Worlds are colliding. It used to be that business is the driver for economic wealth, and charity is the driver for social and environmental wealth. Both have been operating disconnectedly in a world that is interconnected. Today, it is not uncommon to see both the economics and social coming together.
Social enterprises, for one, are businesses applying commercial strategies to achieve holistic – economic, social, and environmental – wealth. Venture philanthropy, as another example, is philanthropists using a venture capital approach to boost social purpose organizations. In a for-profit world, venture capital firms support high-risk, high-potential early-stage ventures. Similarly, venture philanthropy funds support high-risk, high-potential early-stage ventures with social or environmental missions.
Among impact investing methodologies, philanthropic venture capital plays an important role in early-stage social ventures to test the waters and develop profitable business models to become more attractive to non-philanthropic investors. Husk Power Systems, for instance, would not have been able to scale if the Shell Foundation didn’t help the company with “enterprise philanthropy”, another word for venture philanthropy, because investors are generally reluctant to put money in risky, early-stage businesses.
So what distinguishes venture philanthropy? It depends on the goal of the venture philanthropists. Since venture philanthropists can be anyone from a foundation to a private equity firm, both grant-giving and social investment practices are used. Grants are non-repayable donations and for this reason may be viewed as impact-only strategies to support social purpose organizations. On the other hand, social investment may generate a financial return rather than only impact.
Still, venture philanthropy can be characterized by a timeframe that lasts on average 5-7 years, the provision of financial and non-financial capital such as human capital, capacity building, and high engagement with investees.
According to Asian Venture Philanthropy Network, venture philanthropy took off in the U.S. during the mid 1990s, at a time when entrepreneurs were demanding new models of philanthropy and foundations wanted to increase their effectiveness in grants. So what are some examples of venture philanthropy funds and networks today?
LGT Venture Philanthropy (LGTVP) has a focus on improving the quality of life for less advantaged people in the developing world. Funded chiefly by the Princely Family of Liechtenstein, LGTVP invests in or donates to organizations that serve people in three core areas: alleviation of human suffering, access to education, and creation of sustainable livelihoods. Their investees work in Latin America, Africa, India, Southeast Asia, and China, although not all organizations work exclusively in these regions. Local investment teams are present in each of these regions, as well as in Europe.
Being a venture philanthropy fund, LGTVP provides both tailored financial and non-financial support to its portfolio organizations. Financial support may be provided in the form of grants, loans, or equity and typically range between 200,000 and one million U.S. dollars. However, grants are only provided in cases where an organization’s model doesn’t allow them to generate returns. Since they engage in social investing, financial returns are expected and flow back to the fund to benefit other organizations. Non-financial support may include entrepreneurial know-how and networks. Examples of LGTVP’s investees include Bridge International Academies (Kenya), Healthy Cities Group (Peru), Husk Power Systems (India), mothers2mothers (South Africa), and Rags2Riches (Philippines).
The European Venture Philanthropy Association (EVPA) is a membership association of organizations interested in or practicing venture philanthropy and social investment across Europe. Their membership is diverse, including organizations such as grant-making foundations, private equity firms, banks, and business schools. Established in 2004, the EVPA is made up of over 130 members from 20 countries.
Members engage in venture philanthropy by providing financial and non-financial support. One unique aspect of EVPA is that members wish to increase “societal” impact, defined as impact that is social, environmental, and artistic. Since members range from foundations to private equity firms, both grant-giving and social investment practices are used. EVPA members include Ashoka, LGT Venture Philanthropy, and ESADE Business School, to name but three.
Similar to the EVPA, the Asian Venture Philanthropy Network (AVPN) is a community of venture philanthropists in the Asia Pacific region. Based in Singapore, the AVPN has over 120 members from 19 countries. These members include private banks, foundations, wealth managers, and corporations’ CSR divisions. This fairly new network is modeled on the success of the EVPA.
In related news, the AVPN will be hosting the AVPN Annual Conference on May 9 and 10 to gather venture philanthropists and social investors in the region. The conference will be about knowledge sharing and strengthening the social investment community in Asia.
Silicon Valley is known for having some of the top venture capital firms, but increasingly, tech entrepreneurs, philanthropists, and even venture capitalists are interested in venture philanthropy, as it allows them to become more engaged with the organizations it supports. The Silicon Valley Social Venture Fund (SV2) is a partnership venture philanthropy fund founded in 1998 by Laura Arrillaga-Andreessen. Each partner contributes $5,000 or more to run three grant rounds per year ranging from $100,000 to 150,000 over three years. Three grantees are chosen each year in the areas of education, health, environmental sustainability, and international development. In their 14-year history, SV2 has granted over $3.5 million to 38 nonprofits.
Grants depend on the issues that the partners want to address, which differs each round. Once an area is defined, SV2 will research the landscape to identify potential organizations to invest in. Previous grantees have a Bay Area presence, although many operate abroad. Like many venture philanthropy funds, SV2 works with grantees to improve their ability to deliver effective programs.
Social Venture Partners (SVP) International is a network of 30 and growing SVP member organizations in the U.S., Canada, India, and Japan. Each organization engages in venture philanthropy in their local communities. What makes SVPs distinct is their commitment of time, expertise, and money into nonprofits specifically. Rather than seeking financial returns, SVPs expect only a social return on investment. In other words, they pursue an impact-only strategy. But what differentiates them from traditional philanthropy is the emphasis on social return measurement and assessment of investments.
Collectively, SVPs have contributed $46 million (USD) in grants and thousands of hours of strategic volunteering to more than 550 nonprofit organizations.
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