Venture philanthropy is for donors

FOR some donors just giving out money to charity is not enough: they want to get more involved in solving social problems and are ready to offer their business skills and experiences. For them, there is a relatively new model of philanthropy, venture philanthropy, which connects the world of venture capitalists with the non-profit sector.

FOR some donors just giving out money to charity is not enough: they want to get more involved in solving social problems and are ready to offer their business skills and experiences. For them, there is a relatively new model of philanthropy, venture philanthropy, which connects the world of venture capitalists with the non-profit sector.

“Giving money effectively can actually be harder than making it,” said Thomas Reis, the former programme director of W.K. Kellogg Foundation, one of the biggest foundations worldwide.

This statement resonates especially among high-value donors, who each day face several hundred requests to support one-off charity projects. Often, they make a blanket refusal for a single reason: they do not see specific and measurable results in them, and cannot contribute to a significant positive change with their own skills and experience.

For these ‘adventurers’ with social compassion and the desire to get involved not just by signing a cheque, venture philanthropy, which emerged in the venture capital environment in the USA, has become an ideal opportunity.

Beyond writing a cheque

Although the roots of venture philanthropy lie in the USA, it has gradually found favour among donors in central Europe as well. European venture philanthropy has a strong link to the private equity and venture capital community. The phrase venture philanthropy was probably coined by American philanthropist John D. Rockefeller III as early as 1969. The boom of venture philanthropy in the 1990s in the USA ignited a debate about new forms of highly engaged grant making between foundations, and made them face a new challenge: how to use the tools of venture capitalism to invest in strengthening the capacities of social-purpose organisations as such, not just in individual projects.

Venture philanthropy is not only about signing a cheque or giving a single grant. In a similar way to venture capital increasing the commercial value of purchased companies, venture philanthropy helps, for example, within five years to build up a social-purpose organisation. It renders it not just financial support, but also professional services, skills, and know-how among a company’s employees or business partners. It measures its effectiveness and increasing quality not through the prospect of profit, but by the degree of social impact.

The main features of venture philanthropy include a high level of involvement and long-term engagement by supporters, tailored financing (grants, loans, mezzanine or quasi-equity finance), support for the operational capacities of the organisation, non-financial services in the form of consultancy and advice in the spheres of strategy, marketing, communication, or human resources, and an emphasis on measurable results according to defined indicators (social return on investment). The logic is that the donor does not help a big number of organisations, but rather a few, although much more intensely.

How to really improve the life of children in need

One of the first successful venture philanthropy organisations, founded in June 2000 in the USA, is Venture Philanthropy Partners (VPP). Its co-founders – Raul Fernandez, Mark Warner and Mario Morino – recruited 26 more leaders from the world of business, modern technology and from several foundations to connect and give more than US$30 million to the first VPP investment fund. The Morino Institute, led by Mario Morino, gave money to develop the newly-founded organisation. These 29 founding investors united in an ambitious vision: with the help of innovative philanthropy to really change the situation of children in need.

They were sure they could adapt the relevant principles of private investment, and apply them to investing in the non-profit sector. Their main goal was to build up efficient non-profit organisations that would measurably improve the lives of disadvantaged children.

“VPP’s investment successes not only would help its high net worth investors be more effective with their own philanthropy but would also encourage them to use their significant political, social, and financial influence to drive lasting change in the field,” Mario Morino said about his organisation. “And, as our non-profit partners grew stronger, our investors got more engaged, and we developed our web of relationships with foundations, businesses, and government agencies, VPP would be in a position to significantly leverage the effectiveness and impact of all.”

VPP invested US$30 million in improving the quality of life of children from low-income families. Thanks to this money and the work with the management of 12 non-profit organisations in the region of Washington, D.C. and surrounding suburbs in Maryland and North Virginia, positive changes in the education, health, and life of 53,000 children could be made.

Integrating ex-offenders back into society

Impetus Trust UK was founded by two venture capitalists – Stephen Dawson and Nat Sloane of the United Kingdom. They longed to use their experience and skills from business in the social sphere, and to help organisations increase their social impact.

Impetus Trust UK also helps the non-profit organisation St Giles Trust, which deals with integrating ex-offenders into society. According to UK statistics, 55 percent of prisoners re-offend within two years of being released.

One of the founders of the Impetus Trust, Nat Sloane, comments on their co-operation with St GilesTrust like this: “St Giles was run by an innovative and energetic team which needed help with its long-term strategy. The impetus for our involvement was to help St Giles focus its work on providing access to housing, training and jobs for ex-offenders.

A distinctive element was the peer advisor work in prisons which it has identified as an area of growth.

This innovative approach had the potential to help address the problem of high re-offending rates.”
Thanks to the co-operation with Impetus Trust, St Giles reduced the re-offending rate by 20 percent and increased its scope of action from two to 22 prisons in the UK.

The first signs of venture philanthropy have already appeared in Slovakia. Within corporate volunteering, ever more firms freely offer the capacities and know-how of their employees to the benefit of non-profit organisations. The US venture philanthropy organisation NESsT has provided help to the re-socialising centre for the homeless, which operates under the Institute of Christ High-priest in Žakovce, near Poprad.

Venture philanthropy has no ambition to replace traditional philanthropy, but rather to enhance it, and through using business experiences increase the social impact of giving. Slovakia is still waiting for exemplary solutions to social problems thanks to venture philanthropy. Success will also depend on whether engaged donors can be found to take this opportunity and use it.

Oľga Auchenbach works for the Pontis Foundation.

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