Venture philanthropy

This has been termed a 'movement' and is variously called or is related to "social entrepreneurism," "strategic philanthropy," "social venture philanthropy", "the new philanthropy," "social venturing" or "e-philanthropy" and other terms. Generally these moves claim adopted techniques (and the influenced of) the activities of venture capital firms in the 1990s. The argument is, mainly, that a deeper interaction between giver and recipient is engendered alongside an emphasis on measurable results. The terms mostly abounds in today’s discussions, among professionals involved in the high-tech, venture capital and foundation worlds. Below we will refer to the use of venture capital practices by foundations as "venture philanthropy" (VP).

There is plenty of debate over questions as to its efficacy and, as of yet, not much academic research.

The annual survey of Venture Philanthropy Partners, a Washington, D.C., foundation that supports programs for children, finds that:

"A few years ago, the concepts of venture philanthropy and high-engagement grant making were overinflated, with airy promises to transform philanthropy as we know it," the study concluded. "Today, we can see their progress toward that promise is real but not yet revolutionary."

Writers such as Thomas J. Donaldson have traced the movement to the moves 20 years ago to get American companies to divest themselves of stocks in companies with interests in South Africa. Now, socially conscious investment philosophy has gone mainstream, with one out of every six to nine investment dollars in the U.S. subject to some kind of social or ethical criteria. Its roots are also traced back to a 1997 Harvard Business Review article, "Virtuous Capital: What Foundations Can Learn from Venture Capital," by academics Christine Letts, William Dyer and Allen Grossman. This states:

U.S. foundations and nonprofits work diligently on behalf of society's most needy and yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support, and stay involved long enough to see the company become strong.

Mark Kramer, founder of the Center for Effective Philanthropy characterizes venture philanthropy as a fad underwritten by venture capitalists who got rich in the stock bubble of the 1990s and blithely assumed that they could transfer their skills to a field in which they had no experience. "Young entrepreneurs became our heroes, and we hailed a new breed of 'social entrepreneurs' to bring the magic of this success to charities and foundations," he says. As it turned out, it was a market bubble that made these people look good, and few were really the geniuses they appeared to be.

Assessing Venture Philanthropy

Assessments of VP ^[1] note that even with well-crafted, innovative programs, foundations are finding that the social impacts they desire are not being realized. Reduced government spending caused some foundations (traditionally, 'the research and development arm of society') to re-evaluate their grantmaking strategy. Objections are made to the appropriate deployment of the analogy between venture capital on the grounds that venture capital practices are not consistent with the social sector's core values.

Bruce Sievers contends that the venture capital world is different in many important ways from the philanthropic world, and consequently lessons are not transferable. In regards to the call for more active, venture capitalist-like involvement in the management of nonprofits, Sievers writes:

"As the nonprofit organization has evolved in America, it [has] emerged as the independent voice of society…[to] defend against both the state and the for profit sector…For this reason, the involvement of a foundation in the internal workings of an organization…is inappropriate." In addition, Elizabeth Locke and David Roberson of The Duke Endowment take issue with the contention that foundations can take more risks. They maintain, "the venture capitalist's risk-management controls are poorly suited to the entirely different reward system of the foundation world." ^[2]

Collins makes the general conclusion could be research confirms that venture philanthropy is not reasonable for every foundation. It is also of note that VP is currently a small share of all giving, but it is a significant trend. It is postulated that the growth of social entrepreneurs is the most important reason for adopting the venture philanthropy approach. What is potentially of significance is VP's use as Corporate Social Responsibility and as a disguised vehicle for Lobbying government.

European Venture Philanthropy Association

The European Venture Philanthropy Association was set up in 2004 funded by Private Equity companies: Barclays Private Equity Limited, 3i, KPMG and LLP with Hill & Knowlton as 'Communications Partner.' Founding Trustees:

Luciano Balbo: Italian, founder of B&S Private Equity, one of the leading Italian Private Equity groups. Founder of Fondazione Oltre, the first Venture Philanthropy group in Italy.

Stephen Dawson: One of the first venture capitalists in the UK, with over 25 years in the industry and the last 19 at ECI. Founder of Impetus Trust the first general Venture Philanthropy Fund in the UK.

Michiel de Haan: Dutch, 30 years in Finance and Venture Capital, founder of Atlas Venture, former Chairman of EVCA, Advisory Board Member of Social Venture Capital Foundation, a Venture Philanthropy group in the Netherlands.

Doug Miller, Chairman: American, 25 years in UK, 32 years in Investment Banking and Private Equity. Founder of International Private Equity Limited, a fund placement boutique. Founder Trustee of Impetus Trust in the UK.

Serge Raicher: French, 15 years in private equity. Former Secretary General of EVCA and since 2000, Partner at Pantheon Ventures, a leading private equity fund of funds. Member of Toolbox asbl, a philanthropy group in Belgium.

Luc Tayart de Boms: The Managing Director, King Baudouin Foundation, Brussels, was born in 1957, Beerse, Belgium. He holds a Master's degree in Moral Sciences from the University of Ghent. A practitioner with more than 20 years experience, he participates in several organisations, including the European Foundation Centre as president (June 2000-June 2002)and vice-president (June 2002-2004), the Council on Foundations, US, as a member of the Board of Directors (2002-2005) and as a member of the International Committee of the Council on Foundations. He is a member of the Global Foundation Leaders Advisory Group at Davos and President of the Network of European Foundations for Innovative Cooperation. Mr de Borms is also a member of the Advisory Council of the European Policy Centre, member of the board of the European Cultural Foundation and Treasurer of the King Baudouin Foundation United States.

The EVPA retains a number of consultants to assist in its development, who together with the trustees form the executive team, staff incude.

Rob John: Oxford University, followed by university posts in the USA, Switzerland and Ethiopia. Then worked for 15 years in refugee and international development throughout Africa and Asia. This period included managing emergency programmes in Sudan, Iraq and Eritrea; the repatriation of Cambodian refugees; community development in Vietnam and helping create a microfinance bank in Zambia. In 2000 he became Executive Director of WIN, a UK based foundation, arguably the earliest known example of a Venture philanthropy fund. In 2004 he advised Ashoka on the launch of its UK programme, and since 2005 has been a freelance consultant and Fellow of the Skoll Centre for Social Entrepreneurship at the Saïd Business School, University of Oxford. He is currently chief advisor to the European Venture Philanthropy Association, and consults with a number of venture philanthropy funds and social enterprises. He is on the board of an Oxford based educational charity and is a member of the steering group for UnLtd Ventures. He is President of the Social Entrepreneurship Network of the Saïd Business School alumni. Rob was elected a Fellow of the Royal Society of Arts in 2000.

Susan Mackenzie: is a UK-based independent consultant in the philanthropy and social investment sectors. Her work includes strategy formulation, marketing to donors and investors, charity evaluation, and social impact assessment. In addition to her client work, which has included EVPA members, she is Editor of A Guide to Giving 2nd ed. (2005), a handbook for philanthropists, and is a member of the Editorial Board of the Philanthropy UK Newsletter. She contributed to Why Rich People Give (2004), the first major British study into the wealthy and their giving patterns, experiences and expectations. Susan also has worked as a consultant for the New Economics Foundation (nef), a 'think-and-do' tank, where she focussed on social impact evaluation of a variety of charities, social enterprises and businesses. She earned an MBA from Stanford Graduate School of Business, where she specialized in non-profit management, and holds the Chartered Financial Analyst designation.

Notes

^ Collins, M. (1998) Assessing Venture Philanthropy , Harvard Business School

^ ibid.