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.’
«To this aim, there should be a realistic financial exit perspective.»
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.
«The question is how the two approaches can enrich each other.»
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.