Venture Philanthropy: Investing in Social Impact

Venture philanthropy is a form of impact investing that combines venture capital funding with charitable and humanitarian aspirations. Venture philanthropy is conducted through Social Purpose Organizations (SPO), which can take a wide range of investments. The diagram below helps illustrate the broad spectrum of approaches an SPO may take.

Venture Philanthropy Spectrum

Venture philanthropy and SPOs can differ significantly across the spectrum. Here is a closer look at the main categories:

1. Charities

Charities are focused exclusively on social impact and are not interested in generating financial returns. Many charities follow a traditional grant-making model that relies solely on donations to provide the grants. In contrast, other charities are more financially self-sustainable and generate operating revenue.

2. Revenue-generating social enterprises

They are organizations that primarily strive to make a social impact while looking to generate financial returns from operations. There are varying degrees to which such SPOs balance the social and economic values.

Some revenue-generating social enterprises are profitable on their own. In contrast, others rely on a combination of profits and donor funding to sustain themselves. Either way, revenue-generating SPOs do not distribute the profits. Instead, any gains are reinvested in the organization and its activities.

3. Socially-driven businesses

Such type of SPOs is more closely related to a conventional business than a charity. Socially-driven businesses still operate with an impact-first mindset. Yet, they are also profit-seeking enterprises that distribute excess earnings to management, investors, and other stakeholdersStakeholderIn business, a stakeholder is any individual, group, or party that has an interest in an organization and the outcomes of its actions. Common examples. An example of a company that invests in socially driven businesses is Vipond Ventures.

Stakeholders

Since venture philanthropy is an umbrella term that covers such a wide range of initiatives, many stakeholders play a part in the impact environment. They include:

• Individuals
• Private equityPrivate Equity Career ProfilePrivate equity analysts & associates perform similar work as in investment banking. The job includes financial modeling, valuation, long hours & high pay. Private equity (PE) is a common career progression for investment bankers (IB).  Analysts in IB often dream of “graduating” to the buy side,
• Foundations
• Social enterprises
• Government
• CorporationsProfessional CorporationsA professional corporation is a corporation that comprises different types of professionals such as doctors, lawyers, or accountants. In most states, professionals who want to incorporate their practice can do so by forming a corporation or service corporation.

Key Activities

There are two overarching types of support that impact investors provide across their venture philanthropy initiatives – monetary aid and non-monetary aid.

1. Monetary aid

The impact investor provides capital in the form of a loanLoanA loan is a sum of money that one or more individuals or companies borrow from banks or other financial institutions so as to financially manage planned or unplanned events. In doing so, the borrower incurs a debt, which he has to pay back with interest and within a given period of time., grant, or another type of investment. The instrument chosen depends on where the SPO falls on the venture philanthropy spectrum (charity, socially-driven business, etc.), the investor’s risk tolerance, and other factors.

2. Non-monetary aid

Impact investors can also provide support with planning, fundraising, or other activities that improve the organization.

Popular Venture Philanthropy Organizations

Below are some examples of well-known venture philanthropy organizations from around the world.

1. Bill & Melinda Gates Foundation

The Bill & Melinda Gates Foundation is believed to be the largest private foundation in the world, with more than $45 billion in assets. The primary focus of the foundation is to improve healthcare and reduce poverty around the world, as well as expanding education and access to information technology across the United States.

2. The Rockefeller Foundation

Founded in 1913 by Standard Oil’s then-owner John D. Rockefeller, his son, and his advisor Frederick Taylor Gates, the Rockefeller Foundation promotes the well-being of people around the world through its work in advancing science, data, policy, and innovation.

3. Toniic

As a leader in the impact investing community, Toniic is an organization with more than 400 members, including individuals, family offices, and foundations from across the world. The organization provides access to a directory of pre-vetted impact investments across multiple asset classes, matches members with co-investment opportunities in funds or other deals, and more.

4. Emirates Foundation

Led by the Emirate of Abu Dhabi Government, the Emirates Foundation’s mandate is to empower youth across the UAE in shaping the future. The foundation lists large corporations as partners, including J.P. Morgan, Pepsico, Exxon Mobil, and Visa.

5. European Venture Philanthropy Association (EVPA)

The EVPA is a vital member of the European venture philanthropy community. It lists nearly 300 members across the globe and focused on creating a positive social impact. Its members are other organizations who are either interested or currently involved in venture philanthropy and social investing in Europe.

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