VENTURE PHILANTHROPY : AN UNFAMILIAR CHALLENGE

Real Deals (Main) - 15 November 2007 

Europe's private equity industry is finding that its skills can be put to use outside the world of commerce. But venture philanthropy faces many new challenges.

By Peter Kneller

European venture philanthropy is starting to build a following. More than 300 delegates crowded into this year's European Venture Philanthropy Association conference, held in Madrid last month.

In an uncharacteristically humble manner, Europe's largest buyout houses rubbed shoulders with VCs, social entrepreneurs and grant-giving organisations, to discuss the obstacles of effective philanthropic activities. And the obstacles are many. For one, dealing with a money-motivated business leader and a social entrepreneur require different skills. Loss of autonomy, lack of commercial experience, and a wariness that the charity might assume some of private equity's negative publicity are just someof the concerns that must be taken into account.

The necessity for genuine humility is another. "We don't take ourselves too seriously," said Jamie McAuliffe, portfolio manager of US-based Edna McConnell Clark Foundation. "We know our portfolio companies would be amazing without us. Some companies we didn't choose probably turned out better than if we'd supported them."

Venturesome director John Kingston, meanwhile, said the humility/arrogance dynamic was improving: "There is a lot more humility to equity investment now as opposed to five years ago. You bring expertise and funding, but you bring your ears too."

One social entrepreneur, Sean Campbell, chief executive of Irish youth charity Foróige, explained the difficulty of undergoing due diligence from the One Foundation: "It was painful getting an outside company in evaluating us and asking what we were doing and how we were doing it. We nearly walked away on a number of occasions. It took a while to understand that they were bringing a rigour and an insight that I needed to listen to."

A world of difference

But to confuse venture philanthropy with soft-hearted, untargeted charity is a mistake. A key virtue of venture philanthropy is the hard-nosed, diligent mentality it brings to investing. UK-based Impetus Trust for example, has an average seven per cent acceptance rate. But turning down charities after lengthy due diligence processes isn't all bad. The very process of being screened is beneficial to 95 per cent of charities, according to Amelia Sussman, director at Impetus.

"Conflict is good - we can bring intensity to the business," said Eric Archambeau, general partner of German venture firm Wellington Partners and a founder of Social Impact International. "Private equity people pay attention to details. One thing I've found is the amount of social entrepreneurs who don't have that. We can impact that culture."

And the process goes both ways, with even the biggest of buyout investors learning a thing or two.

"I think it's two-way learning, I'm learning a lot from the non-profit sector," said Benoit Vauchy, an executive at Permira, which has collaborated with social enterprise CAN on a Breakthrough initiative, which supports established social enterprises. "To give people like me this time in working hours to spend on charity work is a good indication of the culture."

The initiative has so far made five investments, and Permira intends to add another £1m (€1.45m) into the Breakthrough fund shortly.

Such commitments are clearly dwarfed by the amounts of money evident in public funding, but venture philanthropists' impact on public policymaking can be huge. Chris Underhill's Basic Needs charity recently had its methodology endorsed by the UN World Health Organization, and EVPA president Doug Miller has emphasised the association's aim to analyse various charity models to see which can be adopted for use in the public sector.

It is this desire to set an example of effective, measured philanthropic investment for use in wider society that drives the association. With membership doubling to 76 this year, and comprehensive representation from private equity groups, foundations, hedge funds and universities, the EVPA looks well on course to achieve this aim.

At an early stage

"It's very early days - venture philanthropy looks like private equity in the 1970s. We've got to be careful about expectations, but we're trying to get people engaged," said Miller. "We had three main objectives at the conference: to hold interest and enthusiasm; to offer knowledge transfer; and to provide networking opportunities for people."

However, Miller believes the association still has a fight to transform interest in philanthropy into engagement, and engagement into meaningful impact. Another key focus of the association is to cause the migration of successful models and ideas across borders.

If the EVPA can rise to meet these challenges, and investment bodies can learn from collaboration with social entrepreneurs and charities, then venture philanthropy's impact can only continue to grow.

Invest for Children, a venture philanthropy foundation, will be the chosen charity at the EVCA/Real Deals European Private Equity Awards, to be held in Barcelona on 22 November.