It all started in Vietnam. There they were, 28 businessmen, mainly venture capitalists, cycling through the hills and the jungle in aid of raising money for mine clearance programmes in the country and neighbouring Laos. In the end €350,000 was made, but the seeds of something far larger were sown. The trip was organised by Doug Miller, founder of placement agent International Private Equity. While there, he got talking to others on the trek about their charity contributions. One thing that they almost all expressed was a frustration over how their money was being used. Tom Allchorne reports.
Not long afterwards Luciano Balbo, founder of B&S Private Equity and an acquaintance of Miller’s who was on the expedition to Vietnam, went to the US and found a venture philanthropy model. They’ve been in existence in various forms in the US for more than a decade but had so far failed to cross the Atlantic. At around the same time another of Miller’s acquaintances, Stephen Dawson, a veteran of the UK venture market, discovered the same thing on a trip to the US.
Balbo and Dawson didn’t know each other but Miller brought them together. Dawson went on to co-found Impetus Trust (with Nat Sloane) in 2002, the first general venture philanthropy (VP) charitable fund in the UK. Balbo set up Fondazione Oltre in the same year, the first VP group in Italy.
In January 2004 the next step was made, the incorporation of the European Venture Philanthropy Association, a membership organisation and a “forum for networking with others in order to achieve common objectives,” according to the website. With Miller as chairman, he, Balbo and Dawson drafted in two more people: Michiel de Haan, founder of Atlas Ventures and an advisory board member of the Social Venture Capital Foundation, a Dutch VP association; and Serge Raicher, a former secretary general of the EVCA and since 2000, a partner at Pantheon Ventures and a member of Toolbox asbl, a philanthropy group in Belgium.
In March, it received sponsorship from 3i and Barclays Private Equity; KPMG would join them in September. The association hopes to have five or six sponsors in total, and aims to start accepting members in December 2004, aiming for between 25 and 30 in total.
Starting on January 29, 2004, the EVPA is planning to take 30 venture capitalists to the top of Mount Kilimanjaro. At the time of writing 20 had signed up to the climb, an idea thought of by Miller and Ian Simpson of Helix Associates. The expedition will take eight days, and the aim, aside from the personal achievement of climbing Africa’s highest mountain, is for each trekker to raise a minimum of €5,000 in support of various charities. It is hoped that a third of the money raised will cover some of the EVPA’s budget for the year, a third will go to Friends of Tanzania, a UK-registered charity working on a number of projects in the region, and the remaining third to a charity of the trekker’s choice.
Neatly side-stepping any kind of obvious metaphor about the EVPA having a mountain to climb, it would be fair to state that venture philanthropy is a bit of a mysterious area. With the exception of the EVPA, which officially launched at the EVCA’s Berlin Symposium in June, and possibly Dawson’s Impetus Trust, most other European VPs tend to keep themselves out of the glare of the public eye, which makes it difficult to come up with an estimate as to the number of venture philanthropy funds out there.
The EVPA and a number of European universities are currently completing a mapping exercise of all the VPs in Europe. Miller says: “Before we started this we thought there were about three or four VP funds out there. It turns out there are between ten and fifteen with more coming out of the wood work.”
Some of the European VPs include the aforementioned Impetus Trust, Social Venture Capital Foundation, Fondazione Oltre, as well as the One Foundation, a fund sponsored by Ryan Air. There are also a handful of intermediary bodies. In January 2004, the Global Exchange for Social Investment (GEXSI) began operation. Headquartered in Germany, it is not a VP fund but an adviser for those organisations wishing to donate money to charitable causes. As its name suggests it is an exchange where charities can be put in touch with investment banks or VCs, and vice versa. It is sponsored by Deutsche Bank, Foursome Investments, Soros Open Society Institute, the German Federal Ministry of Economic Cooperation and Development, Bain & Company and the Schwab Foundation for Social Entrepreneurship. A non-profit organisation, it covers its costs by charging the investors for advisory services.
Venture philanthropy can look like a strange idea initially; what’s in it for the investors and can the principles of venture capital, where the profit motive drives all, be applied to charitable investing? After all, there is no financial return to be made from a not-for-profit charity. The return is instead a social one. Rather than VPs reporting back to the investors/donors on how portfolio companies have increased profits or increased sales, they report on what the charity has done. If, for example, a charity is concerned with alcoholism, the investment will be judged on how many people have been helped. As investors in philanthropic funds gave to charity anyway, they are now just putting their money into venture philanthropy, because it offers them a greater control over how their money is spent.
Like venture capital, venture philanthropy conducts due diligence on the teams running the charities. “We look at their business plan and assess whether they are capable of executing the plan, whether they have the skills and the dedication,” says Miller. What VP brings to the table, other than money, is business acumen. While charities are run by socially responsible people, they may not necessarily be imbued with good business sense.
Perhaps surprisingly, venture philanthropy funds do draw up plans for exits. While a financial return cannot be expected, Miller says that after three or four years a fund will look to leave the charity in a better state than when it began investing. “We are looking for sustainability so that the charity is able to attract future funding,” he says.
Next year will undoubtedly be a busy year for the EVPA, and in 12 months time we will be in a better position to assess whether or not there is an appetite for venture philanthropy. Initial signs seem encouraging and a lot of the organisation’s success will rely on press coverage and Miller and the team spreading the word at conferences. But of course it’s one thing to have a room full of private equity practitioners nodding their heads and another for them to actually part with their money. The fact there are possibly around 15 venture philanthropy funds in Europe would seem to imply there is desire out there, and if there are more being planned, it would seem the EVPA was launched with particularly good timing.