Philanthropy Impact

Inspiring philanthropy and social investment across borders, sectors and causes

Venture philanthropy

 

by Dr Rob John, Visiting Senior Fellow, Asia Centre for Social Entrepreneurship & Philanthropy, NUS Business School, Singapore

Highlights

  • Venture philanthropy (VP) is an approach to funding charities or social enterprises that adapts some principles of venture capital investment.
  • Key VP principles include high engagement, multi-year support and capacity building.
  • Interest in VP has grown rapidly across the UK, Europe and more recently Asia.
  • There are a variety of ways to get involved in VP, including investing in an existing VP fund, or becoming more engaged in a charity you already support.
Read more about Venture philanthropy

Venture philanthropy is an investment-minded approach to supporting charitable ventures that blends finance with hands-on management advice.

Offering advice to a charity together with grants is far from new of course, given the long history of grant-making in the UK. While the vast majority of grant-makers or individual philanthropists are geared up to screen applications and offer grants without any further involvement, an increasing number have built closer relationships with the ventures they support, adding a level of advice and engagement that probably sits on the edges of venture philanthropy practice.

Venture philanthropy is an approach that adapts some principles of venture capital[1], such as detailed evaluation (‘due diligence’), a medium term horizon (3 – 5 years) and hands-on support, to organisations that provide public benefit, such as charities and social enterprises.  As venture philanthropy spreads globally, specific practices may be adapted to local conditions, yet it maintains a set of widely accepted, key characteristics[2]:

  • High engagement: Venture philanthropists have a close, hands-on relationship with the social entrepreneurs and ventures they support. Some may take formal Board places in these organisations, or attend board meetings informally.
  • Tailored financing: This investment approach determines the most appropriate financing for each organisation. Some offer grants, while others use add loans or ‘quasi-equity’ finance (e.g. royalty schemes) to the funding mix.
  • Multi-year support: Investors provide substantial and sustained financial support to a limited number of organisations.  Support typically lasts at least three-to-five years, with an objective of helping the organisation reach financial sustainability.
  • Non-financial support: Value-added services such as strategic planning, marketing and communications, executive coaching, human resource advice and access to other networks and potential funders may be provided.
  • Organisational capacity building: Investors focus on building the operational capacity and long-term viability of the organisations in their portfolios, rather than funding individual projects or programmes.
  • Performance measurement: Venture philanthropy investment is performance-based, placing emphasis on good business planning, measurable outputs and outcomes, achievement of milestones, and high levels of financial accountability and management competence.       

Venture philanthropists work in partnership with a wide range of organisations that have a clear social objective – charities, social enterprises or socially driven commercial businesses.  Venture philanthropists focus on organisations at ‘inflection points’ – such as rapid growth, significant development of new products or services, or merger.  It is at such times that the non-financial support can be vital in helping management deal with the pressures of intense organisational change.

Development in the UK

The modern interest in venture philanthropy is usually traced back to Californian ‘dot-com’ entrepreneurs in the 1990s, although there are many historical antecedents for engaged philanthropy.  One UK grant-maker, Andrews Charitable Trust[3], traces its founder’s venture philanthropy approach over 40 years to helping launch or develop many charities, including Oxfam, Help the Aged and ActionAid.

From 2000 onwards there has been growing interest in the UK towards forms of philanthropy and social investment that couple finance and skills through a high level of engagement.  Most of this interest has come from individuals with a background in financial investment or as successful entrepreneurs.  With a 25-year career in venture capital, Stephen Dawson founded Impetus Trust with entrepreneur Nat Sloane. They realised that charities could benefit from grants when coupled with business-like advice including growth strategy, marketing, governance or executive coaching.

Venture philanthropy applies techniques that resonate with private equity professionals seeking a high impact with their own or their company’s philanthropy.  For example, UK-based private equity firm Permira partnered with CAN, a UK-based social entrepreneur support network, to create Breakthrough – a venture philanthropy fund focused on supporting promising social enterprises.  Damon Buffini, one of Permira’s founding partners says, “What CAN does – scaling up enterprises – that’s what we do here at Permira. The issues we try to address with CAN are similar to our day-to-day business.”[4]3 A quarter of Permira’s London-based staff became actively involved, advising social enterprise on information technology or mentoring their chief executives. In 2010 Permira took its experiment with venture philanthropy a step further by partnering with five other blue-chip companies to create the Social Business Trust (SBT).  SBT provides grant funding and expertise from its founding partner companies to help ambitious social enterprises significantly scale up their operations.

In 2013, two VP funds, Impetus Trust and the Private Equity Foundation announced they would merge to provide efficiencies and offer enhanced venture philanthropy support for charities embarking on growth and development.

Few grant-making trusts are geared up to the high level of engagement required by venture philanthropy, although many add considerable value to their grants without ever describing themselves as venture philanthropists[5].  The early definitions of venture philanthropy practice in Europe included equity type investments in social businesses, but since 2008, when the the term ‘impact investing’ was coined, venture philanthropy is more widely interpreted to describe highly engaged grant-making.

Outlook

Interest in venture philanthropy is growing across the UK and wider Europe.  The European Venture Philanthropy Association (EVPA) was established in 2004 to provide a platform for the VP movement, and in 2011 its research suggested that €1bn has been invested by European venture philanthropy funds. Private equity professionals and companies are viewing the movement as a natural outlet for their philanthropy; grant-making foundations, initially sceptical, are beginning to embrace the movement, by helping new funds get off the ground, or co-funding alongside venture philanthropists. For example, the Rayne Foundation has re-engineered its traditional grant-making along venture lines.  In Scotland, a venture philanthropy fund emerged from what was at the time, the country’s largest independent grant-maker. Inspiring Scotland is an exciting initiative with wide support, including from philanthropists and the Scottish government.

Individual philanthropists, such as Sir Tom Hunter, find the venture philanthropy approach aligns with their own entrepreneurial spirit, and deepens their experience of giving. Government-based funding agencies are becoming aware of venture philanthropy as a crossover between philanthropy and venture capital. In the UK, the Adventure Capital Fund and Futurebuilders England were early examples of independently managed government funds experimenting with venture philanthropy tools, which lead to development of the Social Investment Business Group, part of a growing social investment market.

It is unlikely that the volume of finance flowing through specialised venture philanthropy funds will ever be more than a fraction of independent or statutory grant-making, but the movement’s power is its ability to help small charities and social enterprises improve their operations and take the first steps of scaling up.  For some, a successful phase of development by a venture philanthropy fund will make them more ‘investment ready’ for further stages of growth by other grant-makers, philanthropists or impact investment funds.

Wealth creation and social entrepreneurship are converging in Asia to stimulate a rising interest in venture philanthropy in the region.  The Asian Venture Philanthropy Network was established in 2010 to foster the growing community of Asian venture philanthropists.

Getting involved in venture philanthropy

There are various ways individuals and companies can engage in venture philanthropy:

Both the EVPA and Philanthropy Impact offer online venture philanthropy resources for donors.  EVPA’s member directory, freely available on its website, includes case studies of all its ‘Full’ members.

There are several new funds emerging in Europe and Asia.  You could help fund the start up of a new fund where this approach can accelerate the growth and development of social organisations in a part of the world you care about.

Venture philanthropy funds can make their resources go further if others are prepared to co-invest with them. This offers the donor a taste of the venture philanthropy model while limiting their level of personal involvement – an appealing prospect for time-poor executives.

You may be in a position to donate time and money to a venture philanthropy operation.  Being part of a team that engages with a small charity to help solve problems or strategise can be immensely rewarding. For some who run companies, there may be opportunities to partner with a venture philanthropy fund to provide pro bono services to a portfolio of charities.

You may even wish to emulate private equity professionals like Stephen Dawson or Damon Buffini, and launch your own high-engagement fund. The EVPA, for example, has a guide on setting up a new fund and can provide advice and peer networking to help you do this with the hindsight and experience of others.

All in all, venture philanthropy does not seek to replace more traditional forms of charitable giving. This is an approach that some donors will find attractive, particularly as it connects with their business acumen. It offers donors opportunities for funding existing venture philanthropy operations, co-investing in specific projects or donating their time and skills. All are rewarding experiences of philanthropy.

Recommended resources

European Venture Philanthropy Association (EVPA): Europe’s only peer network of venture philanthropy funds and other organisations promoting the movement. The website has a free download for people interested in establishing a venture philanthropy fund

Skoll Centre for Social Entrepreneurship, Saïd Business School, University of Oxford: Research and working papers on the non-profit capital market and venture philanthropy.

Policy Exchange, ‘Give and Let Give’: A study on philanthropy and the UK financial services industry. Includes case studies on venture philanthropy.

Venture philanthropy investors

Impetus Trust: First general purpose venture philanthropy fund in the UK.

Private Equity Foundation: An initiative of several private equity firms to provide venture philanthropy support to UK charities. 

Andrews Charitable Trust (formerly World in Need): A small grant-maker based near Bath whose founder had used venture philanthropy techniques for decades. 

The Rayne Foundation: A grant-maker that has adopted a venture philanthropy approach to its funding of performing arts. 

Children’s Investment Fund Foundation: Linked to a high-performing hedge fund, CIFF has strategic grant-making programmes in Africa and India.

UnLtd Ventures: The venture philanthropy arm of UnLtd, which supports social entrepreneurs. 

Social Business Trust: A partnership of 7 leading companies that provides venture philanthropy investment to social enterprises looking to scale up.

Inspiring Scotland: A venture philanthropy fund linked to Lloyds TSB Foundation for Scotland. 

The One Foundation: Irish venture philanthropy fund co-founded by a business entrepreneur and a social sector leader.

Asia Centre for Social Entrepreneurship & Philanthropy (ACSEP): Studying the rise of venture philanthropy in Asia.

AVPN: The EVPA’s sister network in Asia.

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About the author

Rob John’s career in the non-profit sector spans emergency relief operations in Africa to repatriation of Cambodian refugees and microfinance on four continents. For five years he directed a venture philanthropy fund in Oxford before becoming the EVPA’s first executive director and a visiting fellow at the Skoll Centre for Social Entrepreneurship.  From 2008 his interests have increasingly focused on Asia. In 2010 he co-founded the AVPN and today pursues research in philanthropy at NUS Business School in Singapore.

You can contact Rob at rob.john@oba.co.uk.


[1] Venture capital, part of the private equity industry, is a form of financing for companies that makes a significant investment of equity (shares) in a company.  The private equity firm takes an active role in advising management on strategy and operations with the objective of building a more competitive and profitable company.  The private equity firm makes its money by selling its shareholding when the company has a higher value. In recent years private equity investors have been criticized for saddling companies with too much bank debt, which has left them struggling to survive.  It’s important to recognize that the analogy to venture philanthropy is a loose one, which serves to distinguish an investment approach to a simple donation approach.

[2] These core characteristics are taken from the European Venture Philanthropy Association
website

[3] Formerly named World in Need, founded by visionary philanthropy Cecil Jackson Cole

[4] Interviewed by the author and quoted in ‘Give and Let Give’, Policy Exchange, (2007), London


[5] E.g. Esmee Fairbairn Foundation has for many years helped small, ambitious charities to grow through a combination of finance and consulting advice, delivered by its grant managers or through paid consultants

 

Glossary: venture philanthropy

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