This article is part of a series and has been written by the Master’s students in Global Politics and Society at the University of Milan. As attending students of “The Welfare States and Innovation” course, they explored the connection between Social Innovation and new forms of Welfare in contemporary societies. The article highlights the development of new synergistic partnerships among actors involved in multi-stakeholder networks and innovative multi-level governance models for social policies. Here are the first, the second, and the fourth articles of the series.
The economic and social order in the world has undergone a huge transformation over the past years. The coronavirus pandemic exacerbated the new and traditional challenges of the welfare states, such as inequality, higher rates of unemployment and the rising of the working poor.
In this scenario, where many States’ intervention capacity is put under pressure, different types of collective movements emerged from the community to address these global development challenge. Venture Philanthropy – although dissociated from the traditional philanthropic form to a more complex arrangement – brings to this concept all the know-how from the traditional market, yet assuming more risks, but scaling up the outcomes and generating social impact.
Foundations gained a crucial role in social development
The contemporary social context is characterised by many social risks and other large-scale social problems, such as government budgets under pressure, transformations on the structures of development assistance, difficulties to implement new public policies and many other constraints that have mined the role and the capacity of the states to (re)act. Foundations have thus become a crucial stakeholder in the field of development and social investments mainly because of their innovative forms of financing and their transformation towards an entrepreneurial approach, fomenting strategic investments procedures and promoting deep multi-stakeholders participation.
Despite the growing relevance and range of philanthropic institutions, little is known about their resources, organization and their impact. Data related to social investing and venture philanthropy are scarce. According to the Global Philanthropy Report (2018), there are over 260.000 philanthropic foundations spread throughout 39 countries in the world. Even though they are highly concentrated globally, almost 60% of them are situated in Europe, whilst 35% of them are in North America. The predominant foundation model is the Independent one (that is usually funded by donations from a single source, individual or group of individuals; they have no members or shareholders; they have their own administrative board and their own source of income), which represents over 90% of them. Although it is still possible to identify a substantial regional variation, they represent 96% in the United States and 87% in Europe.
The second model is the Corporate Foundations (created and supported by an organisation), which is more predominant in Latin America (50%). The third is the Government-linked Foundations (public foundations related to a specific public policy) that are more prevailing in China (38%) and in the United Arab Emirates (73%). The fourth is the Family Foundations (created by the donations of a single family) that are more common in Africa (35%).
All above mentioned foundations manage over 1.5 trillion USD, and their expenditures reach more than 150 billion USD annually, with an average spend rate of 10%. The leading concern of the foundations around the world is Education – almost 30.000 (35%) target projects are related to this sector – followed by Human Services and Social Welfare (21%), Health (20%) and Culture and Arts (18%). Moreover, Latin America foundations are more aligned with the Sustainable Development Goals. Since the SDGs were adopted, many philanthropy institutions were encouraged to interplay this endeavor – focusing on the reduction of poverty, health and well-being, education and economic growth.
From Philanthro-Capitalism to Radical Philanthropy
The incredible embracing characteristics of these non-profit organizations, replicates – according to a more critical literature – the logic of the same system that has produced the problems which they have been trying to solve. As Herro and Obeng-Odoom (2019) pointed out, Philanthro-Capitalism is considered the dominant form of philanthropy in the United States and is based on a conservative theory of poverty, in which its causes are related to the individual and/or the cultural characteristics. The dependency on external forms of funding generates a top-down approach to combating poverty, where the interests of the donors – rather than the beneficiaries – are prioritized. This tendency results in a lack of integrated perspective of social change, weakening social movements and creating a fragmented environment. These organizations attempt to mobilize the market to address the problems of poverty – through superficial solutions and short-term outcomes – despite settling structural changes and redesign the rules of the market. They do not focus on the root causes of poverty and, in other words, they do not seek the transformation of the status quo.
However, the selfish structures of capitalism are being called for change and there is also a request for a fresh look at the role of foundations and philanthropists. From now on, society and investors will continue to dictate and shape the foundations of the future and those of the past. According to Herro and Obeng-Odoom (2019), addressing poverty entails promoting new economic institutions (e.g. Global Poverty Bank, Global Hunger Bank, etc.), decolonizing the idea of the causes of the social problems, such as poverty, and understanding, that the main sequels of colonization, imperialism, enslavement, dispossession forged the bases of the market and are part of the main causes of the world’s impasses. This is what emerged from the critical analysis of the old model of philanthropy brought by Herro and Obeng-Odoom in 2019. In this regard, emerged the concept of Radical Philanthropy, a new form of engagement that transcends the old structures and tries to transform the existing conditions. It is a radical alternative that searches for local solutions to the problems that are culturally situated. It is a call to a collective reshape of the philanthropic approach, for something much more transformative and interconnected.
Inside this new design, according to the OECD Venture in Philanthropy in Development Report (2014), philanthropy has assumed a collection of many names, such as angel philanthropy, enterprise philanthropy, etc. The differences among them consist more in the term itself than in the function of it. What brings them together is the commitment with the beneficiaries, that now are part of the entire process. Harvey et al. (2011) have also underlined the importance of the entrepreneurial philanthropists (one of the terms attributed to radical philanthropy) of making a difference and been seen, they also highlighted a shift in the form to do philanthropy, implementing different forms of social investment strategies to maximize their impact, using managerial tools to evaluate and measure the outcomes and to achieve impact.
Venture philanthropy and impact investing
The constant concern to seek sustainable forms of financing of social-environmental projects is something that permeates many of the discussions in increasing private resources to promote the public good. In this context, emerges the Venture Philanthropy (VP). The term was created by John D. Rockefeller III in 1969, who had defined it as “an adventurous approach to funding unpopular social causes”. Venture Philanthropy can be understood as a movement that goes alongside impact investing: even if they have different definitions, they are extremely interconnected. While the first is focused especially on social causes and on generating social goods, the further emerged as an “ethical” investment strategy in 2007 (OECD, 2014).
According to the European Venture Philanthropy Association (EVPA), Venture Philanthropy is a strong arrangement and a persisting approach through which an investor for impact (foundations, social impact funds) supports a Social Purpose Organization (SPO) (social enterprises, NGO, charity, etc.) to help it to boost its social impact. It is an umbrella term that embraces many philanthropic investments: is a type of impact investment that takes concepts and methods from venture capital finance and business management and implements them to gain philanthropic objectives. Is a more professional and strategic way to create and manage funds destined for social innovation.
Donors practising venture philanthropy see their donations as investments and draw on the analytical rigour, as they do on their for-profit investments. They also provide support services to a social purpose organisation to maximise its social impact, increase its financial sustainability or strengthen its organisational resilience. They measure and monitor the change and the outcomes created by these associations and use this data to professionalize their activities, improve positive results and reduce any kind of negative impact and externalities.
The adoption of Venture Philanthropy consists in the embracement of three core practices to support Social Purpose Organizations. The first one is Tailored Financing, which involves the customization of the financial plan according to the specific needs of the entity and comprises the same instruments of venture capital (a grant, loan, equity and hybrid financial instruments). The second one is Non-Financial Support (NFS), which is developed besides the financial resources. For example, coaching for the NGO’ management team, monitoring strategic planning, fundraising consultancy, etc. The third one is Measurement & Management (IMM), which will measure and monitor the performance achieved by the organizations and also quantifying and qualifying data for better decision making (EVPA, 2019).
According to the European Venture Philanthropy Association (EVPA), Investors for Impact supported Social Purpose Organizations in more than 6 billion € in 2019, which represents a 30% increase compared to 2013. Financial inclusion represented 25% of the total investment, followed by social services (16%), agriculture (11%), health (9%), education (9%), environment (8%) and others (22%). People suffering from poverty represented 50% of the final beneficiaries, followed by children and youth with 48%. Unemployed people represented the third most target group (41%) followed by people with disabilities (36%).
For instance, Venture Philanthropy is a thriving force in Europe and has become an important tool to generate financial returns while connecting investors with the causes they care about most. Although the global crisis has become a challenge for VP, once increasing the capital invested may become more difficult with the uncertainty about the pandemic and the economy. On the other hand, it is also an opportunity because it generates an increasing demand for social innovations and alternative forms to address the problems: VP could boost the Social Purpose Organizations they support and help them succeed in this adverse economic situation. Besides that, it is also an opportunity for strengthening its cross-sector cooperation, mobilizing all the corners of the “welfare diamond” to contribute and to reinforce well-being. (Buckland et al. 2013)
Therefore, not everything is a bed of roses. The adoption of the Venture Philanthropy model is not something irrelevant. In fact, the necessity to assume a more complex strategic market approach, a closer commitment with the stakeholders, technical, financial and non-financial resources, evaluations, analysis, and all the formalities of the venture capital market by the Social Purpose Organizations might cause conceptual, cultural and even structural conflicts within the foundations. On the State level, regulation is needed. Once philanthropy is related to a considerable tax-subsidization, the State needs to structure the foundations’ forms of conducting the outputs aimed at achieving social innovations. Philanthropy needs the States’ control and it should be therefore considered as a supporting actor of the social innovation process, rather than the protagonist. Further research also is needed to bring to light the relations of cross-sector actors and the true impacts.
- Buckland, L., Hehenberger, L., & Hay, M. (2013), The growth of European venture philanthropy, Stanford Social Innovation Review, pp. 33-39.
- European Venture Philanthropy Association (2019), Policy brief: the New EU Multiannual Financial Framework 2021-2027.
- Gianoncelli, A., Gaggiotti, G., Boiardi, P., and Picón Martínez A. (2019), 15 Years of Impact – Taking Stock and Looking Ahead, EVPA.
- Harvey C., Maclean M., Gordon J. and Shaw E. (2011), Andrew Carnegie and the foundations of contemporary entrepreneurial philanthropy, in “Business History”, 53, pp. 425–450.
- Herro, A., & Obeng-Odoom, F. (2019). Foundations of radical philanthropy. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 30(4), 881-890.
- Johnson, P. (2018), Global Philanthropy Report: Perspectives on the Global Foundation Sector, Cambridge: Harvard Kennedy School.
- OECD netFWD (2014), Venture Philanthropy in Development: Dynamics, Challenges and Lessons in the Search for Greater Impact, OECD Development Centre, Paris.