people, their ideas, and their goals, weβre investing in an innovative future for our city.