Leaning in: Why the hands-on approach of venture philanthropy is vital for post-Covid recovery
Funders can help accelerate the post-Covid recovery by taking a leaf out of the venture capital book and applying a similar hands-on, personal approach to investees – and by emulating the ability of social enterprises to pivot and adapt to market needs. Jamy Goewie and Lisa Jordan (pictured below) on why a willingness to 'lean in' is vital right now.
In March, as the world came to an abrupt halt, many social enterprises found themselves with cash runways of less than two months, business models reliant on truncated supply chains, and spring investment or fundraising events that dried up in the face of Covid -19. Foundations responded with agility, speed and an emphasis on immediate needs, contributing a substantial amount to the $1trn allocated to Covid response funds.
Recognising this response, in June McKinsey released a report on European philanthropy, noting: “Now more than ever, society needs innovation, risk-taking, unconditional funding, and fast deployment of private philanthropic resources. Decisive and bold initiatives for systematic change by foundations could turn this crisis into an opportunity.’’ Wait! Is McKinsey promoting venture philanthropy?
How can venture philanthropy respond to the coronavirus, and how has it done so already? Can venture philanthropy help to turn this crisis into an opportunity? While McKinsey goes on to recommend changing programme areas to address a series of social issues that will be even more pressing in a Covid-wracked world, we would take a different tack. We believe the strategy to ensure the sustainability of social enterprises should be top of mind for philanthropy in the corona era.
While McKinsey recommends changing programme areas, we would take a different tack: ensuring the sustainability of social enterprises should be top of mind
Venture philanthropy and social investment are defined by the European Venture Philanthropy Association (EVPA) as a high-engagement and long-term social finance practice, whereby an investor for impact supports a social purpose organisation to help it maximise its social impact. The three building blocks of this practice are:
- Highly engaged grant-making or social investment
- Measurement and management of impact
- Extended non-financial support
Impact is the main driver for venture philanthropy and social investment and the means to it are derived from the key elements of venture capital.
- Read: Impact Decoded: How the core principles of investing for impact can help us fund smart through uncertain times
If we review the traditional spectrum of capital, philanthropy is on one end of the spectrum with commercial money on the other end. Traditionally philanthropy funds projects based on activities and costs, while venture capitalists fund enterprises based on opportunities and potential. Both “give” money, but where the philanthropist is taking a step back from the grantee and builds a distant relationship, based on a project proposal and reporting, the venture capitalist leans in on the enterprise and becomes actively involved in helping the entrepreneur reach her goals.
The same goes for venture philanthropists and social investors. They play a very active role in guiding and coaching the social entrepreneur with whatever management support is necessary to make the enterprise a success. They facilitate peer learning at portfolio level and actively look for co-funders. Especially in times of crises, they can quickly deploy bridge funding, identify needs and help to get access to government support, as they take an active stake in the company.
In recent months, we have seen some impressive moves coming from venture philanthropists and social investors who stepped up their game. The “high touch models” for social impact – involving personal attention and service – practised by both have proven to be particularly useful during the corona period as they have leaned in to solve daily challenges faced by social entrepreneurs.
The “high touch models” for social impact – involving personal attention and service – have proven to be particularly useful, as they have leaned in to solve daily challenges faced by social entrepreneurs
This lean-in model, where the grantmaker or investor is strongly involved in the operations of the social enterprise, is unique to venture philanthropy. We have seen the mindset of venture philanthropists at work in a number of organisations.
In the Netherlands, Oranje Fonds set up an extra fund within days after the government announced the lockdown. Belgium’s King Baudouin Foundation set up multiple emergency funds in Italy, Belgium, Germany and France. In addition to a Covid-19 grant facility, Open Road Alliance (USA) immediately offered four loan products: loans to cover lost revenue from postponed fundraising events; bridge loans within two weeks to allow critical investments in health and other services until incoming emergency funds could be delivered; co-investment when approached by impact investors to bridge to future committed funding; and longer term loans to hold the line on critical services for communities. SI2 Fund provided a bridge loan itself, and gave intensive support to its portfolio enterprises to access a further government bridge loan. Draper Richards Kaplan (DRK) Foundation shifted its entire staff to provide intense support for portfolio organisations including legal, financial and administrative support to keep enterprises afloat; organised entrepreneur peer learning sessions on pivoting and other key topics and – like other venture philanthropists – dropped reporting requirements, accelerated payments and removed restrictions on grants and loans.
Venture philanthropy networks also responded with urgency. The European, Asian, African and LatAm Venture Philanthropy networks all had member gatherings to discuss quick Covid responses and to share learnings. Jim Bildner, CEO of DRK Foundation, summed the attitude up nicely: ‘Did each of us do as much as we could to help the greatest number of people and organisations get through this crisis? That’s what is guiding us and so many others we see.’
Above: Peepul in India has taken advantage of the Covid lockdown to remotely train teachers who would otherwise be idle in this period; their digital modules reached a million hits in under a month
Pivoting: a cornerstone tool
One reason why venture philanthropy is able to quickly adapt to the Covid-19 crisis is the ability to “pivot”. Pivoting is rarely used in relation to philanthropy, but is one of the cornerstone tools for social enterprises during the rocky start-up phase. By pivoting we mean adapting a strategy, product or service based on market changes – and social enterprises do this regularly when they see their client’s needs change or when new technology is available. Renewal Workshop in Amsterdam, for example, has pivoted to produce personal protective equipment from textile waste. Peepul in India has taken advantage of the Covid lockdown to remotely train teachers who would otherwise be idle in this period; their digital modules reached a million hits in under a month. Being able to pivot is one of the key elements of success in the early start-up phase of a social enterprise.
Many VPs mirrored this flexibility and capacity to pivot. Developing new funds, redeploying staff, restructuring loan products and deploying their own staff to secure government support for social enterprises are VP versions of quick adjustments to respond to market needs – in this case, the needs of the social entrepreneur. Venture philanthropists can watch and learn from social enterprise pivoting and rapidly implement a change of plan. An investor barometer undertaken by the Financing Agency for Social Entrepreneurship (FASE) in April 2020 showed that 65% of its network of (private) social investors acted immediately on their portfolio by giving management support, increased funding or additional manpower.
This is the time to take a page from the venture book – to lean in, to release lines of credit, to pivot support to entrepreneurs
All hands on deck
The old adage, ‘Never waste a good crisis’ is alive and well. Calls to build back better to construct a more resilient economy are heard from The Hague to Toronto.
The solution is literally staring us in the face and starving for funds at the same time. It lies with thousands of social enterprises, all oriented towards balancing financial, social and environmental returns. These pioneers are in a fragile state yet hold the key for the better economy we need right now. While the response from venture philanthropy and social investors has been impressive, the threat to social enterprises remains palpable. Social Enterprise NL shows in its annual monitor that 20% of social enterprises expect to go bankrupt before the end of year, and at least 74% face a serious income decline. Most cannot afford the time traditional financial institutions are taking to sort out the question of longer-term financial risk when the social and environmental risks represent a clear and present danger, not only to social enterprises but to society.
So, this is the time to take a page from the venture book – to lean in, to release lines of credit, to pivot support to entrepreneurs who are reshaping the market and addressing today’s accelerated social needs. Venture philanthropists and social investors play a critical role in bridging the gap between commercial investors and traditional philanthropy to ensure better returns for society and long-term, sustainable impact.
- Jamy Goewie is partner at an impact fund management firm; Lisa Jordan is managing director of the Draper Richards Kaplan Foundation.
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Header image: Food packets from Food 4 Education in Kenya, a DRK Foundation grantee which is feeding over 1,000 families while schools are closed due to Covid-19 (credit: DRK Foundation)