Emerging communities in venture philanthropy

Lisa Hehenberger, research director of the European Venture Philanthropy Association (EVPA)

By Lisa Hehenberger, research director of the European Venture Philanthropy Association (EVPA)

EVPA will hold its 7th annual conference in Turin in November this year and this calls for some reflection on the evolution of the industry in the past years.  European Venture Philanthropy has matured from involving a small group of venture capitalists and foundations in its early days to engaging a wider range of players, including government, financial institutions, corporates, academics, advisors and multilateral organisations.

What has attracted these players to the field? We have detected two key trends that are shaping the venture philanthropy field and that are providing entry points for a number of new players:

•           Clusters are forming around particular social sectors and the target sectors are broadening to include environment, culture, medical research and healthcare.

•           Venture philanthropists are developing best practice in a range of tools to support particular types of social purpose organisations – ranging from financing instruments and non-financial support to the measurement of social impact

When I first investigated the sector focus of European venture philanthropists in 2008 for my dissertation, using the EVPA directory, I found that a large percentage (43%) of VP organisations did not have a clear sector focus. In 2011, EVPA's Knowledge Centre has been conducting a survey of the VP Industry in Europe and will present the main results at the annual conference in November. In this recent survey, we found that less than 10% of the venture philanthropists surveyed did not have a sector focus. Several VP organisations explained that when they started, they had to demonstrate the VP model and therefore they chose not to focus on any particular sector. Having a broad-based portfolio allowed them to appeal to many different types of stakeholders.

However, some VP organisations started to narrow the focus of their portfolios when they felt that they had proven that the model worked.  VP funds that are focused on one (or a few) sector(s) develop expertise and can increase their understanding of the investees. In terms of performance measurement, it is more difficult to measure and demonstrate impact across a ‘mixed bag’ portfolio.

Another reason to focus on a specific sector is that the leverage and impact of the investment can be greater. Interestingly, we are also observing the emergence of some new clusters forming around sectors that had not been heavily targeted by venture philanthropy, including culture and medical research. 

In medical research, the pioneer venture philanthropist was Stiftung Charité, and we have recently added several new members including Fundación Pasqual Maragall and Nextech that focus on Alzheimer's disease and cancer, respectively.

Venture philanthropy is filling a funding gap in the drug development chain between basic research that is often funded by governments and disease foundations, and commercially viable solutions that are funded by venture capitalists. Venture philanthropists targeting the same sectors have much to learn from each other and from other players with experience in that particular sector, including foundations, corporations, social sector actors, venture capitalists and government.

For instance, in a recent EVPA workshop on impact measurement, participants were keen to collaborate on defining common metrics for the sub-sectors in VP. Indeed, collaborative efforts are on the rise. Interesting examples include foundations and VP funds co-investing (Fondazione CRT and Oltre Venture have co-invested in Italian social housing projects), VP funds managing government funds (Impetus and The Sutton Trust in the UK will manage a government fund focused on disadvantaged children), and VP funds engaging the portfolio companies of their private equity funders to contribute non-financial support (IKARE engaged IK's portfolio companies CEVA, Gardenia and Kwintet to address the issue of sleeping sickness in Uganda).

In early days, venture philanthropy was defined as applying venture capital principles to the social sector. Definitions have evolved and so have practices. EVPA now defines venture philanthropy as a methodology that works to build stronger investee organisations with a societal purpose (SPOs) by providing them with both financial and non-financial support in order to increase their societal impact. As the industry matures and involves a wider variety of players, it has developed its own practices that are less tightly linked to venture capital.

Venture philanthropists have taken the term ‘tailored’ financing very seriously. Although grants still remain the main financing tool, venture philanthropists have worked hard to determine which financing tools are most effective at a particular stage in the evolution of an SPO. The non-financial support is no less ‘tailored’, ranging from strategic consulting and coaching, to assistance with fundraising, governance issues and marketing to name a few, depending on the particular needs of the SPO. 

Providing access to networks is often quoted as a key contribution of VP funders, leading to the success of follow-up funding and more effective non-financial support. Many financial institutions and corporate foundations that are rapidly moving into the impact investing/venture philanthropy arena are keen to engage with more experienced venture philanthropists who can share some of their accumulated knowledge.

 This year's conference programme reflects the trends depicted above by hosting a number of roundtables on social sectors and on VP practices, apart from the workshops and panel sessions.

Find out more at: www.evpa.eu.com/2011-turin

Lisa Hehenberger is the research director of the European Venture Philanthropy Association - the European membership association for high engagement grant-making and social investment. Lisa runs EVPA's Knowledge Centre that conducts and publishes research, organises workshops, participates at practitioner and academic conferences, and collects and disseminates data and knowledge.

 www.evpa.eu.com