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Blog written by Madeleine Clarke, Executive Director of Genio.

 

Venture philanthropy (VP) as an approach is by no means a silver bullet for solving all the thorny issues facing our societies. However, it is gathering momentum and interest from diverse players and we at the European Venture Philanthropy Association (EVPA) believe it has a key role to play within, and in collaboration with, the wider social investment ecosystem.

VP has its roots in the venture capital approach but, while born in the US, it has really emerged in Europe during this decade as a long term and high-engagement, ‘hands-on’ partnership approach to grant making and social investment across a range of beneficiaries. These can be charities without trading activities, non-profit organisations, through to socially driven businesses. We call these social purpose organisations (SPOs).

To those unfamiliar with the practice, venture philanthropy offers beneficiaries the finance that fits their particular need alongside organisational support to build their strategic and operational capacity. Realising that achieving evidenced social impact is difficult, VP puts an emphasis on measuring and managing impact so that the activities of both the beneficiary and investor are conducted in the most impactful way.

Organisation support and impact measurement we call non-financial support and this is an absolutely essential element of the VP approach. We’ve learned over the years that ‘just’ money is not enough and that this type of support offers SPOs the skills and tools to become more resilient organisationally.

Offering access to consulting, coaching and/or networks, as well as the time and energy required from the venture philanthropy organisation (VPO) to monitor governance and manage the relationship with the SPO can be costly, a criticism that has been sometimes levelled at VP, most recently in Pioneers Post by Angela Kail of NPC.

For that reason, EVPA has looked closely into how to monetise and value this ‘high-engagement’ element. Our research on non-financial support was launched last year and provides a five-step plan and tools to help organisations deliver this in an impactful way and to show its cost and value.

Similarly, research by Dr Noah Isserman shows that the majority of beneficiaries of VP report that they became better at service delivery and management, and that the added value created by non-financial services outweighed the cost of those services, while research by Keystone shows the majority of surveyed investees reporting an improvement in their performance due to non-financial support. Our own survey also shows that the majority of social purpose organisations value the non-financial component of the support at least as much as the financial support received.

As a source of finance and support, VP may not necessarily be appropriate for all beneficiaries. We find the value-added of VP is where organisations are seeking to strengthen their organisation and achieve a ‘step change’ in their operations. The ability to catalyse such step change will certainly define the success of the VP method. One activity we’ll be undertaking is a joint study with the Asian Venture Philanthropy Network (AVPN) on the impact of VP, launching next year.

However, defining success as just scaling is too narrow. For larger, more established organisations, success could involve managing change, such as mergers and scaling up. For small-and medium-sized organisations, success may mean focusing on high impact projects, or perhaps replicating their operating model in new or more broadly defined markets.

To give an example, Oltre Venture has proactively supported social enterprises in Italy and helped their strategic development.
Among the portfolio of Oltre Venture’s first VP fund, one of the three main investments was in Società e Salute, three health centres offering high quality services, such as dentistry, at affordable prices. It is the fund’s star investment, being a financially free standing investment and a fully replicable business model.

Another example is NESsT, one of the pioneers of venture philanthropy in Eastern Europe. NESsT was established in 1997 and in the past fifteen years it has trained more than 3,900 social enterprises and entrepreneurs, developed more than 120 social enterprises, invested more than $8 million, and exited 24 of its investments.

We could also look to the successful exits of Norway’s Ferd or French social investment fund PhiTrust Partenaires or the successful scaling and exit of German investment fund Bonventure from KKB.

More broadly, as a sector, VP has been focused on creating a more efficient capital market to support the social sector. Positive developments include banks and foundations taking up the approach.

Additionally, we’ve seen increased access to institutional and public funding. Good examples of this include the European Commission and European Investment Bank.
At the same time, realising that there is a real need for access to finance and expertise from different sources, EVPA works to draw in new players, such as corporates; to collaborate, co-invest and to grow this market. We have no doubt that we’ll see many more successes in the years to come (just as there will be failures that we’ll need to learn from), but we also know this is a matter of time.

Let’s not forget that the venture capital industry took over 50 years to mature. Venture philanthropy, in its current European form, has been around for just over ten years.
To develop the venture philanthropy and social investment markets and maximise societal impact we’ll need increased resources, collaboration and expertise. In that context, we would like to learn about what we are doing well and what we can do better, and we invite you in joining us as we build this market for the decades to come.