If one follows the press and ongoing debates, it becomes clear that the world of philanthropy and social investment is changing.  Foundations and wealthy individuals are increasingly investigating new forms of giving and experimenting with ways of using mission-related strategies for investing their endowment. Relatively newer stakeholders, such as private equity firms[1]and financial institutions, are pushing into the market.

At the same time, more attention is paid to how social enterprises can solve social issues while achieving financial sustainability and generating both financial and societal returns to their investors.  Debates are flourishing on topics such as ‘grants versus investments’ or ‘single impact versus blended value’. Is it possible to do good and at the same time receive a (financial) return on the investment one makes?

As co-founder and chairman of the European Venture Philanthropy Association (EVPA), I follow these debates with great interest and cannot help but feel intrigued by the various definitions of venture philanthropy, impact investment or social investment.

Why are definitions so important to this discussion? We have a responsibility for transparency vis-à-vis all stakeholders and should ensure that our governance, remuneration structure, impact measurement and communication are properly aligned with our objectives.

Thus, it is important to know what we expect from the investment we make: are we satisfied with societal return only or are we expecting societal return first, but welcome a “financial little something” on the side? Or are we indeed expecting a financial return on the investment we have made?

At EVPA we make a clear distinction between societal and financial return of investment. We define the venture philanthropy approach as building stronger social purpose organisations by providing them with both financial and non-financial support thushelping them increase their societal impact. However, contrary to most views in the UK, we understand that venture philanthropy can employ a range of financing mechanisms from grants to equity and other forms of social investment, tailored to the needs of the investee social purpose organisation. The key is the combination of financial and non-financial support. We are always referring to an ‘investment’ because time and money is being invested in expectation of a societal return.

Indeed, if you look at EVPA’s full members - these include venture philanthropy organisations that provide either grant funding, social investment, or a combination thereof, always in a high engagement manner. Another distinction that EVPA makes is that our emphasis is on societal return as a primary goal, as opposed to financial return.

There are a number of articles and papers that are heralding that investing in people in need bears much potential for financial return. A recent paper by JP Morgan and the Rockefeller Foundation even estimates a profit opportunity of between $183bn and $667bn over the next decade in five sectors — housing, water, health, education, and financial services — serving global populations earning less than $3,000 annually.

Whilst in some cases a degree of financial return might be possible we should be wary of creating inflated expectations. The importance of the societal impact resulting from high engagement philanthropy or social investments may be lost by focusing too much on the potential financial return.

You might have noticed that I use the word societal impact throughout this article. Although this may sound unfamiliar to the English ear, we have adopted the word to the EVPA vocabulary to reflect that impact can be social, but also environmental or artistic[2].

Artistic initiatives are not the typical target of venture philanthropy activity. However, the Culture Forum, a body created by Arts & Business and the National Campaign for the Arts in the UK, issued a report in January which included the recommendation to “encourage new philanthropy initiatives such as a limited profit Arts Investment Fund and venture philanthropy funds”. 

Thus, it can be seen that there is a real demand in many areas for blended approaches to philanthropy.  In order to fulfil these demands and to avoid false expectations, it is necessary to have clear definitions of the various approaches. There seems to be a divergent understanding of venture philanthropy and the emergence of relatively new terms, such as impact investing, seems to add to the confusion.  I hope that by clarifying the stand that EVPA takes on venture philanthropy – reflecting more the pan-European understanding of the approach – we can demystify the current debates on the changing faces of philanthropy.

Serge Raicher
After 20 years in the Private Equity industry, including at Pantheon Ventures where he was a partner until 2009, Serge Raicher decided to focus on his philanthropic activities and more particularly on the European Venture Philanthropy Association (EVPA) which he co-founded and has presided over since 2008. Serge sits on the Venture Philanthropy Fund’s Investment and Management committee of the King Baudouin Foundation in Brussels and is a member of Toolbox a.s.b.l. Serge holds an MBA from INSEAD.

Footnotes