(FORTUNE Magazine) – In the later parts of their mostly brief careers, many Internet entrepreneurs decided they were ready to revolutionize more than mere business. Having utterly transformed whole industries--nay, the very economy--they would now turn their genius to the next logical objective: fixing society. So they set out to prove that just as they had made money more brilliantly (or at least more quickly) than anyone in history, they could give it away more brilliantly as well.

What could be wrong with that? Dispensing huge sums in a sincere effort to solve social problems seems like a good thing anyway you cut it. But there was indeed a problem, which was arrogance. Like 18-karat gold armor, it adorned the dot-com do-gooders, who fancied themselves glittering, rich, and invulnerable. Those old-economy philanthropists, the ones who'd given away billions over the past century, were kind of pathetic. It was time to show the world how to do this right.

The hubris was captured perfectly in a report called Venture Philanthropy: Landscape and Expectations, prepared for the Morino Institute, a Virginia-based foundation, by Community Wealth Ventures of Washington, D.C. The report appeared in March 2000, precisely at the delirious peak of Net madness. Traditional nonprofits were in "a culture of dysfunction," it declared. It was time for "a fundamentally different approach" based on "the best practices found in firms in today's New Economy."

That new approach was venture philanthropy--applying the practices of venture capital to charitable giving. The new philanthropists would put their money into projects promising the highest social return, then would offer strategic guidance to make it happen. Recipients would be accountable for delivering rigorously measured results; those that didn't perform would lose their funding.

The old language of grant giving was out. This was "investing in social entrepreneurs," some of whom would qualify for "mezzanine financing," and so on. And it wasn't just about money, as the report explained in a sentence that today sounds sarcastic but was meant soberly: "Perhaps more valuable than the wealth Internet entrepreneurs can bring to the nonprofit realm are the skills and expertise they offer." It all sounded intoxicating, and many newspapers and magazines (including this one) ran articles about the radical new way these new zillionaires would spread the bread.

When Wall Street finally realized its dot-com valuations were off by 90% to 100%, the stock market damage was so spectacular that most people didn't notice venture philanthropy suffering its own painful encounter with reality. Not that the new approach blew up as many stocks did (though some donors were forced to pull back). It just didn't end poverty and illiteracy in 90 days. In fact, it ran into a lot of problems.

To see a radical reversal of attitude, check this year's edition of that same Venture Philanthropy report. No more bluster; no more arrogance. It's actually hard to believe it's from the same organization on the same subject. Here's the new assessment: "It remains too early to demonstrate that venture philanthropy results in more effective outcomes or more powerful social change in ways that distinguish it from traditional philanthropy." This from the people who were going to push aside the "culture of dysfunction"? Afraid so. Says Thomas K. Reis, program director of the W.K. Kellogg Foundation, which has been giving away a corn-flake fortune for the past 71 years: "Venture philanthropy so far is more theory than reality."

The problems were many. The new foundations didn't have nearly enough staff to dispense all that strategic advice to nonprofit organizations. The organizations didn't have enough management experience or expertise to use it in any case and, moreover, were suspicious of the new approach. Nobody could figure out the rigorous new metrics for gauging success.

To repeat: We're talking not about entrepreneurs extracting money from investors but about people giving away millions of dollars to make the world better. God bless them. Venture philanthropy is far from finished, and its travails will yield lessons that will help everyone. Old-style philanthropy needs reinvigorating. The best established foundations are working with the new ones to learn what they can. Mistakes are the best teacher.

With so many of us thinking about charity at this time of year--especially this year--the story of venture philanthropy reminds us of a couple of truths. One, the attitude most becoming to a giver is humility. And two, as Tom Reis of the Kellogg Foundation says--and as a few new philanthropists might even agree--giving money effectively can actually be harder than making it.