Venture philanthropy case study: Impetus Trust

By Judith Brodie
Chief Executive
Impetus Trust

Impetus Trust is the first explicit venture philanthropy organisation in the UK. Venture philanthropy (VP) is a new approach to social investment, pioneered in the USA. Impetus Trust was established as a charity in 2002 by a venture capitalist and an entrepreneur. They wanted to bring their business skills into the voluntary sector and particularly to support those small- to medium-sized charities doing good work that could do more with the right package of support. Talking to leaders in the charitable sector led them to identify the lack of long-term engagement and core funding for charities - key features of the "venture philanthropy" approach.

Impetus is investing in a small number of charities (aiming for 12 by mid 2007) making a demonstrable, significant and sustainable difference to the lives of disadvantaged people. These will be charities with ambition - wanting to make a "step change" (probably growth, turnaround or merger). The charities have to both want and need the integrated package of support Impetus offers to take them through the step change and to be stronger and more sustainable when Impetus exits.

That integrated package comprises three elements (see Fig.):

• Long-term core funding - three to five years
• Hands-on management support - includes an Impetus executive meeting monthly with the charity's chief executive; providing a sounding board, challenge and support; and monitoring progress against business plan objectives and agreed milestones
• Capacity building - targeted on specific areas for development, delivered on a project basis by Impetus volunteer associates, who are experts in their field

It is important to stress the high value of the input into the charities alongside the financial investment. Through deploying high-calibre volunteer associates and through our partner companies on due diligence, we estimate that the value of the non-financial support we can leverage could become three times that of the financial support (based on experience of venture philanthropy organisations in the USA).

While there are clear parallels to venture capital investment principles, venture philanthropy seeks a high social return on its investment rather than a high financial return.

The Impetus investment process is thorough and highly selective to identify those charities we really feel could benefit. The venture philanthropy approach will not be right for all charities. Assessing the quality of leadership is an important part of the process, alongside the charity's openness to the approach, whether they are poised for change and the nature of the change itself. Before investing, we also carry out a detailed due diligence assessment covering all aspects of the charity's operations, including a comprehensive sector and competition analysis contributed pro bono by one of our corporate partners (OC&C Strategy Consultants, RSM Robson Rhodes).

At the time of writing (August 2005), we have made four investments (listed in the table below), with a fifth imminent. For the charities that reach the Impetus portfolio, relationships are carefully managed and progress is monitored against agreed milestones. While the commitment is to a long-term relationship, there are written agreements and provision for exit on either side.

* For some of our investments we have agreed with the charity that Impetus will receive back a proportion of any surplus they make, usually relating to earned income. In each case there are defined parameters for the surplus-sharing arrangement, including a maximum amount (which is the figure included in the table above).

Impetus Trust raises funds from donors to invest in charities for a social return. To date, Impetus donors have mainly been high-net-worth individuals from the venture capital industry. Stephen Dawson, Impetus co-founder, Chair and donor explained:

"As a donor I found it difficult just writing out a cheque to one of the big brand charities and not knowing how well the money was being spent or whether it had made any difference".

As a venture capitalist, he wanted to know his money was effecting change and making the biggest difference it could. He also felt that this was most likely to happen with small- to medium-sized charities doing excellent work and with the potential to do more. But there was no easy way to find those charities and direct his donations accordingly.

Impetus reports regularly to donors and offers them opportunities to visit the charities in the portfolio and understand more about the work. Donors may also contribute expertise to Impetus and to portfolio charities alongside the financial gift.

We are clear that, as an intermediary, Impetus can add significant value through:

• bringing resources to small- to medium-sized charities doing excellent and interesting work that might not otherwise be recognised and supported;
• adding real value alongside finances for those organisations who want and need it;
• bringing new money into the voluntary sector;
• bringing new people into the sector; and
• increasing the efficiency and effectiveness of philanthropic giving.

A number of progressive grant makers also back Impetus, such as the Esmée Fairbairn Foundation and The Gatsby Charitable Trust. They clearly think that the venture philanthropy approach could have something to offer the charity sector, and are watching closely as Impetus develops.

Impetus continues to screen and assess applications for support and is expecting to develop an increasingly diverse portfolio of charities. We plan another four to five investments each year. We are also developing co-investments with other funders to demonstrate the benefits of and learning from collaboration, both to funders and to charities.

Impetus recently commissioned an independent evaluation, which found that:

"The calibre of business support offered is extremely high, as is the nature and extent of the vetting process. It is clear that an investor's money is safe within Impetus and a charity embarking on a relationship with Impetus has a great deal to gain."

Impetus portfolio charities

Speaking Up (disability)

Speaking Up's entrepreneurial chief executive approached us with an ambitious growth plan to triple in size partly by growing their business selling training and consultancy delivered by disabled people. Speaking Up could then offer more learning and other disabled people the confidence, experience and skills to lead more independent lives and make the choices we all take for granted. There are some 210,000 people with severe learning disabilities in England, 90-95 per cent of whom are unemployed and 60 per cent of whom live with their parents through adult life. The Impetus investment package comprises £400,000 over five years (with up to £90,000 coming back to us as part of a "surplus-sharing" agreement) plus capacity-building for the charity on branding, business development and financial systems. For more information about Speaking Up, visit www.speakingup.org.

St Giles Trust (homelessness)

Originating as a conventional homelessness charity with a drop-in centre, St Giles Trust had broadened its range of services to include work with prisons. The Impetus process and investment gave them the confidence to make the focus of their work housing and homelessness issues for prisoners and ex offenders, including training prisoners to NVQ level to deliver housing and other advice to fellow prisoners. There are 78,000 prisoners and 120,000 annual releases in the UK; 30 per cent of prisoners are homeless when entering prison, and another 30 per cent lose their homes while in prison, contributing to the re-offending rate. The Impetus investment package comprises £330,000 over four years plus capacity-building for the charity on business planning, branding and management development. For more information about St Giles Trust, visit www.stgilestrust.org.uk.

Eating Disorders Association (EDA)

In the UK there are 1.1 million sufferers of eating disorders, conditions which remain poorly understood: eating disorders have the highest death rate among mental illnesses, and 20 per cent of those seriously affected die. With Impetus support, EDA, the only substantial charity in this sector, plans to reposition itself and transform its impact, increasing the numbers of people served, especially young people. More information and support and greater understanding means better prevention, early intervention and lives saved. The Impetus investment package comprises £325,000 over four years plus capacity-building for the charity on governance, re-branding and financial systems. For more information about EDA, visit www.edauk.com.

Leap Confronting Conflict (young people)

Leap is the leading UK charity in conflict resolution and mediation for young people. The work they do with young people can increase self-confidence, reduce bullying and violence, and contribute to better exam results and job prospects. In London schools alone, 78,000 children feel threatened by gangs or bullying, or experience racism, and there are high exclusion and truancy rates. Impetus is supporting Leap to step up their impact on a national scale. The Impetus investment package comprises £275,000 over four years plus capacity-building for the charity on change management, business planning and marketing. For more information about Leap, visit www.leaplinx.com.