The business of giving

Europe's fledgling “philanthro-capitalist” movement is making progress, and private equity people are driving it forward. In September, 270 delegates from 21 countries came to a venture philanthropy conference in Paris, with many former or practicing VCs in the audience and on the programme. The turnout confirmed that at a time when giving is fashionable (just think Bill Gates and Warren Buffet), interest in how to maximise its social impact in the charitable sector is also at a high.

Through the provision of capital and management expertise, venture philanthropy aims to use venture capital techniques to instil a performance culture in charities to help them touch as many lives as possible in the most effective ways.

The concept originated in the United States, where it is also most advanced. It is less well established, but those present at the Paris event were left with little doubt that Europe's growing band of devotees is in the process of building something meaningful.

The conference was organised by the European Venture Philanthropy Association (EVPA), a membership organisation formed in 2004 by a group of likeminded European private equity professionals. Held at the Senat de France near the Jardins du Luxembourg in St Germain de Pres, it was EVPA's second annual meeting. The first, held in London in 2005, drew 135 delegates.

The brainchild of Douglas Miller, a UK-based fund placement specialist, the EVPA connects potential donors with venture philanthropy funds and works to encourage private equity professionals to give time, money and investment expertise to VP funds and charities. EVPA's co-founders are Luciano Balbo, founder of Italian buyout firm B&S Private Equity; Stephen Dawson, formerly of ECI Ventures in the UK; Michiel de Haan, a co-founder of transatlantic early stage investor Atlas Venture; and Serge Raicher, currently a partner at Pantheon Ventures.

Miller, who serves as chairman, says the group's progress to date has exceeded his expectations “by a factor of about 10”.

He says: “We have created a huge amount of interest, which has surprised both the market and ourselves. There is still much to do, but momentum is building. The task now is to translate the current enthusiasm into something more concrete, and we have about two to three years to do that. Many people in private equity are involved in philanthropic work already, but the point is to bundle these individual efforts into something collective that can achieve more.”

Thus far, the organisation has signed up 16 active and 19 associated members. Miller hopes to grow the total to 50 members by 2007, and 100 members in five years time.

EVPA's effort to help establish venture philanthropy principles in Europe's not-for-profit sector coincides with – and no doubt benefits from – a number of groundbreaking funding initiatives led by well-known venture capital professionals. It is still early days, but a track record of successful VP performance is slowly beginning to take shape.

To give some examples: in the UK, Impetus Trust, founded by Stephen Dawson in 2004, has approximately raised £3 million to invest in charities; in 2005, Impetus deployed some £400,000 in five projects. Another important British-based project is Venturesome, a group founded by former 3i executive John Kingston, which since its formation in 2002 has arranged approximately €10 million of mezzanine-type financing for some 100 charities through underwriting, unsecured loans and quasi-equity structures.

In France, venture philanthropy is being put on the map by the likes of Gilles Cahen-Salvador, a co-founder of Paris-based buyout pioneer LBO France. Cahen-Salvador is currently raising money to support charitable projects in deprived parts of the country.

And in Italy, Luciano Balbo has just closed a €10 million venture philanthropy fund for Fondazione Oltre, the first of its kind in the country.

Neither is venture philanthropy just the preserve of the private equity industry. Several large hedge fund initiatives have also been established, including The Children's Investment Fund and Ark. As Miller points out, both are growing quite rapidly and attracting wide support from professionals within the hedge fund community.

GROWTH BY OSMOSIS
Speaking at a breakout session at the EVPA conference on the topic of how to set up a venture philanthropy fund, Dawson, Kingston, Cahen-Salvador and Balbo stressed how much energy was required to get their respective projects off the ground.

Reflecting on his experience with Fondazione Oltre, Balbo explained that raising his fund took several years. He started with “a couple of friends who were not in a position to say no to me”, but then not much else happened until he found two core sponsors who got behind the project with a €1 million cornerstone commitment each; they also helped identify other sources of funding for the project, which meant Balbo's foundation was able to meet its target.

Cahen-Salvador stressed that once a sizeable pool of funding is in place, the next challenge is to connect with social entrepreneurs worthy of investment and capable of delivering results. In the case of his poorcommunity project in France, he said, finding local people who could intermediate between the fund and potential end-users on the ground was essential. The task here is to help people with radically different backgrounds – high finance on the one hand, social work on the other – to get comfortable with each other, with everyone involved needing to make cultural adjustments.

Fundraising and people management are not the only areas of focus for Europe's venture philanthropists. A third is to establish a methodology to gauge their own effectiveness. To this end, the EVPA is currently working to develop a performance measurement framework that can be used to quantify and evaluate impact. The results will be used to further advance the venture philanthropy concept, help grow its funding base and persuade charities to adopt it.

Says Miller: “What we want to see is growth by osmosis: when the principles of venture capital permeate foundations, we can say we're successful. Conversely, we can gain a lot from the knowledge and expertise foundations have from their many years doing philanthropy.” To make it happen, he adds, EVPA will continue to put gentle pressure on more private equity professionals to step up to the plate and contribute money, expertise and time.

When raising money for a VP fund, quipped Cahen-Salvador at the EVPA gathering, it pays to approach people who are either “guilty or concerned – both are likely to invest”. In addition, and on a more serious note, it is also important to persuade those who are willing to give that their contributions will deliver results. To help create a playing field where this is possible is venture philanthropy's ultimate goal.

For wealthy professionals with a venture capital mindset who are looking to give something back, now is the time to get involved.

To learn more about the EVPA, visit www.evpa.eu.com.