More than 600 philanthropists, social entrepreneurs, development practitioners and investors were brought together under the auspices of the 14th Annual Conference of the European Venture Philanthropy Association (EVPA) in Warsaw, Poland on 28-30 November 2018. While many of them have been part of the EVPA network for several years, there was also a decent number of newcomers, including myself, ready to explore the exciting world of venture philanthropy and social investments.
So, what is Venture Philanthropy and what does it have to offer? How different is it from the traditional philanthropy and impact investing?
According to the EVPA Practical Guide to Venture Philanthropy and Social Impact Investment: ‘Venture Philanthropy is a high-engagement and long-term approach to generating social impact through three practices: tailored financing, organizational support and impact measurement and management’
This ‘movement’ originated in Europe in early 2000s and embraced venture capital principles, such as long-term investment and hands-on support to investees. Unlike traditional philanthropy, it aims to support the Social Purpose Organizations (SPOs) – charities, non-profit organizations, socially-driven businesses, etc. – not only by providing them with the financial capital, but also offering so much needed non-financial support to accelerate their social impact. In other words, it entails more thoughtful and responsible engagement among the stakeholders.
As it was mentioned above, venture philanthropy approach is based on three pillars:
Although grants still remain the most widely used funding options, venture philanthropists and social investors (VPs/SIs) are actively experimenting with other financial instruments, such as, for example, repayable grants, convertible loans, debt & equity financing. Most importantly, they help identify the most suitable financing model to support an SPO and encourage the latter to take a more proactive approach in attracting capital from the wider range of investors.
In addition to financial resources, VPs/SIs offer value-added support services to enhance the SPOs’ organizational resilience and financial sustainability by developing skills or improving structures or processes1. Such support usually includes access to networks, legal advice, technical assistance in specialist areas, marketing and communication, governance and HR management.
Impact measurement and management
Focused on generating social impact, VPs / SIs seek to ensure that the expected social impact of an SPO (aka Theory of Change) is clearly understood, well-articulated and agreed by all stakeholders, including end beneficiaries. A robust impact monitoring system should be put in place to maximize and optimize social impact. In cases when certain outcomes, claimed by SPOs, cannot be proved, additional support with data gathering and analysis may be rendered.
One would certainly question the difference between venture philanthropy and impact investment. Whereas there is a very fine line between these two approaches, the former one is known for more risky investments in early stage projects and focusing more on SPOs’ needs. The latter one, on the contrary, is guided by the investors’ assets (what I have) and is more prone to proven business models.
There were many interesting VP/SI examples showcased at the EVPA Conference which could set the VP ground in other geographical regions and inspire social entrepreneurs around the globe. For example, INKA Moss initiative in Peru supported by NESsT, or the Social Teahouse in Bulgaria.
Venture Philanthropy ‘movement’ has been gaining the momentum not only in Europe, but also in Asia, Africa and Latin America. Although it is only one tool in the philanthropy toolkit, its added-value in enabling systemic changes and bringing solutions and organizations to a more sustainable and scalable level could be hardly overlooked. Thus, I would encourage everyone interested to learn more from the attached practical guide.