A diffe­rent kind of philanthropy

Entre­pre­neu­rial thin­king, colla­bo­ra­tive part­ner­ships and tail­o­red funding models: venture phil­an­thropy comple­ments tradi­tio­nal financing.

‘Venture phil­an­thropy is neither the best nor the only kind of phil­an­thropy; it’s a diffe­rent way of enga­ging with it,’ says Etienne Eichen­ber­ger, Mana­ging Part­ner at WISE phil­an­thropy advi­sors. In 2012, the orga­ni­sa­tion became Switzerland’s first member of the Euro­pean Venture Phil­an­thropy Asso­cia­tion (EVPA). Venture phil­an­thropy will not trans­form or revo­lu­tio­nise the sector, Eichen­ber­ger adds, but in his view, it is an enli­vening addi­tion to the hete­ro­ge­neous phil­an­thro­pic sector. Vincent Pfam­mat­ter, lawyer and board member at proFonds, the umbrella asso­cia­tion for chari­ta­ble foun­da­ti­ons and clubs, points out that venture phil­an­thropy is not a defi­ned legal term. As a result, it comes in many forms. Eichen­ber­ger descri­bes it as a tool­box that foun­da­ti­ons can use.

Helping people help themselves

One of these tools is tailor-made funding: various kinds of finan­cial support are possi­ble, for exam­ple combi­ning dona­ti­ons and loans. ‘The rules that apply to tax-exempt insti­tu­ti­ons, howe­ver, mean that it makes sense to define whether the funding is clas­sed as a dona­tion or, say, a loan that needs to be paid back and may even gene­rate a return,’ says Pfam­mat­ter. Venture phil­an­thropy loans can offer crucial help at the start of social projects, in parti­cu­lar. ‘Banks do not gene­rally issue loans in these situa­tions,’ he says. ‘This kind of finan­cial invol­vement is simi­lar to venture capi­tal, but with a social objec­tive.’ Lenders help to make these projects a reality with attrac­tive condi­ti­ons and a willing­ness to bear the finan­cial risk. Howe­ver, the focus of phil­an­thro­pic enga­ge­ment is the orga­ni­sa­tion, not the project – unlike tradi­tio­nal phil­an­thropy. Fabio Segura, co-CEO of the Jacobs Foun­da­tion, says: ‘Gene­rally spea­king, it is the orga­ni­sa­tion that is funded, which goes hand-in-hand with an entre­pre­neu­rial long-term mindset.’ 

Inno­va­tion, effi­ci­ency and growth pros­pects are just as much a part of this as syste­ma­tic, long-term impact manage­ment, says Segura. He adds: ‘An essen­tial aspect of venture phil­an­thropy is that a finan­cial enga­ge­ment supports a model that enables it to grow impact beyond direct funding contributions. 

To this aim, there should be a reali­stic finan­cial exit perspec­tive,’ says Segura. The Jacobs Foun­da­tion has spent deca­des support­ing market-orien­ted orga­ni­sa­ti­ons, and in 2015 it laun­ched an expe­ri­men­tal venture phil­an­thropy port­fo­lio. To start with, it supported educa­tio­nal start-ups in West Africa. ‘In 2021, it intro­du­ced a sub-asset class for educa­tion ventures throug­hout the world, which they called scien­ti­fic capi­tal. ‘The Jacobs Foun­da­tion hopes to use its commit­ment to encou­rage the ventures it supports to expand their products and services on the basis of scien­ti­fic evidence’ says Segura. In Eichenberger’s eyes, support­ing project owners in areas where a service is rende­red – such as educa­tion – or where there is a product invol­ved are typi­cal areas in which venture phil­an­thropy is suita­ble. This type of project argu­ably offers more of an oppor­tu­nity for mixed funding which may lead to finan­cial independence.

Network and knowledge

The core charac­te­ristics of venture phil­an­thropy include its non-finan­cial support and access to the funder’s network. ‘As a funder, in-depth know­ledge of the issues and stake­hol­ders invol­ved is also requi­red,’ says Eichen­ber­ger. ‘Funders need to have a good analy­sis of the orga­ni­sa­tion they want to support, and often like to agree on results they can achieve toge­ther.’ To this end, lenders must have suffi­ci­ent know­ledge and resour­ces, says Segura. But the effort is worth it: ‘In fact, orga­ni­sa­ti­ons that receive finan­cial capi­tal along­side other forms of support, such as exper­tise or access to rele­vant networks, tend to be more respon­sive to the funder’s phil­an­thro­pic objec­ti­ves than are orga­niza­ti­ons that simply receive money.’ Howe­ver, the past few years have also reve­a­led limi­ta­ti­ons. Many supported ventures have failed to reach meaningful scale, says Segura. In addi­tion, the total funding in the venture Phil­an­thropy space has remained modest vis-à-vis Venture Capi­tal invest­ments and main­stream phil­an­thro­pic giving. Eichen­ber­ger sees the grea­test bene­fit in the fact that this tool­box has an impact on tradi­tio­nal phil­an­thropy by ques­tio­ning its proces­ses. ‘The ques­tion is how the two approa­ches can enrich each other, rather than stand in compe­ti­tion with each other – and which new ones will join them,’ he says. ‘It’s worth noting that venture phil­an­thropy has alre­ady been around for 15 years in Europe. For my part, I think today’s youn­ger gene­ra­tion of donors are alre­ady deve­lo­ping the next concept to come.