Venture Philanthropy:  From Operations to Finance October 12, 2007 UBS Philanthropy Services  Dr. Maximilian Martin
Table of Contents Section 1 The Fundamentals Section 2 The Finance Frontier
SECTION 1 The Fundamentals
Venture Philanthropy: Taking Off? Venture Philanthropy has become an ubiquitous term  Source: Google, New York Times, FT, ...
Definitions of Venture Philanthropy <ul><li>EVPA:  Venture Philanthropy is an approach to charitable giving that applies v...
A Step Back: What Are The Characteristics Of VC? Source: FVF, NVCA, UBS Philanthropy Services “ DNA” of Venture Philanthro...
The Case for Venture Philanthropy <ul><li>In order to create change in scale, philanthropy needs to draw on a whole toolbo...
The TECC Is Different <ul><li>Value creation in the social sector cannot always be measured by simple quantitative proxies...
SECTION 2 The Finance Frontier
Today’s Venture Philanthropists: The G² Challenge A European snapshot Sources: EVPA, UBS Philanthropy Services Venture phi...
Mapping the Investment Landscape Example Sector Type of benefit Investment solution Inflection point Category Prime Cure S...
The Way Forward High-leverage opportunities Two vectors of innovation 1 2 Social innovations in operations : professionali...
A Reminder: The Role of the Innovators Source: UBS Philanthropy Services ? <ul><li>Look for relative advantage and latent ...
Contact Information UBS AG   Dr. Maximilian Martin Global Head, Philanthropy Services CH-8001 Zurich Tel:  +41 44 234 91 3...
Disclaimer <ul><li>This publication is for your information only and is not intended as an offer, or a solicitation of an ...
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Keynote: Venture Philanthropy – From Operations to Finance

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Keynote: Venture Philanthropy – From Operations to Finance

  1. 1. Venture Philanthropy: From Operations to Finance October 12, 2007 UBS Philanthropy Services Dr. Maximilian Martin
  2. 2. Table of Contents Section 1 The Fundamentals Section 2 The Finance Frontier
  3. 3. SECTION 1 The Fundamentals
  4. 4. Venture Philanthropy: Taking Off? Venture Philanthropy has become an ubiquitous term Source: Google, New York Times, FT, EVPA, UBS Philanthropy Services 2007: Chris Hohn (TCI) £ 230m. Additionally, CIFF made £ 94m on its investments. 2007: Richard Branson (Virgin Group) pledged US$ 3bn to cleantech; created Entrepreneurs Unite, a “VP club” focused on Africa. Hit rates &quot;Venture Philanthropy&quot; (Google) © 2007 UBS Philanthropy Services
  5. 5. Definitions of Venture Philanthropy <ul><li>EVPA: Venture Philanthropy is an approach to charitable giving that applies venture capital principles, such as long-term investment and hands-on support, to the social economy. Venture philanthropists work in partnership with a wide range of organizations that have a clear social objective. These organizations may be charities, social enterprises or socially driven commercial businesses. </li></ul><ul><li>Sustainability Dictionary: Philanthropy that draws upon the traditional venture capital model to invest in nonprofits and socially entrepreneurial organizations to build their capacity, rather than to support discrete programs. Venture philanthropists typically assess progress and track the outcomes of their investments in terms of the social value produced. They often maintain a close and active relationship with grantees. </li></ul>Competing views Source: CoP, EVPA, Sustainability Dictionary John D. Rockefeller III (1969): “Private foundations often are established to engage in what has been described as ‘Venture Philanthropy,’ or the imaginative pursuit of less conventional charitable purposes than those normally undertaken by established public charitable organizations.” © 2007 UBS Philanthropy Services
  6. 6. A Step Back: What Are The Characteristics Of VC? Source: FVF, NVCA, UBS Philanthropy Services “ DNA” of Venture Philanthropy <ul><li>A keen sense of timing </li></ul><ul><li>Invest in a company at the right time </li></ul><ul><li>Investments must pay off within the fund's life span (6-7 years) </li></ul><ul><li>Cyclicality as a fact of life </li></ul><ul><li>Cyclical industry funding patterns </li></ul><ul><li>Absorption capacity of IPO market critical </li></ul><ul><li>Schematized investment process </li></ul><ul><li>Three-stage sequential investment process (prototype, pipeline, growth) </li></ul><ul><li>Focus on measurable innovation </li></ul><ul><li>Improvements within an established frame of reference preferred to breakthrough innovations </li></ul>Venture capital is: long term investments, 3-7 years, annual investment returns 25% - 100%. Venture capital is not: investment intermediary services such as merchant banking, investment banking or business brokerage services. It is also not consulting services, penny stock strategies, public shell merger strategies or any other fee income motivated financial services. © 2007 UBS Philanthropy Services
  7. 7. The Case for Venture Philanthropy <ul><li>In order to create change in scale, philanthropy needs to draw on a whole toolbox of intervention mechanisms beyond pure grant-making. </li></ul>Source: CoP, Sustainability Dictionary, UBS Philanthropy Services <ul><li>Venture Philanthropy draws upon the traditional venture capital model to invest in nonprofits and socially entrepreneurial organizations to build their capacity, rather than supporting discrete programs. </li></ul><ul><li>Venture philanthropists assess progress and track the outcomes of their investments in terms of the social value produced. </li></ul><ul><li>They maintain a close and active relationship with grantees, providing ongoing strategic guidance in addition to financial capital. </li></ul>Contribution Need The fundamental objective of venture philanthropy is to achieve higher social or financial return (or both) from non-profit organizations. What's the “philanthropic IRR”? © 2007 UBS Philanthropy Services
  8. 8. The TECC Is Different <ul><li>Value creation in the social sector cannot always be measured by simple quantitative proxies. Moreover, exit funding does not follow automatically from performance. </li></ul>Four core dimensions <ul><li>Venture Philanthropy operates with different &quot;curve shapes“ – &quot;investors&quot; must either be ready to operate with longer time horizons, or suboptimal topic selection. </li></ul>Time Exit <ul><li>Venture capital industry operates on a different scale than venture philanthropy investments. Absence of economies of scale. </li></ul>Cost <ul><li>Venture philanthropists coming from the venture capital world must adapt their language to the culture of the social sector. </li></ul>Culture Source: UBS Philanthropy Services © 2007 UBS Philanthropy Services
  9. 9. SECTION 2 The Finance Frontier
  10. 10. Today’s Venture Philanthropists: The G² Challenge A European snapshot Sources: EVPA, UBS Philanthropy Services Venture philanthropists focus overwhelmingly on early or expansion-stage CSOs Investment topics* Type of financial support* Grant-making is the bread and butter financial intervention * Survey of Venture Philanthropy providers in Europe, 2006, multiple priorities possible © 2007 UBS Philanthropy Services
  11. 11. Mapping the Investment Landscape Example Sector Type of benefit Investment solution Inflection point Category Prime Cure SMEs Private good SEs Public good SEs MFIs Aravind IBJ Acción Real Real Real Financial E + S E + S S E + S Equity or loan deals Loan deals + TA Grant + TA Equity or loan deals Theme funds Loan funds (e.g. irrigation, housing) Donor collaboratives Second tier funds Niches for financial innovations remain untaken. The task is to set up pilot vehicles with venture philanthropy funding that can be adapted to the &quot;retail&quot; segment at a later stage Source: UBS Philanthropy Services © 2007 UBS Philanthropy Services
  12. 12. The Way Forward High-leverage opportunities Two vectors of innovation 1 2 Social innovations in operations : professionalize, build institutions, fund step change (scale and replication) Social innovations in finance : A lot of work to do So far, innovation has been driven by MFIs and PPPs <ul><li>Legal structures to provide opportunities to take equity – L3C </li></ul><ul><li>Package loans </li></ul><ul><li>SME funds </li></ul><ul><li>Foundation asset pooling </li></ul>Source: UBS Philanthropy Services © 2007 UBS Philanthropy Services
  13. 13. A Reminder: The Role of the Innovators Source: UBS Philanthropy Services ? <ul><li>Look for relative advantage and latent demand </li></ul><ul><li>Analyze compatibility </li></ul><ul><li>Assess how complexity is mastered </li></ul><ul><li>Focus on trialability </li></ul><ul><li>Observability of an innovation is critical </li></ul>Focus of discussion Diffusion of innovation criteria How can we draw in the early adopters? © 2007 UBS Philanthropy Services
  14. 14. Contact Information UBS AG Dr. Maximilian Martin Global Head, Philanthropy Services CH-8001 Zurich Tel: +41 44 234 91 31 Fax: +41 44 234 58 38 [email_address] www.ubs.com /philanthropy-services
  15. 15. Disclaimer <ul><li>This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. Although all information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, no representation or warranty, express or implied, is made as to its accuracy or completeness. All information and opinions as well as any prices indicated are subject to change without notice. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis. </li></ul>

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