Venture Philanthropy
How can funds be made available for charitable goals if the risk of failure is too great for philanthropists? what if there is too little return for investors? John D. Rockefeller III also asked himself these questions and introduced the term “venture philanthropy” (VP) for the first time at a hearing in the US Congress.
Venture philanthropy describes a form of philanthropic commitment between traditional grants and return-orientated investments.
The parallel between the term and “venture capital” is no coincidence. Venture capitalists back particularly promising companies and accept that they may lose their investment. With venture philanthropy, the focus is on social impact rather than a financial return.
Customised financing for a good cause
Capital is made available partly in the form of donations, but more frequently as loans or equity investments. The conditions take into account the special nature of the investment.
In some cases, and depending on the legal framework, profits are distributed to VP organisations. However, VP investors often forego a return in favour of a greater social impact; either in whole or in part. These are typically distributed amounts that are reinvested in new charitable organisations.
Focus on impact
Many VP investors attach particular importance to the continuous measurement of the desired impact. On the one hand, this helps to focus the activities of the portfolio organisation on the desired impact. On the other, there is the same dilemma as with all key figures: they work. This can lead to only easily recognisable effects being noticed, while more complex correlations or possible negative side effects that are difficult to grasp are lost sight of.
Helping with more than money: capacity building and sustainable support
In addition to the willingness to take risks and the offer of customised financing, there are further parallels to venture capital. In addition to money, VP investors also make their knowledge and networks available, provide access and advise their portfolio organisations on strategy development or company organisation.
Their aim is to set up non-profit organisations in such a way that they can work independently in the long term. Capacity building plays an important role here: funds from VP investors can be used to further develop the organisation’s own skills as well as for investments in technical equipment, the development of marketing concepts and similar tasks that cannot be financed with traditional project funding.
This type of funding is particularly helpful for organisations at an early stage, when project funds for early phase financing or the development of innovative concepts have been used up and the next phase of development is imminent. VP investors can also play an important role in scaling up solutions that have already been tried and tested when it comes to developing viable long-term financing models for implementing innovative solutions across regions.
Long-term funding to strengthen organisations
Venture philanthropy is characterised by a long-term outlook. While most project funding is only available for a few years or even less, VP investors often accompany organisations for years until a good opportunity for an exit arises.
In the rarest of cases, a profitable sale to another investor takes place. In most countries, the applicable non-profit law sets a strict limit to this. In some cases, it is possible for the organisation to give up its non-profit status. More frequently, an economically successful portfolio organisation may, and can, repay loans and, if applicable, interest. In quite a few cases, however, a VP investment also ends with the funds invested having to be written off because the organisation has not reached the break-even point.
Example LGT Venture Philanthropy
Liechtenstein-based LGT Venture Philanthropy has proven to be a long-standing partner of numerous global organisations that receive comprehensive support and thus make a contribution to achieving the SDGs. For example, the African organisation Last Mile Health has been supported since 2018.
The recruitment and training of medical staff benefits the rural population. In 2021 alone, almost 184,000 people were helped, particularly in the treatment of life-threatening illnesses or injuries. This shows the lasting impact and positive influence that venture philanthropy can have on global communities.
Conclusion
Venture philanthropy bridges the gap between traditional giving and commercial investing. It enables philanthropists and investors to work together on charitable goals without completely losing sight of the return on investment. The integration of entrepreneurial principles, capacity building of organisations and long-term partnerships are core aspects of venture philanthropy.
