Impacting investing: trends, issues and capabilities
Venture Philanthropy for Development
by Bathylle Missika
Venture Philanthropy for development is more than a ‘’fad’’, according to a new report1 by the OECD Development Centre.
Aid agencies and development partners alike now recognise that private funders and investors are an important and growing part of the global development architecture. Driven by a desire to achieve greater impact, an increasing number of philanthropists have started to experiment with novel methods driven by a search for greater impact. They often bring expertise from the business sector in their approaches to problem solving, operating models and theories of change.
These innovative philanthropists have, in particular, been seeking to achieve tangible development outcomes through leveraging financial and non-financial resources, and by being more interested in results and impact than inputs and grant size. In other words, it’s not just about the money. These new philanthropists are often agnostic about the type of organisations they work with, engaging with a diversity of social purpose organisations (SPOs) that include for-profit enterprises as much as charities or NGOs. Rather than focusing on the traditional grant-giver/grantee relationship, these innovative philanthropists take a more dynamic and hands-on approach; partnering, providing capacity building and developing management expertise within the organisations they support.
A new report, to be launched in New York on 25th February at the Rockefeller Foundation reviews current literature and exclusive insights and case studies from members of the OECD Global Network of Foundations Working for Development (netFWD) looking into aspects and implications of these approaches, summarised for convenience here as Venture Philanthropy (VP). It seeks to distil and disseminate the rationale, organisational implications and perceived benefits of the changes some foundations have undertaken. Four members of netFWD – Emirates Foundation, Lundin Foundation, Rockefeller Foundation and Shell Foundation - were interviewed in depth as the basis for this report, in addition to contribution by the Edmond de Rothschild Foundations, the Novartis Foundation and the JP Morgan Foundation.
The foundations that participated in this OECD Development Centre netFWD study all experienced a clear dissatisfaction with the impact of their grant-making methods, prompting them to embark on a journey of experimentation with and adoption of new models of philanthropy. The foundation leaders interviewed are confident that there is substantial improvement in the social impact of their programmes as a result of the adoption of such new approaches. Yet, they also admit that the transformation required can be lengthy and challenging, and that quantifying the improvement in results is difficult. Yet, they see ‘’Venture Philanthropy’’ as much more than a fad but rather a rethinking of how to engage sustainably using a wider set of tools, engaging with a different set of actors on a more focused portfolio.
Indeed, foundations seeking impact as a primary development goal see the private sector (markets and enterprises) as a vital route to scale social benefits, recognising that the complex problems they are endeavouring to solve (e.g. food security, provision of basic services such as health, or better jobs for youth), can be sustainably addressed through an increased focus on market creation, business thinking and commercial finance. They work systemically at policy and market levels to nurture the enabling environments that allow such enterprise-based solutions to flourish.
Hence, their portfolios reflect such interests, with actors drawn from across disciplines to work on them. The Rockefeller Foundation, for example, has convened scientists, urban planners, policy makers and international corporations to address urban climate change vulnerability in Asia, funding and staffing the Asian Cities Climate Change Network to foster co-operation and the co-design of strategies. Shell Foundation, in addition to providing management expertise, grants and loan guarantees to its clean cook-stoves partner, Envirofit, has implemented indoor air pollution awareness campaigns and co-founded the Global Alliance for Clean Cookstoves. By deploying “the highest risk capital in the world” to test and prove business models or provide patient capital to support expansion, the foundations can “prime the pump” to attract mainstream and impact finance to the development sector.
As the foundations moved from input to output focus, so did their strategic framing, from grant-giving towards more targeted investment. Their scale of intervention broadened to become more sector and systems-level focused, working simultaneously at levels of start-up enterprise, market stimulation and policy intervention. By taking a “systems thinking approach” and investing more heavily in upfront research in order to investigate development issues in depth, foundations were able to determine which strengths they could most usefully deploy (e.g. reputation in the health sector), where to place capital to achieve greatest leverage and how to orchestrate more integrated interventions.
This approach has prompted a more specialised focus on fewer development issues. Because the “high engagement model” involves providing technical knowledge as well as management capacity to SPOs, the foundations realised they needed staff more specialised in the new areas of focus. The study shows that staff numbers often increased as a way to address new needs to support the SPOs’ management, technical and capacity building capability. In some instances, as with the Rockefeller Foundation and Lundin Foundation, new field offices were opened to allow foundation staff to be based closer to their SPOs. Culturally, the more “partnership-based” relationship with social enterprises plus the infusion of more business-oriented attitudes from the private sector into the foundations has fostered more entrepreneurial thinking, with an emphasis on innovation, results and returns.
All the foundations expressed the importance of achieving “impact” and believe the methods they use today achieve far more than short-term, ad hoc grant-making had done for their beneficiaries. Yet, due to the methods they use, working systemically with and through multiple actors, they acknowledge that evaluating impact is challenging, and making comparisons between old and new models even more so. The Emirates Foundation, for example, only has “input” data prior to adopting VP as a new model (i.e. data on the size and placements of grants). They now collect data on indicators such as number of hours of voluntary service or number of social inclusion placements on their financial literacy courses. Their aspiration is to put figures on the social and financial value of their activities, and they are building a baseline to do so. Impact measurement and evaluation of outcomes is a concern for all the case study foundations and for the sector at large. More resources are being invested to improve the assessment processes, yet this sometimes remains limited.
The central lesson from this study is that to achieve their potential, in scale and impact, foundations must be willing to let go of the old ‘’grantmaker/grantee’’ model where they held most of the power, and evolve towards a model in which they work more cohesively with partners (grantees and other stakeholders working on similar issues) across sectors and disciplines. This shift towards more openness and collaboration will require considerable change at the level of mindset and organisational culture in the foundation sector. But as the foundations here testify, the improvements in efficiency, results and therefore returns make the transformational work worthwhile.
1 ‘Venture Philanthropy in Development: Dynamics, challenges and lessons in the search for greater impact’. OECD Development Centre, February 2014.