It is often said that some of the most innovative thinkers are involved in start-up companies, but the problem is these entrepreneurs often have difficulty finding seed money to get their brilliant ideas off the ground. With the strain on the economy over the last few years, more and more venture capital firms have tightened the purse strings and become adverse to certain risk factors in funding decisions, as reported in a previous post. With the decline in venture capital funding in the last decade, unless a start-up has a commercially viable product ready to launch, it can be difficult to find the funds to help get the product to market.
Consider then, charitable venture capitalists, or venture capital philanthropy. A proposal recently issued from the U.S. Treasury Department seeks to green-light charitable investments into start-ups by clarifying the conditions in which a foundation may purchase stock or make loans to a commercial venture. As long as the investment activity promotes the foundation's charitable objectives, charitable foundations are allowed to invest in commercial businesses. Previously the concerns surrounding the legalities of certain such investments held back the more risk-averse charitable trustees.
Consider it this way, a foundation that seeks to promote cancer research in the hopes of finding a cure may choose to provide a $100,000 grant to a research hospital or university that is performing cancer research. The foundation could instead choose to purchase stock in a commercial company dedicated to researching and developing cancer therapies. This would be considered a "program-related investment" or PRI.
There was a time when the brightest, most talented scientists and engineers worked in academia, however in today's innovative, high-tech industries, many of these individuals now work in private commercial enterprises, making innovation and the advancement of medical sciences no longer a predominantly academic pursuit. The financial incentives for advancing science and technology, or just simply innovation to enhance human lives on a variety of levels can be found in numerous investment opportunities available to charitable foundations.
Coming up with a brilliant idea is often the easy part for many innovative thinkers, finding the venture capital to get that idea off the ground, on the other hand, can be the real challenge. If you have a great business idea, consider consulting with a law firm that focuses on business formations and start-ups as well as locating venture capital to help launch your business and bring your brilliant idea to the masses.
Source: The Wall Street Journal, "Why Not Venture-Capital Philanthropy?," Robert Pozen, June, 3, 2012