What is venture philanthropy?

Daniela Barone Soares

Daniela Barone Soares, chief executive of Impetus Trust, answers our quick Q&A

What is venture philanthropy?
Venture philanthropy is an active approach to philanthropy, which involves giving skills as well as money to high-potential charities and social enterprises. The Impetus model of venture philanthropy uses the principles of venture capital, with the investee organisation receiving management support, specialist expertise and financial backing.

What returns does venture philanthropy offer?
The donor is looking for a social return, rather than a financial one. We work with the charities and social enterprises in our portfolio over three-to-five years, to help them become more efficient, scale up and turn around the lives of many more people. The first two charities in our portfolio, for example, grew the number of people they were able to help nine-fold and fifteen-fold respectively, in five years.

Does it or will it ever offer financial return?
Impetus Trust typically puts in place a “surplus share” arrangement with our investee charities. This means if we help them to develop particular income streams that generate surpluses, they will share a small portion of those surpluses with Impetus (subject to not depleting their reserves or constraining execution of the business plan). We see the ability to provide some return on funding as an important step on the road to our investees’ financial sustainability and this arrangement then enables us to reinvest these funds in other deserving charities. One of the important benefits of the venture philanthropy approach is its ability to leverage donors’ money by attracting co-investment and valuable pro bono support. At Impetus, we are able to add nearly £4 more of value to every £1 of donors’ money we give to the charities in our portfolio.

What risks does this kind of investment carry?
We invest in innovative, smaller charities working in very challenging areas such as reducing reoffending or raising disadvantaged teenagers’ aspirations. They are not safe bets or the 'usual suspects', and some are at a relatively early stage of their development. But we believe that this is where some of the most innovative and impactful solutions to social problems can be found, and the risk – and significant hard work – involved is worthwhile in order to help them grow their impact quickly and sustainably.

 What can be done to mitigate risk?
In many ways, venture philanthropy is a very low-risk approach. This is in part due to the fact that we spend several months carrying out extensive due diligence prior to investment, to ensure that we are selecting organisations with the greatest potential to really break the cycle of poverty. We are backing a business plan to grow the capacity of the entire organisation, not a single project that might be discontinued in a few years’ time; our investments are designed to result in sustained growth, thereby ensuring the long-term impact of the funder’s investment. An Impetus investment director works closely with the charity throughout the entire investment period to help them achieve the agreed business plan. Grants to the charities in our portfolio are paid out quarterly, contingent on them reaching agreed milestones. Because our investment executive works so closely with the charity, we are able to monitor performance continually and provide additional support if needed.

 What should the potential funder know about venture philanthropy?
Investing in venture philanthropy is intelligent giving, for several reasons. Savvy funders like investing in Impetus because their donations will:

• have a long-term impact
• be multiplied in value, as we are able to match them with co-investment and pro bono expertise
• fund charities that are proven to be effective
• treat the root causes of disadvantage
• yield measurable results.

Venture philanthropy is also great for funders who want to get involved and see at first hand the direct impact of their donations. Many of our funders share their skills and experience with our portfolio charities; Impetus is very adept at managing this interaction to ensure maximum value to the charity and a satisfying experience for the funder.

To find out more about  Impetus go to  www.impetus.org.uk