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What’s the Difference Between Investing for Profit Versus Investing for Philanthropy?

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The general perception of investors is that they’re only in it for the money. There’s nothing necessarily wrong with this. After all, if we want our savings to adjust with inflation, then we do need to build an asset portfolio.

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However, in recent years, more and more people are becoming involved in a different style of investment: venture philanthropy. This is where you fund social causes to create a positive impact on the world whilst simultaneously making a profit for yourself, thus distinguishing it from charity work. We’re going to be delving deeper into what this concept is, and how it differs to profit-led investment, in this article. Read on to find out more and determine which style is better suited to you.

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What Is The Purpose?

The purpose of venture philanthropy is to provide capital to good causes whilst still making a return on investment. It’s like giving donations to charity or social enterprises, except you have more control over where your money goes, and what it’s being used for. Like any other type of investment, you become a shareholder in the company, but instead of wanting to improve the enterprise for your gain, you’re doing it for the benefit of others.

Meanwhile, the purpose of profit-led investments is solely to build your funds. You stake capital into a business, allowing you to have a percentage of its profits, and hope your funding helps the company grow enough to give you return on investment.

How Do They Make An Impact?

Venture philanthropy allows you to make a difference by directly investing into the causes you care about. This is exemplified by investors and philanthropists such as Tej Kohli, who has poured capital into open bionics to help develop technology for people with prosthetic limbs.

On the other hand, profit-led investments can be philanthropic, too – though more indirectly. By funding industries, you power the economy and ensure businesses keep their staff employed, maintaining the livelihoods of thousands across the country. It’s funny how it all works out.

How Much Money Will You Make?

Profit-led investments are, as implied by the name, money-orientated and therefore you’re more likely to generate a sizeable amount of capital from them. However, share and stock prices do fluctuate with the market, and some investors have found themselves out of pocket when their calculated risk doesn’t pay off.

Venture philanthropy seems to be a more consistent source of income, supposedly because social issues don’t change with what’s trending in the marketplace. This being said, there is less money to be made overall with venture philanthropy as, generally, the industries involved aren’t quite so prosperous. For example, technology for virtual reality is much more exciting to consumers than funding housing for disadvantaged young people.

Now you know the main differences between profit vs philanthropic investments, which will you choose?