Venture philanthropy

By Rob John

Reduced to an elevator pitch, venture philanthropy is an investment approach to supporting charitable ventures that blends finance and management advice.

Offering grants and advice to a charity is not totally new of course. While the vast majority of grant-makers 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. For decades World in Need (now renamed Andrews Charitable Trust) provided seed funding to individuals to start up a new charity, took places on the trustee board, and stayed through thick and thin until the venture could stand on its own feet.

But there is a new wave of venture philanthropy in the UK - meeting a demand for development finance and businesses-like advice. Most small non-profits (charities and social enterprises) want to grow, scale up, reach more clients, and provide better services. Few funders have grant programmes that release the development funding needed to do this - covering overhead costs incurred through growth and development.

Venture philanthropy in practice

When venture capitalists invest in a young company they are committed to growing its commercial value; making their money work hard by participating in the company's strategy and operations. Taking non-executive places on the board not only protects their investment, but also provides a channel for delivering help and expertise. They problem solve with the company's management, provide access to technologies and networks, and have a firm exit in mind.

Stephen Dawson understood this approach well. As a seasoned venture capitalist with 25 years' experience, he knew how to create value in growing companies. In 2002 he and others from the private equity community launched Impetus Trust - the UK's first general purpose venture philanthropy fund. Three years on, having raised over £2 million and 'invested' in four nonprofits, Impetus helps its portfolio charities through a 'step change' in their lifecycle - underwriting growth costs over several years and providing advice in strategy, marketing, communications or human resources.

While Impetus' support for charities is predominantly through grants, new players are emerging that provide other forms of finance - such as loans and quasi-equity - coupled with some kind of advice throughout the period of investment. Venturesome, also founded by a former venture capitalist, works intensively with charities and social enterprises - offering unsecured loans, underwriting and equity-like investments. More than 80% of Venturesome's £5 million fund -donated by CAF, grant-making trusts and wealthy individuals - is recycled, by using repaid loans over and over again to fund different charities.

While many are waiting to see how this new field develops, government has dipped its toe in the water. Led by the Home Office, £14 million of tax payers' money has been committed to the Adventure Capital Fund, managed by a consortium of UK charities. ACF invests in community based social enterprises, providing patient capital (in the form of multi-year grants and below-market loans with long repayment holidays), as well as small bursary grants and free consulting advice through a network of 'supporters'. Its sister fund, Futurebuilders, has received £125 million to raise the capacity of nonprofits to provide public service programmes. While Futurebuilders may not be as tightly engaged as Impetus Trust, for example, it does represent a trend towards 'investment' thinking rather than traditional grant-making.

Vodafone UK Foundation exemplifies the innovative corporate funder working strategically with their grantees. Its current support for Samaritans, YouthNet and Shelter bring these diverse charities together for mutual learning and connects them with the firm's skills base at various levels in the company.

The advice that venture philanthropists offer should make their financing go further and have greater impact. It means helping design strategy, marketing or fundraising plans, coaching senior staff, strengthening governance or generally being on hand to support a charity's senior managers in day-to-day problem solving. UnLtd Ventures, for example, provides free consulting to small non-profits scaling up, while Pilotlight deploys teams of senior business professionals to work intensively with charities on strategy or operations. While neither UnLtd Ventures nor Pilotlight provide capital, they do exemplify the value of engaging with charities on operational issues around growth and quality of mission. Gone are the days when skilled company executives spent a weekend repainting a charity's youth centre!

How to get involved in venture philanthropy

So what does venture philanthropy offer an individual donor looking for a way to support charitable work? For some the approach will simply resonate with familiar investment or business practices. This may encourage them to donate (or indeed lend) to existing venture philanthropy funds such as Impetus or Venturesome, with a sense that their money works harder and will help numerous small charities grow to scale. Sutton Trust, for example, is now creating a 'strategic philanthropy fund' providing opportunity for others to invest in its pioneering work of transforming access to higher education of children from disadvantaged backgrounds. Until now the Trust has been funded entirely by founder and Chairman Sir Peter Lampl.

Venture philanthropy funds can make their resources go further if others are prepared to 'co-invest' with them when they take on a new charity commitment. 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.

Others 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 problem solve or strategise can be immensely rewarding. For some who run companies, there may be opportunities to partner with a venture philanthropy fund and provide pro bono services to a portfolio of charities. Recently the consulting firm OC&C provided £75,000 worth of sector and competition analysis to one of Impetus' supported charities.

A few may even wish to emulate Dawson and others and launch their own high engagement funds. The European Venture Philanthropy Association was recently formed by philanthropists from the European private equity community. Its purpose is to promote venture philanthropy in Europe and to provide its members with the services needed to learn from good practice elsewhere as well as from one another. The EVPA is also planning its own seed fund to help launch new venture philanthropy operations.

All in all, venture philanthropy does not seek to replace more traditional forms of charitable giving. It provides a package of finance and advice particularly useful for smaller charities undergoing a step change in growth or development. 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.

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 on social entrepreneurship and venture philanthropy. You can contact Rob at rob.john@oba.co.uk.