Venture philanthropy

By Dr Rob John
Chief advisor, European Venture Philanthropy Association

Highlights

• Venture philanthropy (VP) is an approach which adapts some principles of venture capital to organisations that provide public benefit.
• Key VP principles include high engagement, multi-year support and capacity building.
• Interest in VP is growing rapidly across the UK and wider Europe.
• 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.

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Venture philanthropy is an investment 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, a minority 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 which adapts some principles of venture capital, such as long-term investment 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 characteristics¹:

• High engagement: Venture philanthropists have a close, hands-on relationship with the social entrepreneurs and ventures they support. Some may take Board places in these organisations.
• Tailored financing: This investment approach determines the most appropriate financing for each organisation. Some offer non-returnable grants, while others use loan, mezzanine or ‘quasi-equity’ finance.
• 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 to become financially self-sustaining.
• 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 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 philanthropy is perhaps better described as a ‘movement’ rather than a model.  And while this movement is gaining momentum, there are few hard and fast statistics about how much venture philanthropy is being practised. Recent studies by Oxford University’s Skoll Centre for Social Entrepreneurship suggest that there are around 40 organisations describing themselves as venture philanthropy funds in Europe.  In the UK there are at least a dozen funds that meet all or most of these core criteria.

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 grant-making.  One UK grant-maker, Andrews Charitable Trust², 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.  John Kingston, formerly with investment firm 3i, pioneered types of ‘risk funding’ for charities through Venturesome.  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 has partnered with CAN, a UK-based social entrepreneur support network, to create Breakthrough – a venture philanthropy fund focused on scaling up 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.”³ A quarter of Permira’s London-based staff are involved, advising social enterprise on information technology or mentoring their chief executives.

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 philanthropists⁴. 

Outlook

Interest in venture philanthropy is growing across the UK and wider Europe.  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 is re-engineering its traditional grant-making along venture lines.  In Scotland, a new venture philanthropy fund has emerged from the country’s largest independent grant-maker. Inspiring Scotland is an exciting initiative with wide support, including from philanthropists and the Scottish government.

Private wealth managers, like Coutts or UBS, have long responded to the demand for philanthropy advice from their clients. 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 are independently managed government funds experimenting with venture philanthropy tools.

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 scale up and unlock philanthropic and human resources from the investment end of the business community.

Getting involved in venture philanthropy

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

• Both the EVPA and Philanthropy UK 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, 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 if it connects with their business world. It offers opportunities for funding existing venture philanthropy operations, co-investing in specific projects or donating 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.
• 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.
• 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. 
• Futurebuilders England: An independently managed government fund which helps build the capacity of third sector providers of social services.
• Private Equity Foundation: An initiative of several private equity firms to provide venture philanthropy support to UK charities. 
• Alfanar: A venture philanthropy fund focused on Arab countries. Its founder retired from Goldman Sachs as a investment banker.
• 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. 
• Breakthrough: Venture philanthropy collaboration between Community Action Network (CAN) and Permira, the private equity firm. 
• Inspiring Scotland: A new venture philanthropy fund with its origins in Scotland’s largest independent grant-maker, Lloyds TSB Foundation for Scotland. 
• The One Foundation: Irish venture philanthropy fund co-founded by a business entrepreneur and a social sector leader.

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¹  These core characteristics are taken from the European Venture Philanthropy Association
²  Formerly named World in Need
³  Interviewed by the author and quoted in ‘Give and Let Give’, Policy Exchange, (2007), London
⁴  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

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 small venture philanthropy fund in the UK and is today chief advisor to the European Venture Philanthropy Association. He is a Fellow at the Said Business School in Oxford and consults and writes on social entrepreneurship and venture philanthropy. You can contact Rob at rob.john@oba.co.uk.