EVPA Venture Philanthropy And Social Impact Investment A Practical Guide

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March 2018

EVPA REPORT

A PRACTICAL GUIDE TO
VENTURE PHILANTHROPY
AND SOCIAL IMPACT
INVESTMENT

A Practical Guide to Venture Philanthropy and Social Impact Investment

This report was possible thanks to the financial support of the European Commission.
However, it reflects the views only of the authors, and the European Commission cannot be
held responsible for any use which may be made of the information contained therein.
Please use this reference to cite this report:
EVPA Knowledge Centre (2018) A Practical Guide to Venture Philanthropy and Social Impact
Investment. 4th Edition. EVPA.
Published by the European Venture Philanthropy Association
This edition March 2018
Copyright © 2018 EVPA
Email: info@evpa.eu.com
Website: www.evpa.eu.com
Creative Commons Attribution-Noncommercial-No Derivative Works 3.0. You are free to
share – to copy, distribute, display, and perform the work – under the following conditions:
• Attribution: You must attribute the work as A PRACTICAL GUIDE TO VENTURE
PHILANTHROPY AND SOCIAL INVESTMENT Copyright © 2018 EVPA.
• Non commercial: You may not use this work for commercial purposes.
• No Derivative Works: You may not alter, transform or build upon this work.
• For any reuse or distribution, you must make clear to others the licence terms of this work.
Authors: This edition was edited by Priscilla Boiardi and Alessia Gianoncelli, with the support
of Caroline Cornil.
The original authors of this report are: Luciano Balbo, Priscilla Boiardi, Lisa Hehenberger,
Deirdre Mortell, Pieter Oostlander and Elena Vittone
Design and typesetting: Pitch Black Graphic Design The Hague/Berlin
ISBN 9789082494044

Printed on 100%
recycled paper

Copyrights for photos on the
cover:
• CUIB © Mai Bine Association
• Action Tutoring © Impetus
– The Private Equity
Foundation
• Alter-Eco © Phitrust
• Centro Medico Santagostino
© Oltre Venture

March 2018

EVPA REPORT

A PRACTICAL GUIDE TO
VENTURE PHILANTHROPY
AND SOCIAL IMPACT
INVESTMENT

This edition was edited by
Priscilla Boiardi and Alessia Gianoncelli,
with the support of Caroline Cornil

European Venture Philanthropy Association
March 2018

A Practical Guide to Venture Philanthropy and Social Impact Investment

CONTENTS
Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . 5
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . 6
PART 1. Introduction. . . . . . . . . . . . . . . . . . . . 13
1.1. Purpose of the document . . . . . . . . . . . . . . 14
1.2. Essence and role of Venture
Philanthropy. . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.3. Grant-making vs social investment –
main approaches of VP. . . . . . . . . . . . . . . . 20
PART 2. Key issues for venture philanthropy
organisations/social investors (VPO/SIs) . . . 21
2.1. VPO/SI’s funding model. . . . . . . . . . . . . . . . 22
2.2. The VPO/SI’s organisational structure . . . 23
2.3. Fundraising . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PART 3. The investment strategy. . . . . . . . . . 35
3.1. Investment focus. . . . . . . . . . . . . . . . . . . . . . 39
3.2. Type of SPO. . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.3. Tailored financing and the different types
of financial instruments. . . . . . . . . . . . . . . . 43
3.4. Co-investing policy. . . . . . . . . . . . . . . . . . . . 46
3.5. Non-financial support. . . . . . . . . . . . . . . . . . 48
3.6. The exit strategy. . . . . . . . . . . . . . . . . . . . . . 51

PART 4. The investment process. . . . . . . . . . 53
4.1. Investment appraisal . . . . . . . . . . . . . . . . . . 54
4.2. Deal screening. . . . . . . . . . . . . . . . . . . . . . . . 55
4.3. Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . 58
4.4. Investment decision and
deal structuring. . . . . . . . . . . . . . . . . . . . . . . 63
4.5. Investment management. . . . . . . . . . . . . . . 70
4.6. Exit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.7. Evaluation and post-exit follow-up. . . . . . 80
PART 5. Reflections on the journey so far. . . 85
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . 88
GLOSSARY OF TERMS. . . . . . . . . . . . . . . . . . . 91

Acknowledgements

March 2018

ACKNOWLEDGEMENTS
For this new edition, we are extremely thankful to the
practitioners and researcher who participated in the first
three editions.
EVPA is very grateful to all those members who have
shared their insights, successes, failures and learnings
with the wider community of VP/SI practitioners, in
particular Deirdre Mortell, Pieter Oostlander and Luciano
Balbo, three practitioners who wrote the first edition
and have been instrumental in shaping the second and
third edition of this Guide. We would also like to thank
all the people who contributed to the first edition: Artur
Taevere as a peer reviewer, Cormac Sheridan as editor
and the project manager Ahmad Abu-el-ata. We are also
thankful to the people who peer reviewed the second
edition: David Carrington, Inês De Oliveira Magalhães and
Nat Sloane for their support, as well as Emilie Goodall
(Bridges Fund Management) and Chloé Tuot (former
Phitrust) for the feedback on specific parts.
Last but not least, we would like to thank Lisa Hehenberger,
for her continuous support and feedback to EVPA’s
Knowledge Centre.

A Practical Guide to Venture Philanthropy and Social Impact Investment

EXECUTIVE SUMMARY

This is the fourth edition of a working paper that was

hands-on support, to certain elements of the social

first published in 2008. It was intended to capture and

economy. The key characteristics of venture philan-

share the learnings of a number of pioneer European

thropy include:

Venture Philanthropy (VP) Organisations and Social
Investors (VPO/SIs)1, which were set up in the period

• Tailored Financing: the process through which a

2000–2004, when the VP ‘movement’ first began in

VPO/SI finds the most suitable financial instru-

Europe. The fourth edition of the report also incor-

ment(s) to support a social purpose organisation

porates the learnings of almost ten years of research

(SPO) choosing from the range of financial instru-

performed by EVPA’s Knowledge Centre on topics

ments available (grant, debt, equity, and hybrid

such as impact measurement, tailored financing, exit

financial instruments).

strategies, non-financial support and learning from
failures, and presents a snapshot of the sector based
on data from EVPA’s Industry Survey.

• Organisational Support: the provision from VPO/SIs
of added-value support services to investees (SPOs)
to strengthen the SPO’s organisational resilience

The goal of this practical guide is to assist start-up or

and financial sustainability by developing skills or

early-stage VPO/SIs in Europe by providing an insight

improving structures and processes.

into ‘what works’ in a European context, keeping in
mind the diversity existing at individual country level.

• Impact Measurement and Management: the meas-

At the end of the document, there is a glossary that

urement and management of the process of creating

provides definitions of the key terms mentioned in the

social impact in order to maximise and optimise it.

report.
The VP industry seeks to complement existing forms
VP is simply one tool in the philanthropy toolkit. It

of social finance and to contribute to the develop-

emerged in Europe in the early 2000s as a high-en-

ment of a more efficient capital market to support the

gagement approach to grant-making and social impact

social sector. Although VPO/SIs initially adapted high-

investment (debt, equity, etc.) across a range of Social

level principles from investment industry players such

Purpose Organisations (SPOs), from charities and

as venture capital funds, they have since developed

non-profit organisations through to socially driven busi-

specific investment tools, processes and methodolo-

nesses. Venture philanthropy works to build stronger

gies that have been adapted to work effectively in the

SPOs by providing them with both financial and

social sector. Venture philanthropists with roots in the

non-financial support in order to increase their social

commercial sphere have had to learn how to operate

impact. The methodology is based on applying venture

within the cultural and operational frameworks of the

capital principles, including long-term investment and

social sector.

Throughout this report we use the term “VPO/SI” or “VP/SI organisation” to refer to both venture philanthropy organisations and
social investors. With this term we include all those organisations that support social purpose organisations (SPOs) using all range
of financial instruments (from grants to debt, equity and hybrid financial instruments), with the primary objectives of achieving a
sustainable social impact (and in some cases a financial return, but secondarily and not necessarily).

Executive Summary

1. SETTING UP A VP/SI ORGANISATION

March 2018

have a small (three-to-five member) hands-on board,
who engage actively with the management team.

Before setting up a VPO/SI, consideration should

The decision-making practices have evolved in the

be given to the type of funding models that will be

past years, and currently three models exist of how to

applied. The main question to be answered is whether

involve the investors in the investment decision through

the VPO/SI will act as a social investor or focus on

the investment committee: (i) the management-driven

grant-making of target SPOs. In many European

model, where the fund management team makes the

countries, tax and legal regulations distinguish between

investment decision, independently from the board; (ii)

grant-making and financial instruments that establish

the mixed model, where subsets of the investors are

ownership titles, and the legal structure of the VPO/SI

involved in the decision-making process at different

has to take such regulations into account.

levels; and (iii) the investor-driven model, where the
investment committee is composed of investors.

The success of any new VPO/SI will be driven by the
founder(s), who will define a vision and a set of objec-

Fundraising is a key challenge for any start-up VPO/SI.

tives for the organisation. Founders typically come

It requires vision, clear communication, persistence,

from either the world of private sector investment or

passion and optimism. Prospective funders are likely to

from the social sector. A successful VPO/SI needs to

fall within one of a number of categories, such as the

possess skills from each of these areas in-house. The

founder’s personal network, existing trusts and foun-

founder, therefore, needs to attract the right start-up

dations, high-net-worth individuals, corporates and

management team – particularly the right CEO – to

government agencies. It is worth taking time to under-

build the organisation’s knowledge and expertise.

stand which investors will share the founder’s vision,
and approaching them accordingly. The VPO/SI should

VPO/SI management teams are often small at start-up

not try to bend its investment strategy to the needs of

– typically one to four people. Ideally, they should

potential funders, but reach out to funders who have

comprise open-minded individuals who share the

the same vision and goals. Due to the relative imma-

founder’s vision and passion for social change and

turity of VP, the founder will need to communicate the

who are willing to acquire new skills in what is a rapidly

vision clearly to potential investors, the investment

evolving industry. The VPO/SI shall recruit from both the

model and goals. They will often need to be intro-

private and the non-profit sector. Working in this sector

duced to the principles of VP and to be convinced of

brings VPO/SI staff often coming from a commercial

VP funding’s great potential to deliver social impact.

background into close proximity with SPO staff with

Having a high-calibre CEO in place and identifying a

non-profit experience, so openness, curiosity, patience

handful of initial high-quality SPO investments can

and humility are necessary. Remuneration levels in

help build credibility and encourage commitment from

the VP/SI sector are sometimes set at discount to the

investors.

private sector, accounting for the ‘social return’ enjoyed
by staff through their work and compensating through

VPO/SIs that do not have an endowment need to raise

improved working conditions. Currently, attracting and

a follow-on fund when the first fund has been invested.

keeping the right talent is a crucial challenge in the

At this time, successful VPO/SIs have the advantage

industry; attracting good professionals calls for new and

of having developed a track record of effective invest-

improved incentive structures, capable of competing

ment in a number of SPOs which may facilitate further

with the commercial sector.

fundraising. However, in some cases, follow-on funding
may be harder to obtain since start-up funders,

A VPO/SI’s board can fulfil various roles, depending on

especially foundations, often feel their support role

needs. They are likely to have external duties, such as

becomes less necessary for successful and estab-

fundraising and public relations, as well as internal obli-

lished VPO/SIs. After the first five years of operation,

gations, such as providing expertise and support to the

and depending on the results it has achieved to date,

management team. At start-up, a VPO/SI will typically

the VPO/SI may consider whether to adapt any of its

A Practical Guide to Venture Philanthropy and Social Impact Investment

headline objectives (e.g. adopting a narrower sector
focus on areas that have delivered the most social
impact). Adding peripheral activities, finding ways to
recycle capital and generating economies of scale in
the management fee are different ways of sustaining
the structure of the VPO/SI.

2. INVESTMENT STRATEGY

this may mean replicating their operating model in
new or more broadly defined markets. For larger, more

The starting point for developing an investment

established SPOs, VP funding may be appropriate in

strategy lies in a clear articulation of the VPO/SI’s

several settings that involve managing change, such as

social and financial objectives. The first step is to

mergers and scaling up. VP is not necessarily appro-

define the VPO/SI’s own Theory of Change, i.e. the

priate for all SPOs.

social problem(s) it wants to address and a strategy
of how to improve the situation through its invest-

The preferences and requirements of the fund’s

ments. Some VPO/SIs are pure grant-makers and do

investors will determine the fund’s term. Its ‘tools of

not seek a financial return whereas others act as social

the trade’ will also need to be defined, namely the

investors with different degrees of return expecta-

financial instruments that will be used. VPO/SIs can

tions. The investment strategy encompasses a possible

employ a wide range of instruments, including tradi-

sector and geographical focus, the preferred type(s)

tional financial instruments (grants, debts, equity) and

and development stage(s) of SPO (i.e. start-up/

hybrid financial instruments (e.g. convertible loans,

early-stage or more established organisations) and

mezzanine or quasi-equity and recoverable grants).

the financial instruments used. It also includes the

The sector is in continuous evolution, thus new hybrid

co-investment policy and key considerations around

financial instruments are constantly being developed.

the VPO/SI’s impact measurement and management

The choice of the instrument(s) to be deployed

system, the organisational support it will provide, and

will depend on both on elements of the investment

its exit strategy.

strategy of the VPO/SI and on the characteristics of
the SPO, such as its business model and stage of devel-

When choosing the geography and sector it wants to

opment2. Financial instruments that require repayment,

be active in, the VPO/SI needs to consider that having

such as loans or quasi-equity investments, are best

a narrow geographical and sectoral focus helps accu-

suited to income-generating SPOs. Following the

mulate specific knowledge through which the VPO/SI

three-step approach developed by EVPA in its report

can support the SPO more efficiently and generate and

“Financing for Social Impact”, when developing its

demonstrate more impact.

investment strategy, the VPO/SI will make a number
of decisions that will have an impact on the financial

VP is most appropriate as a source of finance and

instruments it will be able to deploy. The main factor

support to SPOs that are seeking a ‘step change’ in

that influences the VPO/SI’s choice of which financial

their operations. For small and medium-sized SPOs,

instrument to use is its risk/return/impact profile3.

2 For more detail on how VPO/SIs choose the financial instruments to deploy, and how they match them with the needs of the
investees see: Gianoncelli, A. and Boiardi, P. (2017), “Financing for Social Impact | The Key Role of Tailored Financing and Hybrid
Finance”, EVPA.
3 See Part 2, Chapter 1 (pages 24-29) in Gianoncelli, A. and Boiardi, P. (2017), “Financing for Social Impact | The Key Role of Tailored
Financing and Hybrid Finance”, EVPA.

Executive Summary

March 2018

The choice of financial instrument will also be influ-

with the SPO. The non-financial support offered aims

enced by the VPO/SI’s legal structure, its investors and

at strengthening the SPO’s social impact, financial

funders and the decisions taken in terms of its life cycle

sustainability and organisational resilience. The VP

(e.g. a foundation with limited duration will act differ-

approach puts particular emphasis on the topic of social

ently from an open-ended fund) and the duration of

impact and thus on impact measurement. Given the

commitment defined.

centrality of impact measurement and management,
when developing its investment strategy a VPO/SI

Co-investment should be seen as a key part of the

should take into account how it will measure social

investment strategy. It is an excellent way of gener-

performance during each step of the social impact

ating additional funds for SPOs and bringing varied

investment process. However, measuring social impact

expertise and a larger network. Moreover, it can offer

can be difficult, as it is often hard to quantify objec-

the VPO/SI itself an easier route to obtaining finance

tively. EVPA in its “A practical guide to measuring and

than direct fundraising and decrease risk across

managing impact” has devised a five-step framework to

investors. It can also help to communicate the VP

guide VPO/SIs in developing an impact measurement

approach to the broader funding community (e.g.

process5. We recommend a detailed reading of that

through co-investment with foundations or trusts). It

report to fully understand how to implement impact

is important to agree on roles, responsibilities and obli-

measurement. As part of the investment strategy, the

gations with co-investors at the outset, to avoid the

VPO/SI articulates its own Theory of Change, which

risk of misalignment of objectives among co-investors

will guide it in the selection of the SPOs to invest in,

(i.e. social impact and financial return objectives). The

and identifies and engages the key stakeholders, to

VPO/SI – which is most actively engaged with investee

guarantee they understand and support the VPO/SI’s

SPOs – will generally act as lead investor.

impact objectives.

As part of the investment strategy, the VPO/SI should

Lastly, the VPO/SI defines its exit strategy, i.e. the

consider the possible forms of Non-Financial Support

action plan to end the relationship with the investee

(NFS) to offer to the SPOs it finances. Following the

in such a way that the social impact is maintained or

five-step process envisaged by EVPA , the VPO/SI

amplified, or that the loss of social impact is minimised.

decides what type of NFS is core or non-core to its

As recommended by EVPA’s report “A practical guide

investment strategy, and who provides each type of

to planning and executing an impactful exit”6, the

support, based on a mapping of its assets. The VPO/SI

VPO/SI needs to consider which elements of its invest-

should provide the core support through its own staff

ment strategy will affect all its future exits, and how.

and can offer the non-core support through external
experts working pro bono, at reduced rates (low-bono)
or on a fully commercial basis. The purpose of any
organisational support should be agreed in advance

4 Boiardi, P., and Hehenberger, L., (2015), “A practical guide to adding value through non-financial support”, EVPA.
5 Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact – Second Edition”, EVPA.
6 Boiardi, P., and Hehenberger, L., (2014), “A practical guide to planning and executing an impactful exit”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

3. INVESTMENT PROCESS

The impact objectives of the VPO/SI guide it through
the deal screening phase, a knock-out screening step

For each investment, the VPO/SI goes through an

for all applicants who do not meet the standard applica-

investment process, as outlined below (see Figure 1).

tion criteria. During the deal screening, the VPO/SI will:

Through the investment process, the VPO/SI maximises

• Assess whether the investment opportunity fits with

its impact objectives, guaranteeing that its (scarce)

its own strategy and contributes to achieving its

resources are invested in the most impactful way.

own impact objectives;
• Perform a ‘light’ assessment of the needs of the

The investment appraisal is made up of three phases:

SPO, to see whether there is an initial match

deal screening, due diligence and investment selection,

between the non-financial support the VPO/SI can

and deal structuring.

offer and the non-financial support needed;
• Be guided by the key exit considerations, as derived

VPO/SIs tend to take a proactive approach to identi-

from its investment strategy.

fying potential investee SPOs. It can be more focused
and efficient than accepting open applications since

During the deal screening phase, the VPO/SI should

VPO/SIs target a very specific type of SPOs, and does

also assess whether the characteristics of the target

not impose the administrative burdens associated

SPO match with its own goals, as already defined

with the latter approach. Potential organisations can

during the development of the investment strategy.

be identified directly or via the VPO/SI’s own network

Concretely, the VPO/SI needs to make sure that its own

(e.g. existing portfolio SPOs, networking with interme-

social impact and financial return expectations are in

diaries and other funders or co-investors) or through

line with the financial needs of the specific SPO.

conferences or business plan competitions. Leveraging
the network of established investors and co-investors

During the due diligence phase the VPO/SI assesses

can be an excellent way of generating high-quality

in more detail whether there is an alignment between

deal flow. This is especially important at start-up, when

the VPO/SI’s and the SPO’s objectives, performs an

securing some early wins will be important (this may

in-depth needs’ assessment to assess whether the

also necessitate an initial focus on lower-risk invest-

SPO’s needs in terms of non-financial support match

ments). Generating good deal flow will also require

what the VPO/SI can offer. At the same time the

communicating the principles and benefits of VP to

VPO/SI needs to evaluate whether the financial needs

target SPOs, who may be unfamiliar with the concept.

of the SPO match the financial instruments the VPO/SI
can offer7 and already starts looking into how to plan
for the exit.

Figure 1: The investment process in the VP/SI space
(Source: EVPA)

Investment Process
Investment
Strategy

Deal
Screening

Due
Diligence

Deal
Structuring

Investment
Management

Exit

Evaluation &
Post-exit
Follow-up

Investment Appraisal
7 See Part 2, Chapter 3 (pages 39-48) in Gianoncelli, A. and Boiardi, P. (2017), “Financing for Social Impact | The Key Role of Tailored
Financing and Hybrid Finance”, EVPA.

Executive Summary

March 2018

An organisation that has passed the deal screening will

number of circumstances. The ‘right’ portfolio size will

generally build a business plan, as the ‘output’ to the

depend mainly on the size of the VPO/SI, the average

detailed screening step. Typically, this includes a review

size of a single investment and the level of non-financial

of the organisation’s market, its three- to five-year

support offered. When deciding on the portfolio size,

strategy and operational plan, its social impact targets

VPO/SIs should also consider the optimal portfolio size

and impact measurement system, a financial budget,

required to create a network of dialogue and collabo-

an outline of its governance and organisational struc-

ration between the SPOs, thereby creating an opportu-

tures and an assessment of its management and board

nity for incremental impact.

capability. Although the business plan should be seen
to be ‘owned’ by the SPO, a VPO/SI will often support

Various portfolio management options exist, including

its development, either directly or by providing third-

taking a board seat and arranging regular reports

party consultancy support.

and reviews. Where possible, the form, frequency and
purpose of engagement between VPO/SI and SPO

The investment proposal that emerges from the

should be agreed and documented in an investment

planning phase will consist of the business plan (or a

agreement.

presentation of the business plan) and an accompanying commentary that considers investment-related

During the investment management phase, the VPO/SI

issues, such as risk appraisal, stepped investment plans

monitors the achievement of its own social impact and

(to limit risk and to base future funding on perfor-

financial return goals. The VPO/SI delivers the non-

mance), level of engagement during the investment

financial support and monitors the achievement of the

phase and exit options.

goals set in the non-financial support plan, in terms
of social impact, financial sustainability and organisa-

When the investment decision is taken and the deal is

tional resilience. Finally, thanks to the monitoring of the

structured, the VPO/SI needs to decide with the SPO:

investment plan, the VPO/SI can assess if and when

• The non-financial support plan, including the SPO’s

exit readiness is achieved, and take corrective actions

objectives in terms of social impact, financial

in case of deviations from the original plan.

sustainability and organisational resilience (each
having a baseline, a goal, a milestone and a target

In cases where investments do not succeed initially, the

outcome), what services will be provided, by whom

VPO/SI should evaluate the reasons for failure and help

and when and the resources and responsibilities for

investees find solutions to problems where possible.

what concerns measurement;

Funds should avoid the temptation to simply throw

• The exit plan, which includes the goals of the VPO/SI

money at the problem. Often, an SPO in difficulty may

and SPO, the timing and mode of exit, the resources

require non-financial assistance, such as staff coaching

for the exit plan and the exit market scenarios.

and even moral support for its leadership team. The
most appropriate form of support will depend on the

In terms of funding, in the deal structuring phase the

specifics of a given situation.

VPO/SI structures the deployment of the financial
instrument(s) to be used.

The ultimate goal of portfolio management is to
maximise the VPO/SI’s overall social impact. Portfolio

Once the deal has been signed the investment manage-

SPOs will inevitably compete with each other for the

ment phase starts.

limited financial and non-financial resources that are
available. In managing this dynamic, the VPO/SI will

VPO/SIs typically have a small portfolio of investee

have to keep sight of its strategic goals. But by investing

SPOs, reflecting the high-engagement nature of

in complementary – rather than competing – SPOs,

the investments. However, VPO/SIs need to have a

VPO/SIs can at least create additional leverage and

minimum size of portfolio to guarantee a sufficient

impact by facilitating collaboration and knowledge-

spread of the risk and to demonstrate VP works in a

sharing among investees.

A Practical Guide to Venture Philanthropy and Social Impact Investment

At the time of exit, the VPO/SI determines how to

Once the exit is completed the VPO/SI can engage in

exit (mode of exit) and whom to exit to (follow-on

post-exit activities, which include:

investors), balancing the financial and social return. The
final goal of the exit is for the SPO to maintain its social

• Evaluation – The VPO/SI needs to perform an overall

impact nature; therefore, the VPO/SI will need to make

evaluation of the investment, which includes an

sure the follow-on funder’s strategy matches the needs

assessment of the value and impact of non-financial

of the SPO both in terms of financial and non-financial

support, an assessment of its own achievements

support offered. If the SPO is self-sustaining, the

in terms of social impact and financial return (if

VPO/SI does not need to find a follow-on funder, and

foreseen) and an assessment of the overall exit.

the investee can continue on its own.
• Post-exit activities – The VPO/SI can decide to keep
The mode of exit will vary based on the financial instru-

in touch with its investees after exit, by means of

ment used (grants versus other financial instruments),

networking events, offering additional non-financial

the context and the stage of development of the SPO.

support or by organising “Alumni” networks. All
these activities have as main objectives avoiding

In the unfortunate case in which the investee is not

mission drift and monitoring the impact achieved by

performing (and the VPO/SI does not see a future for

the SPO.

the investee), the VPO/SI can also decide to let go,
and the SPO may need to shut down its operations.
This shall not be considered as an exit but as a case of
failure, which the VPO/SI will need to analyse in detail
to distil the main lessons for its future investments.

March 2018

PART 1.
INTRODUCTION

CUIB © Mai Bine Association

A Practical Guide to Venture Philanthropy and Social Impact Investment

PART 1.
INTRODUCTION
1.1 PURPOSE OF THE DOCUMENT

seeking innovation and scale of impact by adopting a
long-term, strategic view of growth. VP is not suited

This report provides concrete guidance to organisations

to a significant portion of the social sector market, for

that are getting started in venture philanthropy and

example, community-oriented organisations working

social impact investment in Europe. It builds foremost

within relatively stable, unchanging environments.

on an earlier report called “Establishing a Venture

VPO/SIs are usually interested in implementing a

Philanthropy Organisation in Europe”8 that was first

change process such as geographic expansion or tran-

published in 2008, with a second edition in 2010 and

sition to an income-generating Social Purpose Organ-

a third edition in 2016. Therefore, it includes the expe-

isation (SPO), in order to achieve a strong societal

rience of some of the pioneer VPO/SIs that were set

impact16. The report also documents the cases where

up in the period 2000–2004, when the VP ‘movement’

there are clear differences in the VP approach between

first began in Europe. However, this new version also

grant-making and social impact investment – the latter

incorporates the key learnings from EVPA’s Knowledge

using a number of financial instruments allowing for a

Centre publications on the constituent practices of

positive financial return.

venture philanthropy, including tailored financing9,
impact measurement10, exit strategies11, non-financial

We also document further VPO/SI experience in the

support12 and the report on learning from failures13. This

spheres of managing/creating deal flow; pursuing

new version also takes into consideration the insights

follow-on funding beyond the start-up phase; devel-

from our reports on specific target groups such as

oping different vehicles (i.e. co-investing, specialist

foundations , as well as from EVPA’s industry surveys

funds, etc.) and the greater need for portfolio manage-

that capture data once every two years on the VPO/SIs

ment rather than just individual investee management

based in Europe. Specifically, for the four reports on

due to increased portfolio size.

tailored financing, impact measurement, exits and
non-financial support, the main recommendations have

Lastly, the financial crisis has produced material

been integrated as part of the investment strategy and

changes in the financial and economic climate. Impli-

investment process.

cations for VPO/SIs are reflected in the incremented
challenges of attracting start-up funding; the possible

The VP approach includes social impact investment

demands of new funders to the sector seeking financial

and grant-making best suited to support organisations

return; the shrinking levels of public sector funding that

8 Balbo, L., Hehenberger, L., Mortell, D., and Oostlander, P., (2010), “Establishing a Venture Philanthropy Organisation in Europe:
A Practical Guide”, EVPA.
9 Gianoncelli, A., and Boiardi, P. (2017), “Financing for Social Impact | The Key Role of Tailored Financing and Hybrid Finance”, EVPA.
10 Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact – Second Edition”, EVPA.
11 Boiardi, P., and Hehenberger, L., (2014), “A practical guide to planning and executing an impactful exit”, EVPA.
12 Boiardi, P., and Hehenberger, L., (2015), “A practical guide to adding value through non-financial support”, EVPA.
13 Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social impact investment”, EVPA.
14 Metz Cummings, A., and Hehenberger, L., (2010) “Strategies for Foundations: When, why and how to use Venture Philanthropy”, EVPA.
15 Boiardi, P., and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.
16 EVPA purposely uses the term “societal” because the impact may be social, environmental, medical or cultural. However, throughout
this report we refer to “social impact” to indicate the same concept.

Part 1. Introduction

March 2018

can form a part of both the VPO/SI’s funding base and

Part Four then looks at how the investment strategy

the income streams of the SPOs themselves and can

is implemented through the investment process,

affect the risk profile that VPO/SIs accept.

focusing on best practices (also derived from seven
years of EVPA’s Knowledge Centre research on VP’s

The learning and recommendations set out here reflect

best practices) pointing to the main issues that can

the experiences of VP practitioners. This document is

arise when making an investment.

not intended as an academic paper. Rather, it is best
considered as a milestone on a learning journey. We

Part Five concludes, highlighting the challenges for the

expect and hope that the content will date quickly, as

future of the VP sector.

the European venture philanthropy movement gains
scale and momentum, and surpasses the experience
documented here. Some of the views expressed here
are shared across VPO/SIs, others are not. Where views
diverge, we have tried to present several perspectives

1.2 ESSENCE AND ROLE OF VENTURE
PHILANTHROPY

and outline the circumstances in which they may apply.

Venture philanthropy (VP) provides a blend of funding

In this fourth edition of the report, we have tried to

and professional services to SPOs – helping them to

incorporate some of the comments we have received

expand their social impact. This is a high-engagement,

on the previous editions. We continue to welcome

partnership approach, analogous to the practices of

your views and perspectives to grow the body of

venture capital in building the commercial value of

practice recorded here. Please email your comments to

young companies. VP in its modern form developed

knowledge.centre@evpa.eu.com

originally in the US in the mid-1990s, took hold in the
UK from 2002 and has since expanded into conti-

We wish for this report to become a point of reference

nental Europe18.

for practitioners who are exploring the possibility to
enter the Venture Philanthropy/Social Investment

1.2.1 Definition of Venture Philanthropy

(VP/SI)17 space as well as a document used to introduce

VP is a high-engagement and long-term approach to

VP/SI to an increasing number of practitioners.

generating social impact through three core practices:

The document is structured as follows. Part One

• Tailored Financing: the process through which a

defines Venture Philanthropy and outlines how the VP

VPO/SI finds the most suitable financial instru-

approach came to being and evolved in Europe in the

ment(s) to support a social purpose organisation

past decade, highlighting the main difference between

(SPO) choosing from the range of financial instru-

grant financing and social impact investing.

ments available (grant, debt, equity, and hybrid
financial instruments).

Part Two then looks into the main issues to face when

• Organisational Support: the provision from VPO/SIs

setting up a VP/SI organisation, namely: the funding

of added-value support services to investees (SPOs)

model, the organisational structure and fundraising,

to strengthen the SPO’s organisational resilience

highlighting challenges and recommendations on how

and financial sustainability by developing skills or

to successfully set up and run a VPO/SI.

improving structures and processes.
• Impact Measurement and Management: the

Part Three focuses on the investment strategy, guiding

measurement and management of the process of

the VPO/SI in making choices on geography and sector

creating social impact in order to maximise and

of intervention, type of SPO supported, etc.

optimise it.

17
18

Throughout this report we use the term Social Investment (SI) also to refer to the concept of Social Impact Investment (SII) and
Impact Investing (II).
John, R., (2006), “Venture Philanthropy: the evolution of high engagement philanthropy in Europe”, Skoll Centre for Social
Entrepreneurship, Said Business School, University of Oxford.

A Practical Guide to Venture Philanthropy and Social Impact Investment

Figure 2: Key characteristics of Venture Philanthropy

Venture philanthropy works to build stronger investee

(Source: EVPA)

organisations by providing them with both financial
and non-financial support (including organisational
support and impact management) in order to increase

VP/SI space

their social impact. The venture philanthropy approach

Ta
il

the ultimate objective of achieving social impact. The
investee organisations may be charities, social enter-

a n c i ng

prises or socially driven commercial businesses, with
the precise organisational form subject to country-

specific legal and cultural norms.

o py

u
tio n al S

isa

O
Ph

financial instruments), and pays particular attention to

F in

Social
Impact
g

instruments (i.e. grants, equity, debt and hybrid

d
re

Impact Man
ag

includes the use of the entire spectrum of financial

nv
& S o cial I

t
es

The Venture Philanthropy organisation/Social Investor

(VPO/SI) acts as a vehicle, channelling funding from
investors and co-investors and providing non-financial support to various investee organisations. The
non-financial support is provided by the VP/SI organ-

Taking into account the three characteristics above, it

isation itself, but also by external organisations and

is possible to define the actors who are inside or who

individuals. The investee organisations in turn develop

are outside of the Venture Philanthropy tent in Europe.

multiple projects that may be focused on particular

Meeting these categories is the most relevant aspect to

sectors, such as healthcare, education, environment,

be considered a VP practitioner, even more important

culture, medical research. The ultimate beneficiaries

than the financial instruments used or the type of

are usually groups in the society that are somehow

organisations supported19.

disadvantaged, such as disabled, women, children.

Figure 3: The Venture Philanthropy model
(Source: EVPA)

Investors

Social return
(+ Financial return)

VP/SI organisation
(VPO/SI)
Financing

Co-investors
Non-ﬁnancial
support

Non-ﬁnancial support

Investee organisations
(social purpose organisations – SPOs)
NGO
1

NGO
2

NGO
n...

Social
enterprise
1

Social
enterprise
2

Social
enterprise
n...

Multiple social projects developed

Buckland, L., Hehenberger, L., and Hay, M., (2013), “The Growth of European Venture Philanthropy”, Stanford Social
Innovation Review

Part 1. Introduction

March 2018

The social impact ultimately needs to be measured

In the first phase22 of the European VP movement –

by assessing how the lives of the beneficiaries are

which can be dated between 2000 and 2004 – it was

improved thanks to the actions of the investee organ-

mainly business entrepreneurs and professionals from

isations, and, going one step further, assessing the

the private equity and venture capital world who set

contribution of the VPO/SI to that improvement. The

up the first venture philanthropy funds. An example is

VPO/SI generates social impact by building stronger

BonVenture, established in 2002 in Germany by Erwin

investee organisations that can better help their target

Stahl from the finance sector and funded by a few

beneficiaries and achieve greater efficiency and scale

wealthy German families, and Oltre Venture set up in

with their operations. Investors in VPO/SI are usually

Italy by Luciano Balbo in 2002.

focused on the social return of their investment, rather
It was only during the second phase between 2004

than on the financial return.

and 2008 that venture philanthropy began attracting
1.2.2 Origins and European expansion

the attention of the existing European charitable foun-

The term ‘venture philanthropy’ can be traced back as

dations, such as the King Baudouin Foundation, in

far as the 1960s in the US, but it was only during the

search for new ways to better assist the social sector.

1990s that the term gained popularity and stimulated a

Since then, foundations have been increasingly inter-

debate on new forms of highly engaged grant-making

ested in the VP approach as an additional tool in their

by foundations. An influential Harvard Business Review

philanthropy toolbox. Some foundations started using

challenged

selected parts of the VP approach in their everyday

foundations to employ tools from venture capital to

activities, others set up dedicated VPO/SIs within the

invest in the organisational, rather than the program-

foundation, and some foundations started using VP as

matic, needs of social purpose organisations. Porter

an alternative strategy calling for a complete turna-

paper by Letts, Ryan and Grossman

and Kramer subsequently challenged foundations to

round. Co-investment between a VPO/SI and a founda-

create greater value and to act as more than a passive

tion also emerged as an interesting strategy enabling

conduit for transferring finance from private sources to

each party to contribute its own expertise. Founda-

grantees. At the same time, existing foundations were

tions often have extensive experience of working in

considering how to change some of their practices in

particular social sectors that can prove invaluable to a

order to better assist the social sector and how to align

VPO/SI that is more focused on developing processes

their investments with their social mission. In the UK,

and building strong organisations23.

considerable interest in innovations in social impact
investment, including high-engagement models, began

In the third phase between 2008 and 2012, European

to develop in 2001. While there were several historical

venture philanthropists developed hybrid practices

examples of VP-like activity, it was not until 2002 that

that were a bricolage of existing practices in the finance

the UK’s first VPO/SI, Impetus Trust, was launched. In

industry and the non-profit sector moving philanthropy

continental Europe, there has been a slow, but steady

into an age where sector boundaries are blurring.

arousal of interest in social impact investment and
high-engagement models of philanthropy, but only

More recently, what had been called social investment

in the mid-2000s did new organisations or models

that started in the UK became rebranded as social

emerge and the VP ‘movement’ actually began.

impact investment, and gained momentum with the
work of the Taskforce on Social Impact Investment

20 Letts, C., Ryan, W., and Grossman, A., (1997), “Virtuous Capital: What Foundations Can Learn from Venture Capitalists”, Harvard
Business Review.
21 Porter, M.E., and Kramer, M.R., (1999), “Philanthropy’s New Agenda: Creating Value”, Harvard Business Review.
22 Buckland, L., Hehenberger, L., and Hay, M., (2013), “The Growth of European Venture Philanthropy”, Stanford Social
Innovation Review.
23 Metz Cummings, A., and Hehenberger, L., (2010), “Strategies for Foundations: When, why and how to use Venture
Philanthropy”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

established by the G8 under the UK presidency,
involving both sector representatives and government

VP/SI INDUSTRY BY THE NUMBERS:

officials. The Taskforce released its reports in September

FROM THE EVPA SURVEY 2015/201626

2014 with highly relevant policy recommendations to
build a stronger social impact investment market24.

Support for social purpose organisations through the

In this phase, governments and large corporations

VP/SI method continues to increase with, in fiscal year

also began to experiment with venture philanthropy

2015, over €6.5 billion invested since inception and

practices, adding two important sectors to the mix of

average financial support per VPO/SI remaining stable

actors. EVPA published a report on VP strategies for

compared to fiscal year 2013 at €7.8 million.

corporates in May 2015. The report shows the immense
potential for social change there is in a strong collaboration between VPO/SIs and corporations where VPO/

Although there is no strong philanthropic tradition

SIs bring their experience, knowledge, skills and risk-

in Central and Eastern European countries, VP is

taking social impact investment approach to the table,

becoming more and more important in nurturing

while corporates bring significant resources, solid

and financing the growth of the non-profit sector. In

structures and scaling opportunities. This collabora-

2011, the Busan Partnership for Effective Develop-

tion is already happening with very positive results, but

ment Cooperation specifically identified philanthropic

much more can be done25.

organisations as potential significant partners in the
development process28. These emerging economies

Today, VP is a growing force in Europe. The amount

have faced significant challenges in rebuilding a market

of money invested is increasing as is the number of

economy and a social sector simultaneously, leading to

funds and organisations devoted to this approach in

widespread, unaddressed social needs. VP may have a

different regions of Europe (see Box “VP/SI industry by

particularly valuable role in helping to build stronger

the numbers”).

civil society institutions (see NESsT’s case study p. 19).

THE STATE OF VENTURE PHILANTHROPY
AND SOCIAL INVESTMENT IN EUROPE |

Figure 4: Respondents by country
(n=108)

THE EVPA SURVEY 2015/201627
For the 2015/2016 Survey, the top three respondent
countries VPO/SIs that responded to the Survey were
based in the United Kingdom (17%), the Netherlands
(13%) and Germany (10%). However, the sample was
quite representative of the geographical spread of
VP/SI activities in Europe. The total number of countries
represented increased from 18 to 21, and included seven
respondents from Central Eastern Europe, with Bosnia,
Bulgaria, Croatia and Poland being represented for the
first time.

24
25
26
27
28

For more info: http://www.socialimpactinvestment.org/
Varga, E., (2015), “Corporate social impact strategies – new path for collaborative growth”, EVPA.
Boiardi, P., and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.
ibid.
OECD netFWD, (2014), “Venture Philanthropy in Development: Dynamics, Challenges and Lessons in the Search for Greater Impact”,
OECD Development Centre.

Part 1. Introduction

March 2018

CASE STUDY:

entrepreneurs, developed more than 120 social enter-

NESsT

prises, invested more than $8 million, and wound down

24 of its investments. Because it operates in such chalAn example of this valiant effort is NESsT, one of the

lenging emerging markets, NESsT has developed quite

pioneers of venture philanthropy in Eastern Europe.

differently from venture philanthropy organisations

NESsT was established in 1997 as an international

in more mature countries, such as the UK’s Impetus.

non-profit organisation that develops sustainable

NESsT focuses on earlier stage organisations, often

social enterprises to solve critical social problems

having to set up social enterprises to solve specific

in emerging market economies. In fifteen years, it

social problems rather than, as Impetus does, helping

has trained more than 3,900 social enterprises and

existing social enterprises scale up.

Its vibrant diversity and presence in so many different

1.2.3 Motivation for Venture Philanthropy

countries is perhaps the most outstanding trait of

Venture philanthropy organisations usually position

European venture philanthropy nowadays. The danger

themselves as complementary to other forms of

with such a multiplicity of approaches is that it could

funding available to SPOs. However, they do view the

lead to fragmented initiatives with little collective

VP model as particularly appropriate for organisations

impact. But the advantages of diversity outweigh the

undergoing rapid growth and development. VPO/SIs

risks, as diversity is more likely to drive innovation.

recognise that many SPOs lack the internal capacity,
particularly the appropriate business skills and growth

Ever since the European Venture Philanthropy Asso-

capital, to grow significantly the scale of their social

ciation (EVPA) was set up in 2004, it has been the

missions, reach new markets or be competitive when

primary vehicle for encouraging the development

bidding for government contracts. The ‘capital market’

of the VP model throughout Europe and has worked

for social innovation is not as efficient or diverse as it is

to bring together this ‘broad church’ of actors from

for developing fully commercial enterprises.

diverse sectors with a common objective: to enable
social purpose organisations to generate greater

VP brings diversity in funding innovative solutions to

and more sustainable social impact. EVPA’s role as a

societal challenges and so helps to make the capital

network promoting and shaping venture philanthropy

market more efficient, especially for rapidly growing

and social impact investment in Europe was recog-

and developing organisations.

nised by a four-year Partnership Agreement signed
with the European Commission in January 2014, under

Venture philanthropy is best described not as a

the financial Programme for Employment and Social

blueprint, but rather as a movement that is evolving a

Innovation (EaSI).

set of practices. However, EVPA has decided to issue
these guidelines in order to encourage the profes-

Currently, the association has over 220 members all

sionalisation and standardisation of the industry. The

over Europe30, mainly based in Europe, but also outside

objective of the guidelines is to manage expectations

Europe, showing that the sector is rapidly evolving

as to the behaviour of VPO/SIs.

across borders. In 2011 a sister network of EVPA, the
Asian Venture Philanthropy Network (AVPN), has been

VP is still an emerging player in the social sector, with

established replicating the EVPA model in the Asia

the fundamental challenge of offering new solutions to

Pacific region.

the promotion and encouragement of entrepreneurship and innovation.

29 Buckland, L., Hehenberger, L., and Hay, M., (2013), “The Growth of European Venture Philanthropy”, Stanford Social Innovation Review.
30 As of December 2017. To have an overview of our current membership, see here: https://evpa.eu.com/membership/our-members.

A Practical Guide to Venture Philanthropy and Social Impact Investment

In order to achieve this, the industry must address a

social purpose organisation: an Impact Only strategy.

number of ‘enabling’ issues, namely:

Social impact investment refers to funding that aims to
generate a combination of financial and social return.

• Communicating and marketing what it does within

To differentiate from more passive socially responsible

the social sector (to multiple audiences, including

investments, social impact investments must have a

SPOs, statutory agencies, other types of social

deliberate impact seeking strategy, aiming to generate

sector funders);

measurable social impact.

• Developing a range of financial instruments
(including hybrid financial instruments) and

The division between the two approaches is not as

advisory services that meet the needs of SPOs;

clear-cut as it may appear in this schematic overview.

• Measuring the performance and social impact

There is a spectrum of increasingly sophisticated

of SPOs (and ultimately the performance of the

financial instruments included in social impact invest-

VPO/SI);

ment (see section 3.3).

• Collaborating with and learning from complementary capital providers such as foundations, private

Throughout this document, we will highlight when

equity and venture capital firms, financial insti-

the practices related to establishing a VPO/SI diverge

tutions, corporations and public funders – and to

when using ‘grant-making’ as opposed to ‘social impact

attract additional resources to the sector;

investment’ as a main approach. We have identified the

• Building bridges with policy makers to create
an enabling environment for VPO/SIs and their

following as areas of VP practice where approaches
diverge:

investees.
• Considering the funding models that will be applied

1.3 GRANT-MAKING VS SOCIAL
INVESTMENT – MAIN APPROACHES
OF VP
Venture philanthropy includes both grant-making and

• Types of financial instruments (section 3.3)
• Exit (section 3.6 and 4.6)
In all other sections of this document, we assume
that VP practices are largely the same for both grantmaking and social impact investment.

social impact investment. By grant-making, we refer
to the provision of non-repayable donations to the

KEY ISSUES
AND LEARNINGS

• VP takes its cue from the private sector investment industry in terms of helping to create a more
efficient capital market in the social sector. One of

• VP includes grant-making and social impact invest-

the ways in which this is done is by offering a range

ment that seeks to complement other

of financial instruments that can be used in different

social sector funding sources by implementing:

situations.

-- A broader spectrum of eligible SPOs from

• Like its for-profit sector equivalents such as venture

non-profit service providers to profit-distributing

capital (VC), VP places an emphasis on impact

socially driven businesses;

measurement and management of investee SPOs

-- A high-engagement partnership approach that

as well as of the VPO/SI’s overall portfolio. VPO/SIs

seeks to provide added value and capacity

focus on backing the whole organisation, rather than

building support in addition to financial support;

simply funding projects, much as venture capitalists

-- A longer term investment time horizon than other
sources of social capital.

do with their investees.

March 2018

21
21

PART 2.
KEY ISSUES FOR THE
VENTURE PHILANTHROPY
ORGANISATIONS/SOCIAL
INVESTORS (VPO/SIs)
Centro Medico Santagostino © Oltre Venture

A Practical Guide to Venture Philanthropy and Social Impact Investment

PART 2.
KEY ISSUES FOR VENTURE
PHILANTHROPY ORGANISATIONS/
SOCIAL INVESTORS (VPO/SIs)
This section addresses the following major VP-specific

titles. Grant-making can usually be done from organ-

issues that a VPO/SI should consider when setting up

isations with a charitable status. However, other types

the VPO/SI:

of funding in various countries could conflict with

• VPO/SI’s funding model

a charitable status despite the fact that the primary

• The VPO/SI’s organisational structure, including:

goal for those financial instruments, when applied by

-- The founder(s)

the VPO/SI, is social as well. The choice of the financial

-- The CEO and management team

instrument(s) made will in many cases impact the legal

-- The board

and tax structure of the VPO/SI, and it is recommended

• The fundraising strategy

to seek specialist advice before incorporation.

• The investment strategy
In general, when the primary activity of the VPO/SI is
to provide grants to SPOs, ‘grant financing’, it tends to

2.1 VPO/SI’S FUNDING MODEL

be set up as a foundation. If the VPO/SI mainly invests
in social enterprises, ‘social impact investment’ (using

Before structuring the VPO/SI, consideration should be

a spectrum of financial instruments, the primary goal

given to the type of funding models that will be applied.

being to generate social return), it is usually set up as

The VP toolkit contains tailored financing as one of

a fund (or fund like).

its key characteristics, and various types of financial
instruments are available for funding, ranging from

Funds can be limited in time or evergreen, meaning

grants to social investment (see section 3.3). The main

that they do not have a limited life. Some VPO/SIs have

question to be answered is whether the VPO/SI will act

mixed structures that include both funds and founda-

as a social impact investor or focus on grant-making

tions. Examples of mixed structures include Noaber

of target SPOs. In many European countries, tax and

Foundation in the Netherlands and BonVenture in

legal regulations distinguish between grant-making

Germany. In this document, we refer to both funds and

and financial instruments that establish ownership

foundations as VPO/SIs.

Figure 5: Grant-making vs Social
Investment
(Source: EVPA)

Grant-making

Social Investment

VPO: Foundation

VPO/SI: Fund

Grants
Non-financial
support

Social return

Social purpose
organisation

Equity, loans, etc.
Non-financial
support

Social return
Financial return recycled
or below/at market rates

Social purpose
organisation
External Focus

Part 2. Key Issues for Venture Philanthropy Organisations/Social Investors (VPO/SIs)

March 2018

THE STATE OF VENTURE PHILANTHROPY

instruments”, which means that VPO/SIs are not using

AND SOCIAL INVESTMENT IN EUROPE |

only the standard categories of financial instruments.

THE EVPA SURVEY 2015/201631
The majority (72%) of the European VPO/SIs are strucGrant-making is a key practice in European VP/SI, with

tured as non-profits such as foundations (either inde-

grants remaining the primary financial instrument in

pendent, 38% or linked to a corporation, 8%), charities

terms of € spend. However, recently, more VPO/SIs are

(16%) or companies with a charitable status (10%).

using financial instruments other than grants, with about

For-profit forms are companies (19%) and funds (7%),

10% of the total VP/SI spend allocated through “other

with a 2% of other forms.

Figure 6: Financial instruments used by VPO/SIs by € spend
in fiscal year 2016
(n=97)

Figure 7: Organisational structure of VPO/SIs

Hybrid instruments 1
Equity and quasi
equity instruments

(n=108)
Fund
management
company
Other

Other

Corporate
foundation

10
16

Grant instruments

Company with charitable
status or not-for-proﬁt
company

8
10
16

Registered charity
or not-for-proﬁt
organisation

Debt instruments

Independent
foundation

19
Company

2.2 THE VPO/SI’S ORGANISATIONAL
STRUCTURE

private banks and other larger institutions. In those

The composition and capabilities of the VPO/SI’s

VPO/SIs always need one or a few champions that

founder, management team and board – and their

promote the concept of VP within the funding institu-

mutual interaction – are all critical to the success of the

tion and that lead the VPO/SI during the start-up phase.

cases, funding often comes from the institution backing
the set-up of the VPO/SI. However, whichever the origin,

VPO/SI. This section discusses each in turn.
Founders typically come from one of the following
2.2.1 The founder(s)

backgrounds:

Many of the pioneer VPO/SIs are characterised by the

• ‘Second career’ start-up entrepreneur who can

presence of a founder, the organisation’s main visionary

usually put in at least some capital, e.g. Noaber

and often a cornerstone investor. The founder often
provides a significant financial contribution to the

Foundation.
• Founder(s) from the private sector with a vision

VPO/SI and often needs to finance start-up costs that

and some capital (such founders will tend to recruit

cannot easily be charged to the other investors. More

a high-calibre CEO from the social sector as soon

recently, VPO/SIs have emerged that were originated

as possible), e.g. Oltre Venture Capital or Impetus

by established foundations, corporations, family offices,

Trust32.

31
32

Boiardi, P., and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.
Impetus Trust is now called Impetus − The Private Equity Foundation (Impetus-PEF) after the merger between Impetus Trust and
the Private Equity Foundation in 2013.

A Practical Guide to Venture Philanthropy and Social Impact Investment

2.2.2 The CEO and management team

• ‘Founder CEO’ with vision, who recruits a young
team to be trained in the skills required to execute

The CEO of a newly created VPO/SI may be a founder

the vision. These founders usually bring their skills

or an individual recruited at an early stage by the

and experience to the table rather than capital,

founder(s). The CEO, the management team and the

and so fundraising is a critical need from the start –

board must share between them a blend of skills and

securing an early sponsor in these cases is ideal to

knowledge that can meet a very diverse set of demands.

build credibility quickly, e.g. CAF Venturesome.
• ‘Co-founding’, i.e. one person from the social

The composition of the management team is obviously

sector (perhaps a social entrepreneur) and another

important, although it would be dangerous in a general

from the private sector (e.g. investment, strategy

discussion such as this one to be overly prescrip-

consulting), e.g. One Foundation.

tive. Professionalism is a necessary but not sufficient

• Government-funded, independently managed VP/

condition. Ideally, recruits should also ‘share the vision’ –

SI-type funds, e.g. UnLtd’s endowment comes from

i.e. be motivated by the social objectives of the VPO/SI.

the Millenium Commission, and Inspiring Scotland.

Flexibility, an ability to work outside one’s comfort zone,

• Founder within an established grant-making organ-

the possession of strong analytical skills and excellent

isation, either setting up a new division or spon-

people skills are all important attributes. They are often

soring a spin-out funding organisation, e.g. King

displayed by people who have worked across cultures

Baudouin Foundation and Fondazione CRT.

and sectors or by individuals who have taken risky or

• Several foundations set up by corporations,

unusual life or career decisions.

including the BMW Foundation and the Shell Foundation, have been moving into Venture Philanthropy.

A successful management team will be able to wear
two hats simultaneously during its work with SPOs. Its

VP/SI INDUSTRY BY THE NUMBERS:

members should understand the specific social issues

FROM THE EVPA SURVEY 2011/201233

and needs that the SPO addresses and the latter’s
strategy for doing so. They should also maintain an

Figure 8: Professional background
of founders of VPO/SIs
Number in % (n=59)

‘investor perspective’ that considers both the SPO’s
performance and its alignment with the VPO/SI’s objectives and with the rest of its portfolio.

Social Mission Driven

5
Founders

Financial Industry
Private Sector

Different VPO/SIs have taken different approaches
to achieving the balance between the social sector’s

Public/Government

perspective and the ‘investor’s’ perspective (see box

According to the 2011/2012 EVPA Industry Survey,

below).

the founders of VPO/SIs mainly come from the social
mission-driven

sector

(including

foundations

and

other non-profit organisations, development organi-

HOW TO HIRE TO BALANCE SOCIAL AND
FINANCIAL FOCUS

sations and social entrepreneurs). The financial sector
(including private equity and venture capital, retail and

• Hire both skill-sets into the managment team, i.e. hire

investment banking, asset management and hedge

a very diverse team and work hard to ensure they

funds) has moved to second place (32%). The private

learn from one another – build a learning culture.

sector in general (including publicly traded companies,

• Hire a team with backgrounds that complement

professional services and entrepreneurs) is also an
important source of VPO/SI founders (27%).

those of the founder(s).
• Hire a team with investment backgrounds and
challenge them to develop deep knowledge of the

Hehenberger, L., and Harling, A-M., (2013), “European
Venture Philanthropy and Social Investment 2011/2012 – The
EVPA Survey”, EVPA.

field at a rapid pace (you may need to develop ways
of measuring whether they have succeeded).

Part 2. Key Issues for Venture Philanthropy Organisations/Social Investors (VPO/SIs)

March 2018

Our collective wisdom tells us that a small team,

A deep knowledge of the social sector becomes critical

typically one to four people, is the right number to

quickly but is not absolutely essential at the start-up

start with. The profile could focus on people who are

stage. People with investment backgrounds must have

patient enough to understand how the social sector

the flexibility and – importantly – the humility to gain

works, but who may not necessarily be from the social

a deep understanding of the key issues for the VPO/

sector34. In general, there is a need for a mix between

SI to function effectively and maintain credibility with

social and private sector backgrounds. Finding people

social sector partners. Thus, the team’s characteristics

who are open-minded and willing to learn new skills

need to be aligned with the investee companies, so if

and new perspectives from others is essential.

the VPO/SI has a large majority of social enterprises in
its portfolio the background of the team shall reflect

The CEO must be able to sell the vision to the prospec-

it. Finding board members or advisors from the social

tive management team. Having a compelling vision

sector can enable this transition.

and being able to articulate it clearly and concisely are
important. Recently, business students are showing an

The solid understanding of the social market required

increasing interest in careers that integrate social and

includes:

business such as social entrepreneurship, social impact
investment and venture philanthropy.
ELEMENTS PROVING A SOLID UNDERSTANDING OF THE SOCIAL MARKET

It may be hard to attract the ideal candidate at the
start. If it is necessary to compromise, calibre and
energy are preferable to directly relevant experience.

• A clearly defined and comprehensive understanding

It may be necessary to upgrade a particular post

of the social issues or needs that the VPO/ SI seeks

when the hire has demonstrated success. To date,

to address and the actors operating in this sector

management teams have often been sourced through

that could be targets for learning or co-investment.

networks. Professional searches and advertising can
play a part, although the novelty of VP can make the
latter a difficult proposition.

• An appreciation of the extent and type of funding
supply from both the non-profit and the public
sectors.
• A clear grasp of the legal and regulatory environ-

Most successful VPO/SIs in Europe have started with

ment.

high-calibre teams that have significant experience –
either held by the founders or gained through recruiting.
According to practitioners interviewed in EVPA’s report

Working in this sector brings VPO/SI staff often

“Learning from failures in Venture Philanthropy and

coming from a commercial background into close

Social Investment”35 team members must have basic

proximity with SPO staff with non-profit experience.

financial skills – it is better to hire staff with a strong

The VPO/SI will need to pay close attention to under-

business or financial background (including business

standing the aspirations, perspectives and language

planning and financial skills) who can then learn about

of its SPO partners, and will need to invest time in

how to apply their skills to the social sector. The team

communicating its own goals and analytical processes

overall needs to comprise a number of different experi-

clearly. Openness, curiosity, patience, and humility are

ences (from both the private and the non-profit sector)

valuable traits on this path.

as each background brings something that contributes
to the overall ‘roundness’ of the team.
34 We found that if the fund is focused around revenue-generating social enterprise investments, an investment perspective is critical,
and this is typically not found among people from the social sector. However, people from social sector backgrounds are more
critical among small teams investing in social-service or advocacy-type organisations, where earned revenue streams are not
typically in place.
35 Hehenberger, L. and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

Remuneration is another key issue to resolve when

common to provide non-financial incentives to offset

setting up the management team. We have already iden-

this differential (e.g. extra leave, flexible working hours).

tified the need for high-calibre staff and the relatively
low level of awareness of VP as a career path. In an ideal

The social impact investment funds are often run with

world, therefore, a VPO/SI should offer private sector

similar remuneration schemes as in venture capital

remuneration packages to its team. However, financial

and private equity, i.e. with the management team

constraints often mean this is not possible. Further-

paid a management fee and an upside in the form

more, it is well understood that the ‘social return’ that

of a carried interest. Considering the relatively small

staff gets from working in the area of philanthropy does

size of the social impact investment funds and the

justify some level of discount from equivalent private

high-engagement

sector remuneration. In practice, therefore, VPO/SIs will

time investment in each investee, the financials are

often set their pay scales somewhere between equiva-

sometimes difficult to combine with salary levels in the

lent scales in the social sector and private sector. It is

private sector.

approach,

requiring

substantial

THE STATE OF VENTURE PHILANTHROPY

Of the 24 VPO/SIs that provided evidence of their

AND SOCIAL INVESTMENT IN EUROPE |

management fees in the EVPA Survey, we see a wide

THE EVPA SURVEY 2015/201636

range of fee levels. However, in general these management fees are not significantly higher than those seen

The EVPA research into the size of these social invest-

in the venture capital or private equity world. The

ment funds yielded an average size of €13.6 million

average management fee charged in fiscal year 2015

for fiscal year 2015, comparable to the average size in

was 3.05%, 15% less than in fiscal year 2013 (when it

fiscal year 2013 (€13.8 million). The median for fiscal

reached 3.61%), while the median was 3.00% as in fiscal

year 2015 was €10 million, a 33% increase compared

year 2013.

to fiscal year 2013. This result suggests that although
there are a few larger funds and the majority are much
smaller, there is a tendency towards convergence in
fund size.
Figure 9: Average and median size of social investment
funds in fiscal year 2015
(n=32 representing 43 funds)

€13.6 m €10 m
Average

Median

Figure 10: Average and median management fees (for
those SI funds that charge fees) in fiscal year 2015
(n=24 representing 31 funds)

3.05%

Average

Median

36 Boiardi, P., and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA

Part 2. Key Issues for Venture Philanthropy Organisations/Social Investors (VPO/SIs)

March 2018

More recently, social impact investment fund managers

Some of the drivers for establishing the board’s role,

are trying to raise larger funds, making it possible to pay

focus and composition during the start-up phase

appropriate salaries to the management (while making

include:

more investments). According to Erwin Stahl at BonVenture, bigger funds are more efficient because there are

DRIVERS FOR ESTABLISHING THE BOARD’S

economies of scale linked to the management fee. As

ROLE FOCUS AND COMPOSITION DURING

he explains: “For example, with a €4m fund, you need

THE START-UP PHASE

a 4% management fee to pay fixed costs of €200,000
per year. With a €20m fund and a 2.5% management
fee, you have a budget of €500,000 per year which
allows you to pay people a decent salary”

• The need to grow the VPO/SI’s network (on both
the fundraising and the investment sides).
• Public relations and building the VPO/SI’s profile.
• Fundraising.

Another point of discussion is the carried interest, i.e.
a share of the profits of an investment or investment

• Providing skills, expertise and knowledge to the
management team.

fund that is paid to the investment manager in excess of
the amount that the manager contributes to the part-

The level of engagement of the board is likely to be

nership, in essence a performance fee rewarding the

high – possibly even ‘hands on’ – during the start-up

general partners for having increased the value of the

phase. Board members should be selected if they can

investments . In social impact investment, a current

provide the necessary time and if they are personally

debate relates to the use (or not) of carried interest, and

committed to the success of the organisation. Donor/

the need to link it to social impact achievement.

investor representatives on the VPO/SI board are likely

to represent the VPO/SI externally, including through
The introduction of carried interest in social impact

fundraising activities and marketing, whereas board

investment has been promoted at European level

members that are hired to bring specific skills and expe-

through the Social Impact Accelerator (SIA), an initia-

rience to the table will be the ones that tend to engage

tive of the European Investment Fund39. SIA operates

with the management team of the SPOs directly.

as a fund-of-funds, investing in social impact funds
and requiring them to adopt such approach. The funds

During the start-up phase, when the VPO/SI as a whole

in SIA’s portfolio distribute carried interest to the

is in learning mode with respect to investment deci-

management team based on the social impact.

sion-making, the board is likely to act as the investment committee for final investment approval.

2.2.3 The board and governance structure
The role of the board should be determined early on –

As an example, at the beginning of its activities Social

ideally by the founder(s) and any early board members.

Innovation Fund Ireland, did not have an investment

It should be noted that the board’s role will evolve as

committee and all the grant decisions were taken by

the VPO/SI moves from the start-up phase to a more

the full board of six members.40 Later, boards may feel

‘steady state’. At start-up, the role and composition of

that adequate decision-making processes have been

the board will be heavily influenced by the needs of the

established to allow the investment committee to take

organisation and the management team. In the longer

charge in the investment decision process.

term, boards will take on the kind of traditional governance and oversight roles seen in mature companies or

The question of how to involve investors (or donors)

organisations.

in the decision-making process, calls for a separate
analysis.

37
38
39
40

Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.
Source: https://en.wikipedia.org/wiki/Carried_interest
For more info: http://www.eif.org/what_we_do/equity/sia/index.htm
Deirdre Mortell, Social Innovation Fund Ireland, email, October 2015.

A Practical Guide to Venture Philanthropy and Social Impact Investment

In practice, for European VPO/SIs, there are three

no direct involvement with Phitrust, and two who

models of how to involve investors in investment

represent institutional investors in the fund46.

decisions through the investment committee:
As the board is often involved in the decision process
• Management-driven model: In some cases, the board

at VPO/SIs, there is a need for a governance structure

adopts a pure VC model, with the fund manage-

that includes a balanced mix of experiences from both

ment team (general partners) making the invest-

the private and social sector. The EVPA publication

ment decisions independently from the board; this

“Learning from failures in Venture Philanthropy and

is the approach of Oltre Venture and Bridges Fund

Social Investment”47 points out that, although diversity

Management. Bridges Fund Management has an

can bring challenges, having a rich mix of perspectives

investment committee for each investment team

prevents VPO/SIs from making mistakes. Members of

(Growth Funds, Social Sector Funds and Property

the board must be chosen based on their collaborative

Funds) made up of Partners and, in some cases, one

mind-set, patience and capability to respect people

or more external members. These convene for any

with different backgrounds, but most of all for their

investment decision, additional allocation of funds

entrepreneurial approach.

and regular portfolio reviews. Additionally, Bridges
has a board (made up of Partners and Non-Executive

Experience also tells us that the board size should be

members) and an advisory board made up of purely

kept small, typically three to five members. In cases

external members .

where a VPO/SI needs a larger board (e.g. if several

• Mixed model: In other cases, the VPO/SI chooses to

board seats are requested by the VPO/SI’s investors),

adopt a mixed model with investors being involved

then it is recommended that the board’s active

in the investment committee at different levels. For

engagement activities are assigned to a smaller sub-

instance, the investment committee at the One Foun-

committee, which can meet frequently (e.g. monthly).

dation was a subset of the advisory board43 while
two of the six members of the investment committee

Inevitably, once the VPO/SI is up and running, differ-

of SI2 fund are also its largest investors44. For

ences will emerge between the board and the

BonVenture’s third fund, there will be an independent

executive management team over various aspects of

investment committee consisting of three investors,

the VPO/SI’s operations or investee SPOs, due to the

one independent and two from the management

deeper knowledge gained by the management team

team. The fund will be run using a partner model

as they bed into their roles. The CEO, as the interface

where management team members will have shares

between the board and the management team, will

of the management company and have a say on the

play an important role in maintaining strong commu-

strategy .

nications between the two groups and ensuring that

• Investor-driven model: Yet another model is that

their perspectives and expectations remain aligned.

of Phitrust Partenaires where the investment

Fondazione CRT has offered each board member a

committee is made up of investors in the fund that

management role on the investment vehicles of its

have expressed an interest in taking an active role in

philanthropic investment fund. Phitrust also has the

the investment. At Phitrust, a separate supervisory

additional aspect that investment committee members

board is composed of five people, including Olivier

take active roles, if they choose to, in the board of

de Guerre (as President), and is composed of two

strategy committee of the investees in our portfolio,

individuals interested in the sector but who have

co-jointly with someone from the Phitrust team.

41
42
43
44
45
46
47

Luciano Balbo, Oltre Venture, email, October 2015.
Emilie Goodall, Bridges Fund Management, email, October 2015, and http://www.bridgesfundmanagement.com/our-team/
Deirdre Mortell, Social Innovation Fund Ireland, email, October 2015.
Pieter Oostlander, SI2 fund, email, October 2015.
Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.
Chloé Tuot, PhiTrust, email, October 2015, and http://www.phitrustactiveinvestors.com/data//Rapport_annuel_2014_version_finale.pdf
Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.

Part 2. Key Issues for Venture Philanthropy Organisations/Social Investors (VPO/SIs)

2.3 FUNDRAISING

March 2018

In the social sector, the providers of capital are driven
by a combination of heart and head. They will be

The nature of the founder (see section 2.2.1) affects

motivated to support you by heart (the vision you

the type of fundraising necessary. Some individual

create of the social good to be achieved) but also

founders and institutions have been able to fully fund

strongly influenced by the head – the plausibility of

the VPO/SI without external fundraising, others engage

your plan and whether you are likely to achieve the

in formal fundraising from third parties and some use a

agreed objectives.

combination of both. When the VPO/SI is closely linked
to a larger institution, funding is often provided on a

This

continuous basis by budgeting a certain amount to the

methodology for obtaining capital for a VPO/SI at

VPO/SI each year.

different stages of its development

However, in many cases, the VPO/SI needs to engage

2.3.1 Start-up

in fundraising in order to operate and have money to

Raising the initial capital is clearly difficult, since the

invest. The recent financial crisis has made fundraising a

idea of giving philanthropic capital to an intermediary

greater challenge than ever before.

(one of the cornerstones of venture philanthropy) is

section

will

discuss

both

the

sources

and

new to many. It helps if the founder or founders can
Raising capital successfully from third parties requires:

commit some of their own resources, to cover both
capital needs and the operating costs. This not only
helps financially, but also demonstrates their commit-

REQUIREMENTS FOR SUCCESSFULLY

ment to the project.

RAISING CAPITAL
The type of funds raised may influence the type of
• A clear vision of what you intend to achieve with
the capital

financial instruments that the VPO/SI can ultimately
offer (your investors will have their own preferences).

• A clear structure and investment strategy.

This could mean that some potential investors may be

• Credibility and ability to deliver the vision.

more or less attractive targets, depending on the vision
underlying the organisation. In the EVPA publication
“Learning from failures in Venture Philanthropy and

VP has substantial potential, and has emerged from

Social Investment”48 Olivier de Guerre from Phitrust

a movement to an industry. However, as an industry,

Partenaires explains that “there are a number of private

VP still suffers from ‘liability of newness’. Prospective

and institutional investors who are ready to embrace

donors and investors, therefore, need clarity on the

a social impact fund because they understand that

VPO/SI’s investment model and goals. The founder(s)

there is higher risk and high uncertainty, but that the

needs to articulate clearly how the money will be

social return compensates for a lower financial return.

invested; which areas will be prioritised; what the

Therefore, it is not necessary to adjust the investment

overall social impact will be; and how the VPO/SI will

strategy to raise additional share capital, but rather

manage to achieve its goals. The founders also need

ensure that you are targeting the right investors. If

to consider how the VPO/SI will sustain itself over

you are in a social impact investment fund, you know

time. Founders need to be able to articulate early on

you have to look for a specific investor, not alter your

the options for driving to financial sustainability. The

investment strategy”.

founder’s personal track record will be critical.

48 Ibid.

A Practical Guide to Venture Philanthropy and Social Impact Investment

Potential sources of funding include:
POTENTIAL FUNDING SOURCES

attempt to build a long-term relationship with the
bank’s philanthropic advisors by introducing them
to the concept of VP and bringing them to an EVPA

• The founders’ network of contacts – friends,

event. Many EVPA members are private banks and

family and colleagues. Boards of directors can be

their advisory services department. Offering clients

a valuable source of funding, both directly and

the opportunity to invest in VP can be a value-added

through their individual networks. Some of this is a

service that banks offer to their clients. BBVA in

matter of luck, but the prior business experience of

Spain invites its private banking clients to invest in

the founders and their track record of success are

the social enterprises that are selected through their

important drivers.

Momentum Project.

• Trusts and foundations generally make smaller grants

• Government agencies will sometimes support efforts

to support projects, in comparison with VPO/SIs.

of this nature, in order to foster new ideas and to

Promoting innovation can be an important moti-

develop the social market. Be prepared, however, for

vation for these organisations, and they are thus

a very long sales process and significant operating

most likely to support the first fund in a particular

restrictions. In most cases, you will also need to

geographical area. Esmée Fairbairn Foundation

bring in other investors to support the effort and to

in the UK has supported many of the pioneer UK

give your plan more credibility and independence.

VPO/SIs such as CAF Venturesome and Inspiring

Recently, funds of funds that are government-

Scotland.

supported have emerged both at European level,

• Corporate sources (usually through their foun-

through the European Investment Fund’s Social

dations). Often the language and thinking of

Impact Accelerator (EIF-SIA)49, and at country level,

corporates and corporate foundations tend to be

through initiatives such as Big Society Capital50 in

well-aligned with VP. Corporate foundations such as

the UK and the Portuguese Social Innovation Fund.

the Shell Foundation operate like a VPO/SI in their

Such funds of funds are starting to invest in VPO/SIs

own right.

to build the societal impact ecosystem and will

• High-net-worth individuals can sometimes be
accessed through private banks. A VPO/SI might

be potential sources of funding for VPO/SIs in the
future.

Educating your potential supporters about both the

Potential supporters may be wary about investing in

methods and the benefits of VP investing is important.

a blind pool – i.e. committing capital to a fund whose

VPO/SIs are relatively expensive to operate – in

investment targets have not been identified. It may be

comparison with grant giving, for example – and the

necessary to select five or six candidate organisations

sector still needs to demonstrate how the investment

before commencing fundraising. Finally, you may need

activity results in increased social impact. A first step

to demonstrate the VPO/SI’s capability by putting

in that direction is for the VPO/SI to clearly articulate

in place a start-up management team before raising

its own Theory of Change as an investor, i.e. the social

funds. Clearly, this can present a chicken-and-egg

change it aims to achieve through its investments and

situation. In reality, it probably means that, in the

how it aims to do that (e.g. which sector(s) it will focus

absence of a major early-stage sponsor, the organi-

on, which type of support it will provide).

sation will necessarily grow slowly, starting with just a

few people and expanding as it starts to build a track
record.
49 For more info: https://evpa.eu.com/policy/eu-funding
50 For more info: http://www.bigsocietycapital.com/
51 See Section 3 for more detail on the Theory of Change of the VPO/SI and the investment strategy.

Part 2. Key Issues for Venture Philanthropy Organisations/Social Investors (VPO/SIs)

March 2018

In summary, the following are the key issues to consider
before attempting to raise a first-time fund:
ISSUES TO CONSIDER BEFORE ATTEMPTING

• Find an early-stage lead sponsor – see if you can

TO RAISE A FIRST-TIME FUND

identify a foundation, financial institution, highnet-worth individual or other entity with a strong

• Be clear about your objectives and try to articulate

funding base. This will give you more capital and

your own Theory of Change.

more credibility as you develop your operations.

• Carefully target your potential investors and

• Be prepared for a major effort – appreciate that

develop an understanding of why they would

the majority of the people you speak to will say

want to support you – remember each potential

no – learn from those rejections and adjust your

supporter will have different motivations.

approach as necessary.

• Anticipate the difficult questions and think through

• Be optimistic and persistent.

how you can respond credibly.

THE STATE OF VENTURE PHILANTHROPY

opposite to the ones of the previous survey, in which

AND SOCIAL INVESTMENT IN EUROPE |

the share of organisations allocating small budgets

THE EVPA SURVEY 2015/2016

to VP/SI had experienced a sharp decrease, while the

range €5m–€15m gained in significance. This result
A comparison of the budgets allocated to VP/SI in

reinforces our belief that there are a number of new,

the past three years shows that the share of organi-

small VPO/SIs entering the market. It is also interesting

sations allocating less than €2.5m to VP/SI increased,

to note that the percentage of organisations with large

after a substantial decrease was registered between

budgets (> €15m) increased, from 9% in fiscal year

fiscal year 2012 and fiscal year 2013. At the same time,

2013 to 12% in fiscal year 2015 (with two thirds of them

the share of organisations allocating between €5m

having a budget of more than €20m), and that most of

and €15m decreased by 11 percentage points, even if

them are foundations, clearly still an important actor

this still represents one quarter of the VPO/SIs that

in the VP/SI space.

responded to the survey. These trends are completely

Figure 11: Size of VP/SI budgets in fiscal years 2012–2015
(numbers in %)

Fiscal year 2015 n=97
Fiscal year 2013 n=86

58
47

Fiscal year 2012 n=71

9 10

< €2.5m

€2.5m > €5m

€5m > €10m

€10m > €15m

9 12

> €15m

Boiardi, P., and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

Figure 12: Distribution of total funding made available to
VPO/SIs by source in fiscal year 2015
(n=97)
Financial institutions
Earned income 1
External foundations
Corporations
Institutional investors

Individual donors
and/or investors

Governments

3
44
4

Governments and own endowment and trust are the
main sources of VP/SI funding, representing, alone,
almost half of the total resources made available
to VPO/SIs. In fiscal year 2015, governments represented 24% of the total funding available, an increase
of 13 percentage points compared to fiscal year 2013.
The category “own endowment and trust” went from

representing 10% of the total funding available to 23%,
an increase of 13 percentage points over the two-year
period. The third most important source of funding

23
Income from own
endowment or trust

for VPO/SIs is recycled returns on investment, representing 19% of the total amount.

Recycled returns
on investments

2.3.2 Follow-on fund

The profile of investors second or third time round is

Follow-on funds ideally should not be raised until

broadly similar to that of the funders that were targeted

several years after start-up, so that you can point to

initially, but, depending on the strength of the invest-

the results achieved with the prior fund(s). In practice,

ment case, they may offer a better reception. Institu-

however, you will probably have to fundraise constantly.

tional investors will be difficult to attract at start-up

The pioneer VPO/SIs in Europe have been facing the

stage, but may make sense to bring in for a follow-on

challenge of raising their second funds. The advantage

fund. However, as highlighted in EVPA’s research on

of raising the second fund is that there should be an

learning from failures53, institutional investors tend

established team, an established portfolio of invest-

to focus more on achieving high financial returns,

ments (typically between four and seven) and some

sometimes to the detriment of social impact.

evidence to support the thesis that your intervention
has made a positive impact. VPO/SIs are increasingly

Other factors to consider:

data-driven and able to show the impact of their work
through impact reports and financial accounts. Clearly,

ISSUES TO CONSIDER WHEN RAISING

such work goes a long way in showing potential investors

FOLLOW-ON FUNDS

the level of professionalism of the VP approach and
potential social (and financial) returns. Without these

• It may be worth adopting a sector-specific focus on

elements, a VPO/SI is still essentially a start-up. Once

areas that have delivered the most social impact, and

these milestones have been achieved, the fundraising

becoming known as an expert in that specific sector.

pitch can be based around the progress that has been

• Use case studies from the portfolio where added

attained and should facilitate the fundraising process.

value delivered and the social benefit achieved can

However, moving from the start-up to the follow-on

be demonstrated clearly. Be careful that claims are

phase can be difficult. Some supporters will be more

not exaggerated and that they can be substantiated.

animated by the excitement of a start-up and the

• Refine your investor targeting strategy. Within the

opportunity of investing in a new concept. Moreover,

general categories outlined above, there may be

the founders may have exhausted the appetite of their

subgroups that are interested either in your target

immediate network and have to start ‘cold-calling’.

sector(s) or in the types of investments you make.
Developing relationships with these key funders early

Hehenberger, L., and Boiardi, P., (2014), “Learning from
failures in Venture Philanthropy and Social Investment”, EVPA.

and building trust and support should be a priority.

Part 2. Key Issues for Venture Philanthropy Organisations/Social Investors (VPO/SIs)

CASE STUDY:

March 2018

enterprises and helped their strategic development.

OLTRE VENTURE

With the experience gathered from the first fund,
Luciano Balbo decided to launch Oltre Venture II, which

is one of the first Impact Investment

is one of the first funds to have received an investment

fund managers in Europe, founded by Luciano Balbo

Oltre Venture

commitment from EIF’s Social Impact Accelerator. The

in 2006. Since its foundation, Oltre Venture has

table below provides a comparison of the two funds in

continuously and proactively supported Italian social

their main features:

Fund Name

OLTRE Fund I

OLTRE Fund II

Vintage Year

2006

2014

Timeframe

The fund has a duration of 10 years and an
investment period no longer than 4 years

The fund will have a duration of 10 years, extendible to 13, and an investment period of 5 years.

Investors and
Commitment

€7.5 million raised from 22 investors, mainly

Current commitment from private and institu-

from high-net-worth individuals (HNWI) and
an important Bank Foundation.

tional investors is about €26 million, of which
€10 million invested by EIF

Legal form

Società in accomandita per azioni (SAPA)
(Limited Liability Limited Partnership – LLLP)

Currently in the process of authorisation by Bank
of Italy

Management

Operational expenses covered by the
founder

Investment Target Fee

OLTRE I invested in 17 social enterprises
belonging to the following sectors, microfinance, temporary social housing, healthcare
and job placement. Three main investments
(PerMicro spa, Ivrea24 and Società e Salute
Srl) represent 66% of the total portfolio.

OLTRE II investments will be mainly directed
both to expansion companies with the necessity
to grow further and to start-up companies. Only
fully sustainable societal impact enterprises are
financed.

Oltre Venture chose to invest in companies
characterised by highly innovative operating
models, economic and financial sustainability and a special ability in offering highquality services and/or products at low fees.
However, their business models were not all
fully sustainable and replicable.

OLTRE II investments will focus on specific social
sectors (education, healthcare, social housing,
assistance, job placement); services provided to
individuals, families, elderly and the young population; the most vulnerable areas of the country
mainly through investments in agriculture and
tourism; any other initiative that might promote
social solutions creating a positive impact for the
community.

Oltre Venture raised its follow-on fund about eight years

provide is smaller, while demanding at the same time

after its start-up. The fund size has more than doubled

more involvement in investment decisions and manage-

mainly thanks to the commitment of institutional

ment. The approach of institutional investors is different

investors and of the EIF. The investors’ profile is different

as they are able to invest larger amounts but require

from the ones targeted initially, who were mainly high-

precise procedures to assess and to approve invest-

net-worth individuals (HNWI). HNWI and family offices

ments, which makes it extremely hard to access money

have the advantage of higher flexibility when making

from them.

investment decisions. But the investment they can

B
54 Vecchi, V., Casalini, F., Cusumano, N., and Brusoni, M., (2015), “Oltre venture: the first italian impact investment fund”, SDA Bocconi
School of Management.
55 For more info: http://www.oltreventure.com/en/

A Practical Guide to Venture Philanthropy and Social Impact Investment

Oltre Venture II, thanks to the bigger size, is able to

Salute Srl) were considered success cases and became

finance social enterprises at early stage, when they

the proof of the team’s ability to develop and manage

mostly need capital to support a step-up in capabilities.

new business models to attract further investment. In

This contributes to bridge the financing gap between

particular, Società e Salute is the fund’s star investment,

the start-up and scaling phase, which affects most

being a financially free-standing investment and a fully

social businesses in their development. Oltre Venture

replicable business model. Its success story was used by

I, on the other hand, made small seed-stage invest-

Mr. Balbo as a reference case for the fundraising of Oltre

ments. Among the Oltre Venture I portfolio, the three

Venture II, where the European Investment Fund (EIF)

main investments (PerMicro spa, Ivrea24 and Società e

invested €10 million as an anchor investor.

2.3.3 Other methods of raising capital

For instance, to enable self-sustainability in terms of

The funding model can pose challenges, especially when

funding, NESsT has set up its own social enterprise

it comes to the financial sustainability of those VPO/SIs

that provides consulting services to organisations that

that do not have an endowment and thus have to count

need the tools that NESsT has developed. The profit

on fundraising to find enough and sustainable funding.

goes back to NESsT and now constitutes 20% of the

VP/SI needs ‘patient capital’ that is flexible enough to

funding. It is building a business plan for an investment

accommodate for unforeseen circumstances. VPO/SIs

fund to enable funds to be recycled. It plans to use loans

have tried to find complementary revenue streams as

and equity – and diversifying its own income strategy.

a solution to the financial sustainability issues. Adding

However, this new strategy will also be challenging

peripheral activities (such as consultancy), finding ways

given that NESsT’s investees are mostly early-stage

to recycle capital (through debt instruments and by

enterprises that often need patient capital requiring a

reinvesting capital gains) and generating economies of

longer period of repayment and lower interest rates56.

scale in the management fees (by raising larger funds)
are examples of methods to raise more resources.

KEY ISSUES

experience. The make-up of the management team

AND LEARNINGS

and board should reflect the needs of the VPO/SI
in terms of skills and knowledge. There is a delicate

• Role of the founder(s) – The founder(s) of the

balance to strike between social sector experience

VPO/SI is the key visionary of the project and must

and investment management skills. The board is

communicate that vision to attract early interest

likely to need to take on a more hands-on approach

from others. They must also start to map out the

to supporting the management team in the start-up

critical internal knowledge and expertise the VPO/SI
will need to focus effectively on specific social
sectors or issues.
• Role of the CEO, the management team and the

phase.
• Fundraising – Successful fundraising requires the
ability on the part of the founder(s) to articulate a
compelling vision for the VPO/SI and to communi-

board – The CEO hire is the most critical move the

cate to investors the potential level of social impact

VPO/SI will make. The CEO must have a compel-

that VP can achieve. The founder’s ability to provide

ling vision, be energetic and have directly relevant

some capital is often critical to success.

56 Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.

March 2018

35
35

PART 3.
THE INVESTMENT
STRATEGY

Alter-Eco © Phitrust

A Practical Guide to Venture Philanthropy and Social Impact Investment

PART 3.
THE INVESTMENT STRATEGY
VP/SI organisations are vehicles that channel funding

EVPA’s report “A practical guide to measuring and

from donors and investors to selected social purpose

managing impact”58 helps VPO/SIs in the process of

organisations (SPOs). A VPO/SI’s investment strategy

defining their social impact objectives, and embedding

will flow from a set of choices that determine its focus

them in the overall impact measurement system.

and its objectives. The most important choices for the

The impact measurement process outlined in five

VPO/SI relate to its social and financial return goals.

steps allows the VPO/SI to better manage the impact
generated through its investments. To manage impact,

First, the VPO/SI needs to define its social objec-

the VPO/SI should continuously use the impact meas-

tives. Many VPO/SIs have started to develop their

urement process to identify and define corrective

own ‘Theory of Change’57 to articulate how and why

actions if the overall results deviate from expecta-

it expects to achieve a change through its activities to

tions. This involves revising and readjusting the steps

solve a particular social problem.

in the impact measurement process as lessons are
learned, additional data is collected, or the feasibility

In practice, defining its Theory of Change means that

of objectives set is questioned. It is important to see

the VPO/SI needs to determine:

impact measurement as a learning process. A clearly
articulated Theory of Change is necessary to be able
to choose investments in SPOs that can contribute to

KEY COMPONENTS OF THE THEORY OF

solving the social issue that the VPO/SI is addressing.

CHANGE OF THE VPO/SI

The VPO/SI needs to consider this question clearly
before starting to make investments, and regularly

• The overarching social problem or issue that it aims

revise and adapt as its investment strategy develops.

to alleviate – e.g. youth unemployment in Spain
(including an assessment of the magnitude of the

For the VPO/SI, it is important to get the buy-in of

problem as the base case).

key

• The specific objective it wants to achieve – e.g.

stakeholders

(donors/investors,

staff/

human

resources, SPOs) to the impact objectives of the

reduce youth unemployment in Spain by investing

VPO/SI so that their expectations are managed and

(financial and non-financial support) in social enter-

their contributions are aligned. Therefore, engage-

prises with innovative solutions to introduce youth

ment with a VPO/SI’s key stakeholders should happen

in the labour force (including an assessment of what

upfront by making sure they understand and support

the greatest needs of such social enterprises are

the impact objectives, and any major changes in these

and how the VPO/SI can help them).

objectives should be properly communicated. It is

• The expected outcomes – what the VPO/SI must

useful to regularly engage with these key stakeholders

achieve to be considered successful (the milestones

to make sure that objectives continue being aligned,

against which the VPO/SI will be measured).

and otherwise implement corrective measures.

57
58

For more info: http://www.theoryofchange.org
Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact - Second Edition”, EVPA.

Part 3. The Investment Strategy

March 2018

The VPO/SI also needs to define its financial objectives

average of 5% return across its portfolio, after paying

(including if they are independent of or secondary to

the management fee and any other costs incurred.

the social objectives). The targeted financial return

Since some investments may need to be written off as

will have an influence on the type of financial instru-

failures, the fund must generate superior returns from

ments used as well as on the types of organisations

a number of investments to compensate for the write-

targeted. As an example, if the fund targets a 5%

offs. Pure grant-makers expect a -100% return on their

IRR net to investors, it means that it must achieve an

‘investments’.

THE STATE OF VENTURE PHILANTHROPY
AND SOCIAL INVESTMENT IN EUROPE |
THE EVPA SURVEY 2015/201659

Figure 13: Expected gross return on
social investment funds in fiscal year
2015
(n=31 representing 41 funds,
numbers in %)

14.5

2.5

2.5 2.5

2.5

2.5 2.5

2.5

+2 +2.5

+3.5

+10

+15 +20 +33

When asked about the expected gross return on the

a minimum of 1% to a maximum of 33%. A total of 10

investment funds, VPO/SIs reported that they expect

funds are expected to generate only capital repayment

a positive financial return from 76% of their invest-

(24% of the sample, with a decrease of 14 percentage

ment funds. The range of positive returns varies, from

points compared to fiscal year 2013)

+2.8

+10

+13

+15

Figure 14: Realised gross return on
social investment funds in fiscal year
2015
(n=9 representing 11 funds, numbers
in %)

The survey then asked the respondents about the

question, 46% received full capital repayment, 54%

realised gross annual return of the investment funds.

generated a positive return between 2% and 15%, and

Of the 11 funds represented by 9 respondents to this

no funds registered a loss.

Boiardi, P. and Gianoncelli, A. (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

The Theory of Change and the financial return expecta-

Broadly speaking, the investment strategy of the

tions are the cornerstones of the investment strategy,

VPO/SI is composed of six additional main elements

and will help the VPO/SI further refine its investment

(see box below).

strategy.

KEY COMPONENTS OF THE VPO/SI’S
INVESTMENT STRATEGY

5. The non-financial support – the VPO/SI needs to
decide how much non-financial support it provides,
what type of NFS is core or non-core to its invest-

1. Investment Focus – which includes the geographical
and social sector focus of the VPO/SI’s operations.
2. Type of SPO – in which the VPO/SI defines the size,

ment strategy and who provides each type of
support. The non-financial support offered needs to
be in line with the goals of the VPO/SI in terms of

type and stage of development of the investee(s) it

financial return and societal impact, as defined in its

supports.

Theory of Change.

3. The type of financial instruments – will the VPO/SI

6. The exit strategy – it is recommended that VPO/SIs

utilise financial instruments other than grants? The

already think about how they will exit their invest-

decision to apply social investment instruments that

ments as part of developing their investment

establish an ownership title (like loans and equity)

strategy, allowing them to assess variables such as

will influence the structure of the VPO/SI.

duration of the investment and potential exit routes.

4.The co-investment policy – the VPO/SI needs to
make a decision as to whether it invests together
with other actors, or alone, weighting the pros and
cons of its decision.

The overarching social and financial objectives of the

services, such as strategic planning, marketing and

VPO/SI will determine its focus (1) in terms of sector

communications, executive coaching, human resources

and geography and the preferred models of interven-

advice, access to other networks and potential funders

tion of the VPO/SI involve the type of SPO that will

and support to develop the social impact goals of the

be supported (2), in terms of type, size and stage of

SPO and to build an impact measurement and manage-

development of the SPO. The choice of the type of

ment system (5). Finally, the VPO/SI considers how it

SPO to fund and the financial return expectation of the

plans to exit from its investments in general (6).

VPO/SI will determine the financial instruments used
(3). VP financial instruments are similar to the ones

In the next sections we will focus on the most important

used by venture capital, with the addition of grant

elements of the investment strategy which constitute

and grant-related funding. Often VPO/SIs decide to

key issues for the VPO/SI.

co-invest with other funders in order to raise more
funds for VP activities, promote VP activities among
a wider audience and spread the risk (4). In addition
to financial support, VPO/SIs provide value-added

Part 3. The Investment Strategy

March 2018

3.1 INVESTMENT FOCUS

3.1.1 Social sector choices
Many of the pioneer VPO/SIs focused on demonstrating

The investment focus determines the sector and the

the VP model rather than on targeting a particular

geographical areas the VPO/SI wants to invest in.

social sector. Having a broad-based portfolio allows a
start-up VPO/SI to appeal to a wide variety of stake-

In recent years, VPO/SIs have shown signs of increased

holders. VPO/SIs operating in a small market where

specialisation in terms of sector and geography,

the social sector is still undeveloped may not be able

implying that each VPO/SI is focusing more and more

to afford to focus on one sector as deal flow would

on a reduced number of sectors and geographies. This

be too limited. However, as the VP industry becomes

development comes from a growing recognition that

more established, many VPO/SIs have started to focus

VPO/SIs can support their investees more efficiently

on one or several social sectors, recognising the impor-

by accumulating specific knowledge, and thus facili-

tance of sector-specific knowledge to better assist their

tating networking and knowledge sharing within their

investees and to leverage the VPO/SIs’ resources. Such

portfolios. More focus on a specific social sector and

a focus makes sense because the VPO/SIs can bring

geography also adds value and enables the VPO/SI to

more added value in the areas where they develop a

generate and demonstrate more impact.

learning curve. Measuring impact is also facilitated by a
clear investment focus on one particular social sector.
EVPA Survey 2015/2016 provides an overview of the
sectors that have received most attention by European
VPO/SIs (see Figure 15).
Figure 15: VPO/SIs target sectors by € spend
in fiscal years 2012–2015
(n=96, numbers in %)

THE STATE OF VENTURE PHILANTHROPY
AND SOCIAL INVESTMENT IN EUROPE |
THE EVPA SURVEY 2015/201660

Fiscal year 2015 n=77

Fiscal year 2013 n=90

ou
So

re
a
re
c
d
an

re
tu
ul

n
tio

lth
ea

m
En
vi

ro
n

n
io
at
uc
Ed

Ec
on

ic
de an
ve d
lo so
pm ci
Fi
na
en al
nc
t
ia
li
nc
lu
si
on

3 2 2

2 2

an
d
po
i
lit
an la
ic
d nth
s
vo ro
lu p
R
nt ic
es
ar in
ea
is te
rc
In
m rm
h
te
p
e
rn
ro d
i
at
m ar
io
ot ie
na
io s
n
lp
ro
m
ot
io
n

8
5

Fiscal year 2012 n=61

13 13

ic
es

15 14 15

17
15

dv
oc

22
20

La
w
,a

In terms of funding in fiscal year 2015, economic and

decreased from fiscal year 2013 to fiscal year 2015,

social development tops the classification of recipient

falling from 13% in fiscal year 2013 and fiscal year 2012,

sectors, receiving 24% of total investment, followed by

to a negligible percentage this year. Due to the fact

financial inclusion (19%), which experienced an impres-

that one of the options that respondents could choose

sive increase of 14 percentage points since fiscal year

was “not set criteria”, it is possible that part of the

2013. Education (15%), environment (14%) and health

amount invested or granted with no particular sector

(7%) make up the top five recipient sectors. Inter-

focus was directed to research.

estingly, the resources allocated to research sharply

60 Ibid.

A Practical Guide to Venture Philanthropy and Social Impact Investment

3.1.2 Geographic choices

Questions about the social impact investment market

VPO/SIs need to define the geographical scope of

in the target geography need to be explored in this

their activity. EVPA Survey 2015/2016 shows that most

context as well. Is there a sizeable societal need that

European VPO/SIs operate in their own domestic

the VPO/SI can address in a meaningful way? Is there

market or invest in developing countries (see Figure

sufficient deal flow to ensure that an appropriate level

16). VPO/SIs that adopt an international focus face

of investments will result? A market study is normally

additional costs and management complexities in

required to understand the relevant demographics and

comparison with those operating within a single

the quantity, quality and size of potential investment

national jurisdiction. Engaged portfolio management

targets. To ensure that the VPO/SI can invest selectively

is more complicated if the investee organisations are

in high-quality organisations, the number of potential

dispersed across several countries, while the develop-

investments should significantly exceed the total

ment of an overseas network is necessary to maintain

number of investments required to fill the portfolio.

deal flow. Travel, legal advice and taxation advice will
all impose additional costs.

THE STATE OF VENTURE PHILANTHROPY

As a result, for the first time this year, 29% of the

AND SOCIAL INVESTMENT IN EUROPE |

resources were allocated without using any specific

THE EVPA SURVEY 2015/201661

geographical criteria. Then considering the remaining
71%, in line with the last survey’s results, European
VPO/SIs are increasingly focusing their activities in
Western Europe, which received 67% of the total

Figure 16: Geographic focus of VPO/SIs by € spend
in fiscal year 2015
(n=97)

resources invested, amounting to a two percentage
points increase compared to fiscal year 2013.

67%

29%

Domestic 64%
Cross border 3%

Not set criteria

71%

Set criteria

% Eastern
Europe

%
North
America

10%

Latin
America

Ibid.

Western
Europe

14%
Africa

Asia

Part 3. The Investment Strategy

March 2018

3.2 TYPE OF SPO

types that may have some social mission of one form or
another. Those that are typically considered for invest-

Venture philanthropy can operate across a spectrum

ment by VPO/SIs will generally fall into the Charities,

of organisational types, from charities and non-profit

Revenue Generating Social Enterprise and Socially

organisations through to socially driven business. The

Driven Business categories, collectively referred to as

diagram below sets out the range of organisational

Social Purpose Organisations (SPOs) in this paper:

Primary driver
is to create
social impact

Primary driver
is to create
ﬁnancial return

‘Blended’ social impact and ﬁnancial return

Social Purpose Organisations (SPOs)
Charities

Trading
revenue and
grants

Grants only:
no trading

Socially
Driven
Business

Revenue Generating Social
Enterprises
Potentially
sustainable
>75%
trading
revenue

Break-even
all income
from trading

Traditional Business

Proﬁt
distributing
socially
driven

Proﬁtable
surplus
reinvested

CSR
Company

Impact First
Social investment

Impact Only
Grant making

Figure 17: The EVPA
Spectrum
(Source: EVPA)62

Company
allocating
percentage to
charity

Mainstream
Market
Company

Finance First

Venture Philanthropy

Venture

philanthropy

not

appropriate

for

all

to replicate their operating model in a new or much

SPOs, just as venture capital is not the best form of

more broadly defined target market. For other more

financing for commercial businesses at all stages of

established SPOs, VP funding may be appropriate in

their lifecycle. In general, VP is best suited to SPOs

instances where the organisation is underperforming

that require an injection of capital to achieve a ‘step

and seeking to re-design its core strategy or restruc-

change’ in their operations (see Figure 18). For some,

ture operations.

this may mean providing finance that enables the SPO

THE STATE OF VENTURE PHILANTHROPY AND
SOCIAL INVESTMENT IN EUROPE | THE EVPA

Figure 18: Type of investee by VP/SI
€ spend in fiscal years 2012–2015
(numbers in %)

SURVEY 2015/201663
50

37 37
30

35 35
23

Fiscal year 2015 n=97
7

Social entreprises and
social businesses

62
63

NGOs, no trading

NGOs, trading

Other

Fiscal year 2013 n=82
Fiscal year 2012 n=64

Adapted from John Kingston, Big Society Trust, by Pieter Oostlander, Shaerpa
Boiardi, P. and Gianoncelli, A. (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

VPO/SIs generally want to direct their resources to

In terms of size, most VPO/SIs invest in organisations

young, small to medium-sized organisations with

that are small to medium.

growth potential or to organisations that are at an
inflexion point such as scale up, merger or turnaround

However, there is still divergence in what works best

(see Figure 19).

with regard to the VPO/SI size. Some VP/SI CEOs
propose that VPO/SIs should not invest in small SPOs,

It is important to invest in organisations in the early

but rather focus on a few, large investees that can

stage of development but VPO/SIs investing in early-

achieve disrupting impact. As the risk is high, VPO/SIs

stage SPOs may face difficulties in attracting capital:

need to invest in organisations that have potential to

the ecosystem is slow in recognising the importance

scale, and in entrepreneurs that are willing to do so.64

of early stage. The early stage of development calls for
more patient capital and this could reduce the funding
possibilities.

THE STATE OF VENTURE PHILANTHROPY

The most common age of investee organisations is

AND SOCIAL INVESTMENT IN EUROPE |

2.1–5 years (62% of respondents). Some VPO/SIs

THE EVPA SURVEY 2015/201665

also target early-stage organisations with an age of
0.1-2 years (40%), others take the risk of incubating

Figure 19: Investee’s maturity at time of investment in fiscal

start-ups (17%), and about one VPO/SI out of five

year 2015
(n=108 numbers in %)

invests in more mature organisations that are more

No set criteria

than 5 years old.

> 5.1 years

2.1-5 years

0.1-2 years

0 years (incubation)

Set criteria

n=58
multiple choice

64 Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.
65. Boiardi, P. and Gianoncelli, A. (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

Part 3. The Investment Strategy

March 2018

3.3 TAILORED FINANCING AND THE
DIFFERENT TYPES OF FINANCIAL
INSTRUMENTS66

In addition to grants, debt and equity, a VPO/SI can

VP/SI financial instruments are broadly similar to

Hybrid financial instruments (HFIs) are monetary

those used in the commercial investment sphere,

contracts that combine features of the traditional FIs

but also include the grant and grant-related financial

(grants, debt instruments and equity instruments) in

instruments.

order to achieve the best possible alignment of risk and

use hybrid financial instruments (HFIs) to support its
investees.

impact/financial return for particular investments. HFIs
Financial instruments are contracts involving monetary

are financial instruments seeking to reconcile some of

transfers through which, in the VP/SI space, venture

the basic tensions between the financial requirements

philanthropy organisations and social investors finan-

of the investors and the impact motivation of the social

cially support social purpose organisations. The three

entrepreneurs (Varga and Hayday, 2016). HFIs are well

main groups of financial instruments are grants, debt

suited for the funding of SPOs that are developing

instruments and equity instruments.

products and services for which there is potentially a
market (Spiess-Knafl and Struewer, 2015) to respond
to their diverse financing needs (Damaschin-Țecu and

MAIN TYPES OF FINANCIAL

Etchart, 2016). Even though hybrid financial instru-

INSTRUMENTS

ments can be very useful to better finance SPOs, not

all VPO/SIs may be aware of the possibility to also use
• Grants are a type of funding in the form of a cash

them, and may not know how to structure and deploy

allocation that establishes neither rights to repay-

them. It could also be that it is complex and hence

ments nor any other financial returns or any form of

it risks being lengthy to implement, also because it

ownership rights on the donor.

requires financially literate businesses to invest in,

• Debt instruments are loans that the VPO/SI can

so that they understand the mechanism. Or VPO/SIs

provide to the SPO, charging interest at a certain

might simply not be aware of the term “hybrid financial

rate. The interest charged can vary depending on

instruments” and what it entails, demonstrating that

the risk profile of the investee and on the securiti-

HFIs are still not easily understood and used, both by

sation and repayment priority of the loan (senior vs

the VPO/SI and their investees (Varga and Hayday,

subordinated loan).

2016). Some examples of hybrid financial instruments

• Equity instruments are contracts through which
a VPO/SI provides funding to SPOs and in return

are mezzanines, convertible loans/debts, and recoverable grants68.

acquires ownership rights on part of the SPO’s
business. This can be appropriate when the
prospect of a loan repayment is low or non-existent.
If the SPO is successful, the equity share holds
the possibility of a financial return in the form of
dividend payments. In addition, it allows for the
possibility of a transfer of ownership to other
funders in the future.

66 This section was developed based on the EVPA report: Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The
Key Role of Tailored Financing and Hybrid Finance”, EVPA.
67 See Part 2, Chapter 3 (pages 43-44) in Gianoncelli, A. and Boiardi, P., (2017).
68 See Part 2, Chapter 3 (page 45) in Gianoncelli, A. and Boiardi, P., (2017).

A Practical Guide to Venture Philanthropy and Social Impact Investment

TYPES OF HYBRID FINANCIAL

converted into equity.” In both cases we are looking

INSTRUMENTS

at “a loan that has to be repaid. However, in one

circumstance, because the lender is willing to vary
• Mezzanine finance is a hybrid of debt and equity

the loan terms in the borrower’s favour, the borrower

financing, usually used to fund the scaling of an

gives the lender rights to exchange its creditor

organisation. Although it is similar to debt capital,

position for an ownership in the enterprise at a later

it is normally treated like equity on the organisa-

date. In another, more challenging circumstance,

tion’s balance sheet. Mezzanine finance involves

a loan is converted into equity either because the

the provision of a high-risk loan, repayment of

borrower’s regulator requires the intermediary

which depends on the financial success of the SPO.

to bolster its capital or upon the occurrence of a

This hybrid financial instrument bridges the gap

future funding round. It is particularly useful where

between debt and equity/grant through some form

the enterprise is so young that a valuation is not

of revenue participation. Examples include a loan

possible and an equity price cannot be set” (Varga

that is only repayable through royalties based on
the future sales of a product or service; or a royal-

and Hayday, 2016).
• Recoverable grants are grants that can be returned

ty-sharing agreement that can be activated once

to the VPO/SI, under certain terms and conditions

an agreed profitability threshold has been reached.

agreed in advance by the VPO/SI and the SPO.

These hybrid financial instruments can offer an

Recoverable grants are “designed to focus the

appropriate balance of risk and return.

recipient on sustainability and reduced risk of grant

• Convertible loans and convertible debts are “two

dependence”. (Varga and Hayday, 2016).

different circumstances in which the loan may be

The above list refers to the most commonly used hybrid

In this report, EVPA defines tailored financing as a

financial instruments in the VP/SI sector, but it is not

three-step approach take should take into account and

exhaustive. Different variations and combinations of

on the same level of importance the assessment of

financial instruments are possible. The range of options

both the characteristics of the VPO/SI and of the SPO.

available, therefore, should be seen as a continuum
rather than a set of discrete choices.
As described in the EVPA report “Financing for Social
Impact”70, tailored financing is the process through
which a venture philanthropy organisation or a social
investor finds the most suitable financial instrument (FI)
to support a social purpose organisation choosing from
the range of financial instruments available (grant, debt,
equity, and hybrid financial instruments). The choice of
the financial instrument(s) will depend on the impact/
financial return expectations and risk profile of the
VPO/SI and on the needs and characteristics of the SPO.

Figure 20: Tailored financing as a three-step process
(Source: EVPA’s Knowledge Centre)
1.

Assess the
pre-conditions
of the VP/SI

Assess the
ﬁnancial needs
of the SPO

organisation

3.
Match the VP/SI
organisation’s
goals with the
SPO’s needs

69 See Part 2, Chapter 3 (pages 45-46) in Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The Key Role of
Tailored Financing and Hybrid Finance”, EVPA.
70 Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The Key Role of Tailored Financing and Hybrid Finance”,
EVPA.

Part 3. The Investment Strategy

March 2018

As part of its general investment strategy, the VPO/SI

ones of the SPO (third step of the tailored financing

will need to assess in advance which financial instru-

process).

ment(s) it plans to deploy. To do this exercise, the VPO/
SI needs to take into consideration its pre-conditions,

Using a tailored financing approach, by assessing the

especially its impact strategy, which depends mainly

needs of the SPO before offering the most suitable

on its risk/return/impact profile71. And on the other

financial instrument(s), has several potential advan-

side, also the SPO should reflect on its financial needs.

tages (see box below):

Then the VPO/SI evaluates if its goals match with the

ADVANTAGES OF USING A TAILORED
FINANCING APPROACH

assuring its own financial sustainability.
• It can help to broaden the SPO’s vision to include a
wider range of social investors.

• It can achieve greater impact by finding the most
appropriate solution for each individual case.
• The range of financial instruments offered may

• It can improve the VPO/SI’s asset management (i.e.
funds can be recycled when not only grants are
used).

encourage an SPO to take a more active role in

THE STATE OF VENTURE PHILANTHROPY
AND SOCIAL INVESTMENT IN EUROPE |
THE EVPA SURVEY 2015/201672

Figure 21: % of VPO/SIs adapting their financing model to
the needs of their investees in fiscal year 2015
(n=108)

Rarely

The statistics from the Survey also show that tailored

Never

financing is a reality in Europe, with the majority of VPO/

5 5

SIs adapting their financing model to the needs of the
investee. The majority of VPO/SIs (59%) do adapt their
financing model to meet the needs of their investees
either always (in 32% of the cases) or often (in 27% of
the cases). A smaller share of VPO/SIs only adapts the
financing model in some cases (31%) or rarely (5%), and

Sometimes

Always

%
27

only 5% reported never adapting the financing model to
the needs of the investees.

Often

To have a complete overview of the pre-conditions linked to the VPO/SI that may have an implication on the choice of the
financial instrument(s) to use, see pages 24-29 in: Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The Key
Role of Tailored Financing and Hybrid Finance”, EVPA.
Boiardi, P. and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

3.4 CO-INVESTING POLICY

co-investors’

investment

strategy

and

objectives,

financial/impact trade-offs and exit plans, to make
Co-investment can be an important part of a VPO/

sure they are compatible and aligned. Furthermore, as

SI’s investment strategy. It represents an excellent way

with the SPOs, it is important to agree on roles and

of raising funds for VP activities – and may be easier

responsibilities among co-investors up front. Although

than raising funds for the VPO/SI itself. In addition,

co-investors who add value are a definite plus,

it can help to promote VP among a wider audience.

managing the consortium is easier if there is one active

It also eliminates the ‘blind pool’ element, whereby

lead investor – usually the VPO/SI – and a syndicate of

investors are asked to fund unidentified organisations.

other investors that are mainly passive.

It can help VPO/SIs to target suitable trusts and foundations that are appropriate for a given investment.

Other aspects of the relationship should also be agreed

Co-investing does prompt certain cost considerations.

upon (see box below).

Some VPO/SIs may wish to charge co-investors a fee
for managing the investment – to share overheads.
This can often be a difficult negotiation. Co-investing

ASPECTS OF THE CO-INVESTMENT

can also be risky in particular if the co-investors do

RELATIONSHIP TO AGREE UPON

not have similar objectives. There are several accounts

BEFOREHAND

in the sector of difficulties arising during the investment period when purely financial co-investors opted
out of an investment that was doing well from a social
impact perspective, but without generating the desired
financial return – forcing the investee out of business
and the social impact investor to fail .
73

• How often will co-investors attend regular review
meetings?
• Will they help to supply or source value-added
services?
• Will they automatically follow the lead investor in
continuing or stopping funding in a crisis?

For these reasons, as reported in EVPA’s research on
exit strategies74, a recommendation before engaging

• What are the reporting obligations of the SPO and
the lead investor?

with co-investors is for the VPO/SI to assess the

Co-investment
Pros

Cons

• More funds available for target organisations; VPO/SI
may invest in more organisations.
• Spreading risk:
-- Additional validation of investment opportunity.
-- Shared risk in case of failure and should additional
funding be required.
• Target organisation is not dependent on one funding
source.
• Mitigate possible lack of deal flow.
• Co-investors can add specific skills, for example, many
foundations have deep knowledge of specific social
sectors.
• Reduce demands (reporting, etc.) on the SPO if lead
investor manages relationship.
• May increase the reputation of the SPO through
multiple investment partners.

• Additional liability for the VPO/SI if co-funders lean on
its work.
• Fund management cost ratios may increase since
the same support organisation (VP/SI management
team) is managing a significantly larger portfolio – if
co-investors do not contribute to management costs.
• Potentially more time-consuming for VPO/SI and
investee in terms of reporting and relationship
management issues.
• Potentially slower decision-making.
• VPO/SI may have to sacrifice independence.
• Misalignment in the investment strategy of the
co-investors can generate issues throughout the
investment period and at the time of exit.
• Co-investors without a local presence in the
geographies where they invest may ‘free ride’ without
adding value.

73
74

Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social impact investment”, EVPA.
Boiardi, P., and Hehenberger, L., (2014), “A practical guide to planning and executing an impactful exit”, EVPA.

Part 3. The Investment Strategy

March 2018

THE STATE OF VENTURE PHILANTHROPY

Co-investment is a key component of European

AND SOCIAL INVESTMENT IN EUROPE |

VPO/SIs’ investment strategy. About 63% of respond-

THE EVPA SURVEY 2015/201675

ents have co-invested in the past and 19% said they are
interested in doing so, even if they have not co-invested
yet. Only 18% of the respondents expressed no interest

Figure 22: Co-investment in fiscal year 2015

in co-investing.

(n=102)
No, we do
not co-invest
in general

Half of respondents that have co-invested have done so
with foundations (51%), while 25% have co-invested with

18
We are interested,
but we have not
co-invested yet

venture capital/private equity investors. About 16% of

the respondents report having co-invested with main-

stream banks, 15% with public financing institutions, 13%
Yes, we have
co-invested
in the past

with both finance first impact investors and companies,
and 5% with microfinance institutions.

Figure 23: Type of co-investors in fiscal years 2013 and 2015
(multiple choice, numbers in %)

14 16

11 15

14 13

ro
ﬁn

an
ce

st
it

C
om
pa

Ve
n
an tur
d e
so ph
ci ila
et n
al th
im ro
pa py
ct or
Fo
ﬁr ga
un
st nis
da
in at
tio
ve io
st ns
fo ns
or
rm en
s
s ga
of g
ph ed
ila in
nt ot
hr he
pr V
op r
iv en
at t
y
e ur
eq e
c
ui a
ty pi
in tal
ve a
st nd
or
M
ai
s
ns
tr
ea
Pu
m
bl
ba
ic
nk
ﬁn
s
an
ci
ng
Fi
in
na
st
nc
itu
e
tio
ﬁr
n
st
im
pa
ct
in
ve
st
or
s

18 16

Fiscal year
2013 n=44

Fiscal year
2015 n=55

Boiardi, P. and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

3.5 NON-FINANCIAL SUPPORT76

to implement impact measurement. EVPA is playing
a leadership role in the impact measurement field, as

The non-financial element of a VPO/SI’s support can

shown by the extent to which EVPA’s work on impact

be as important to the investee’s development as the

measurement is being referenced in the European

finance the VPO/SI provides. EVPA defines non-financial

Commission’s Standard78 on impact measurement, and

support as the support services VPO/SIs offer to

our participation in and contribution to the report79

investees (SPOs) to increase their social impact, organ-

produced by the Working Group on Impact Measure-

isational resilience and financial sustainability, i.e. the

ment of the taskforce on social impact investment

three core areas of development of the SPO.

established by the G8. In fact, by using the EVPA guidelines, VPO/SIs can feel confident that they are adhering

Figure 24: The three areas of development of the SPO

to the EU standard on impact measurement. In this

(Source: EVPA)

report, the main conclusions of the EVPA study are inte-

Social impact

The social change on the target
population resulting from an
SPO’s actions.

grated into the section on investment process (Part 4).
In order to help VPO/SIs tackle the challenges of
planning, delivering and valuing non-financial support,
EVPA has developed a five-step model for managing

Financial
sustainability

The assessment that an SPO
will have sufficient resources
to continue pursuing its social
mission, whether they come
from other funders or from own
revenue-generating activities.

first consider the possible forms of non-financial

Organisational
resilience

The assessment of the degree
of maturity of an SPO, in terms
of the degree of development
of the management team and
organisation (governance, fundraising capacity etc.).

non-financial support. In this report, the main conclusions from the five-step process are integrated into the
section on investment process (Part 4).
As part of its investment strategy, the VPO/SI should
support available to help the SPO advance on the three
core areas of development (i.e. social impact, financial
sustainability and organisational resilience). Based
on the VPO/SI’s own impact objectives and Theory
of Change, i.e. the social change it wants to achieve
through its investment strategy, the VPO/SI can choose

As impact measurement and management are central

which types of non-financial support are core to imple-

to the VP approach, the VPO/SI will put particular

menting its strategy.

effort in supporting the SPO’s strengthening its social
impact. The goal of impact measurement is to manage

It is recommended that the VPO/SI maps its assets, to

and control the process of creating social impact in

assess who will provide the core and non-core support.

order to maximise or optimise it (relative to costs).

The core support should be provided by the VPO/SI’s
internal team, and only in case the issue is very technical

In its report “A practical guide to measuring and

and outside of the competences of the internal team by

managing impact”77 EVPA has devised a five-step

paid, low-bono or pro-bono consultants. The non-core

framework to guide VPO/SIs in developing an impact

support can be externalised to low-bono or pro-bono

measurement process for the SPO. We recommend a

supporters or to paid consultants. The VPO/SI also

detailed reading of that report to fully understand how

needs to consider how it will finance the non-financial

76
77
78
79

This section was developed based on the EVPA report on non-financial support: Boiardi, P., and Hehenberger, L., (2015),
“A practical guide to adding value through non-financial support”, EVPA.
Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact - Second Edition”, EVPA.
For more info: http://europa.eu/rapid/press-release_IP-14-696_en.htm
For more info: http://www.socialimpactinvestment.org/reports/Measuring%20Impact%20WG%20paper%20FINAL.pdf

Part 3. The Investment Strategy

March 2018

support it provides and – in order to do so – it needs to

guide to adding value through non-financial support”80

have a clear view of the real cost of the non-financial

provides practical guidance on how to monetise the

support it is providing. The EVPA report “A practical

cost of non-financial support.

TOOL
Figure 25: A mapping of non-financial support
(Source: EVPA)
Speciﬁc Support

Area of development

Theory of Change and Impact Strategy

Impact Measurement

• Support developing the Theory of Change and the Impact Strategy
• Support to develop an evaluation framework and performance measures

Fundraising
• Assistance securing funding
from other sources
• Use VPO's reputation to help
grantees secure funding from
other sources
• Practical support with
fundraising
• Fundraising advice or strategy
• Assistance securing follow-on
funding

Revenue strategy
• Business Planning
• Business Model
Development (business
model canvas)

Human Capital Support
• Strengthening CEO + mgmt team
(through coaching/mentoring)
• Recruitment/talent provision

Financial Management
• Sound ﬁnancial mgmt
capabilities and ﬁnancial
mgmt tools
• Develop ﬁnancial systems
• Financial management
advice
• Financial planning/
accounting
• Support to establish new
ﬁnancial systems

Governance Support
• Support to develop board of directors
• Advice or assistance to strengthen the
board/governance system
• Board development/governance
assistance
• Assistance in recruitment of new
board members

Social
impact

Financial
Sustainability

Organisational
Resilience

Generic Support

Strategic Support
•
•
•
•
•

Strategy consulting
General management advice
Strategic planning advice
Support to develop the business strategy
Support to develop new products or
services
• Support to develop new business
systems or procedures
• Advice on management of change

Operational Support
•
•
•
•
•
•

Marketing
Operational management
Technical assistance in specialist areas
ICT advice
Support on procurement
Estate management/access to physical
space
• Legal advice

80 Boiardi, P., and Hehenberger, L., (2015), “A practical guide to adding value through non-financial support”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

Figure 26: Proportion of VPO/SIs who measure the spend
on NFS in fiscal year 2015
(n=95)

VP/SI INDUSTRY BY THE NUMBERS:
FROM THE EVPA SURVEY 2013/2014

Always

The spend on NFS is difficult to quantify for a vast
majority of the European VPO/SIs. In the EVPA
always measures the spend on non-financial support,

Never

Survey 2013/2014, only 11% of the respondents

In most cases

compared to a majority (52%) that never or rarely

measures it.

15
Sometimes

19
Rarely

THE STATE OF VENTURE PHILANTHROPY

of the sample indicated to offer non-financial support

AND SOCIAL INVESTMENT IN EUROPE |

in the areas of fundraising and impact measurement,

THE EVPA SURVEY 2015/2016

supporting investees in developing their own Theory

of Change, impact strategy, evaluation framework and
The services provided by most VPO/SIs include

performance measures.

strategic support (85%), revenue strategy (77%)
followed by financial management (73%). Then, 67%

Figure 27: Non-financial support activities provided in fiscal
year 2015
(n=108, multiple choice, numbers in %)

Strategic support

Revenue strategy

Financial management
Fundraising

Theory of Change

Operational support

Governance support

Human capital support

61
7

Other
0

81
82

Hehenberger, L., Boiardi, P., and Gianoncelli, A., (2014), “European Venture Philanthropy and Social Investment 2013/2014 – The
EVPA Survey”, EVPA.
Boiardi, P., and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

Part 3. The Investment Strategy

March 2018

3.6 THE EXIT STRATEGY83

or that the potential loss of social impact is minimised.
The EVPA report “A practical guide to planning and

We define an exit strategy as the action plan to

executing an impactful exit” provides a five-step

determine when a VPO/SI can no longer add value to

framework for the exit strategy (as shown below). In

the investee, and to end the relationship in such a way

this report, the main conclusions are integrated into

that the social impact is either maintained or amplified,

the section on investment process (Part 4).

Figure 28: The five-step exit strategy
(Source: EVPA)

1. Determining key exit considerations
Investment strategy B Key elements for exit B Screening

2. Developing
an exit plan

• Investment targets
- Milestones
- Timing
- Mode
- Resources
• Post-exit scenarios
- Monitoring

3. Determining
exit readiness

4. Executing
an exit

Monitoring the
investment targets
based on milestones

5. Post-investment
follow-up

Evaluation
How
Of the
VPO/SI

Determining exit
readiness:
For the For the
VPO/SI
SPO

To whom

Of the
SPO

Follow-up of
the SPO

Targets:
SPO: Social impact
Financial sustainability
Organisational resilience

VPO/SI: Social return
Financial return

As part of the investment strategy, the VPO/SI needs
to think about how the exit strategy will guarantee the

OPTIONS FOR LOCKING IN THE SOCIAL

social mission of the investee is locked in, so that the

IMPACT OF THE SPO AT THE TIME OF EXIT

SPO will continue pursuing its social impact goals even
after the VPO/SI has exited.

• Developing new legal forms.
• Locking in the social impact through the business

Different options for locking-in the social impact
include:

plan.
• Building the social mission into the organisational
culture.

This section was developed based on the EVPA report on exit strategies: Boiardi, P., and Hehenberger, L., (2014),
“A practical guide to planning and executing an impactful exit”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

The elements of the investment strategy that affect the

challenges. Before engaging with co-investors the

exit strategy are as follows:

VPO/SI needs to assess the co-investors’ investment
strategy and objectives, financial/impact trade-offs

• Context: The geographical and the sector focus

and exit plans, to make sure they are compatible and

of a VPO/SI determines the context in which both

aligned. A misalignment in the investment strategy of

the SPO and the VPO/SI operate and will therefore

the co-investors can generate issues throughout the

influence the exit strategy, especially in terms of

investment period and at the time of exit.

whom to exit to and how to exit. In some cases,

• Relationship with VPO/SI funders: The way in which

choosing to operate in a certain sector will reduce

the VPO/SI is funded impacts the investment strategy

the exit options.

and as a result the key exit considerations. If funders

• Type of investee: The type of investee funded and

have a strong influence on the investment strategy

the stage of development of the investee influence

of the VPO/SI, a sudden change in the investment

how the VPO/SI exits, whom the VPO/SI can exit to

strategy will result in the development of new key

and the milestones the VPO/SI and the SPO use to

exit considerations.

define exit readiness.
• Type of funding: Each investment modality (debt,

The overarching social and financial objectives of

equity or grant) will have different benefits/place

the VPO/SI influence all the elements of the invest-

different constraints on the exit strategy. Some invest-

ment strategy, so they will also have an influence on

ment structures will simplify exit, while others will

the VPO/SI’s exit strategy. Some VPO/SIs have a social

pose some more challenges for both the investor and

sector focus and many have developed specific social

the investee at the time of exit. The investor needs to

impact objectives they would like to achieve in the

perform an overall assessment of the financial instru-

social sectors where they operate. Financial return

ments it uses to finance the SPOs in its portfolio and

goals express the preference of the VPO/SI in terms

how they influence the exit.

of return on investment (ROI) of the SPOs it invests in

• Co-investing: Co-investors with a broad network that
can be leveraged are a very important asset, especially

and the definition of how each investment is expected
to contribute to the overall portfolio return.

at the time of exit. However, co-investors also create

KEY ISSUES
AND LEARNINGS

• Non-financial support is critical to the success of
the VP approach – Clearly defining which types
of non-financial support are core to the VPO/SI’s

• Clear focus – The VPO/SI needs to be clear at the
outset about its objectives and its operating model.
What areas of social need will it address? What
types of organisation will it invest in? What types of
financial instruments will it use?
• Role of financial instruments – Carefully selecting
and applying the most suitable financial instrument(s) for a given organisation is part of the ‘art’
of VP investing.

strategy will help the VPO/SI understand which
resources it needs and which organisations it should
invest in.
• It is important to consider which elements of the
investment strategy will determine how the exit
strategy is further developed.

March 2018

53
53

PART 4.
THE INVESTMENT
PROCESS

Teens and Toddlers © Impetus – The Private Equity Foundation

A Practical Guide to Venture Philanthropy and Social Impact Investment

PART 4.
THE INVESTMENT PROCESS
For each investment, the VPO/SI goes through an

After assessing the key elements of its investment

investment process as outlined below (see Figure 29).

strategy, the VPO/SI screens the investments opportu-

This process helps maximise the achievement of the

nities available (deal flow). After the first deal screening,

social and financial return objectives for the VPO/SI at

a detailed screening (or due diligence) helps the VPO/SI

the time of exit. By properly managing the process, the

to decide which SPOs to invest in and decide how to

VPO/SI maximises its exit options and works towards

structure the deal (deal structuring). The investment

enabling the most appropriate and impactful use of its

management both at SPO and VPO/SI level follows

resources. The VPO/SI should plan, monitor and execute

the investment appraisal phase. When the VPO/SI can

the investment and the exit with the final aim of leaving

no longer add value or when the investment objec-

behind an SPO that has a stronger business model and

tives have been achieved, the relationship between the

organisational structure and that is capable of attracting

VPO/SI and an investee organisation ends with an exit.

and managing the resources necessary to pursue its
social impact goal(s) in the long term.

Figure 29: The investment process in the VP/SI space
(Source: EVPA)

Investment Process
Investment
Strategy

Deal
Screening

Due
Diligence

Deal
Structuring

Investment
Management

Exit

Evaluation &
Post-exit
Follow-up

Investment Appraisal

4.1 INVESTMENT APPRAISAL

KEY STEPS OF THE INVESTMENT
APPRAISAL PHASE

Different participants employ differing terminology
for the investment appraisal process. It is advisable for

• Deal Screening: A knock-out screening step for

the VPO/SI to be aware of the time required by the

applicants who do not meet the standard applica-

SPO to undergo investment appraisal, and to ensure

tion criteria. This will eliminate organisations that will

that the time used at each screening stage is propor-

definitely not secure funding. This is a preliminary

tionate to the potential benefit. While this is guesswork

screening procedure of the investment opportunities

for a start-up fund, it can be established through inde-

available (deal flow) – it requires initial application

pendent investee feedback for more mature funds.

documents only.
• Due Diligence: Detailed screening usually resulting in

However, the key elements of the process are often

the investment proposal presented to the investment

similar and follow certain key steps.

committee for a final investment decision.
• Deal Structuring: A set of terms and conditions
which specify how the agreement between the
VPO/SI and the investee SPO is to be concluded.

Part 4. The Investment Process

4.2 DEAL SCREENING

March 2018

target SPOs directly is the recommended route for
securing initial deals. According to the EVPA Survey

The first step of the appraisal process is a preliminary

2013/201484, 90% of the European VPO/SIs chose this

screening procedure of the investments opportunities

investee identification method. Managing open funding

available (deal flow), followed by a knock-out screening

applications is another option, but it can impose signif-

of the applicants that do not meet the standard appli-

icant administrative burdens without providing any

cation criteria (first screening).

guarantee of success.

4.2.1 Deal flow

Managing an open application process can create

Generating high-quality deal flow is one of the most

a pool of disappointed applicants that can have a

important challenges a VPO/SI will face and it should

negative impact on the VPO/SI’s reputation. Moreover,

receive the same level of priority as fundraising. Even if

the VPO/SI has to decide whether to operate a ‘gated’

this is not immediately apparent, the task is likely to be

process, where it invites applications at specific times,

just as difficult. Planning for deal flow should therefore

or it has an always-open application process. The former

start around the same time as planning for fund-

can be very cost-effective in terms of generating and

raising. Finding early investment opportunities that

processing deal flow but it presupposes:

offer a good fit to the VPO/SI’s objectives can be of
crucial importance in securing investment. The type of
investee that is the target of VP activity is sometimes
hard to find. In many ways, VPO/SIs have to take an
active part in creating the market and good ideas may
need to be incubated.

1. Good marketing channels for the VPO/SI to
broadcast its process;
2. A fairly mature SPO market where organisations
will be open to respond to a gated process; and
3. A well-branded VPO/SI, with an existing track
record.

This section deals with the various issues related to deal
flow. Due to the possible lack of suitable social purpose

There are many ways of identifying potential invest-

organisations available, identifying and approaching

ment targets85:

DIFFERENT WAYS OF IDENTIFYING
POTENTIAL INVESTMENT TARGETS

• Through desk research (done by 47% of European
VPO/SIs).
• Connecting with VC funds that have dropped

• Networking with intermediaries, other funders,

high-risk deals, which could be of interest (this is

and, in particular, potential co-investors with a

particularly relevant if your VPO/SI focuses on social

deep knowledge of the field of interest (preferred

enterprise investments).

investee identification activity by European VPO/SIs,
with 79% using this option).
• Speaking at sector-specific conferences (innovative
approaches arouse interest – this option is used by
62% of European VPO/SIs).
• Through existing portfolio organisations (these

• Looking for SPOs implementing projects within the
focus area of the VPO/SI (this is relevant if your
VPO/SI has a sector or geographic focus).
• Organising business plan competitions (also more
relevant to social enterprise – used by 32% of
European VPO/SIs).

can be the best source, and it is used by the 59% of
European VPO/SIs).

84 Hehenberger, L., Boiardi, P., and Gianoncelli, A., (2014), “European Venture Philanthropy and Social Investment 2013/2014 –
The EVPA Survey”, EVPA
85 Ibid.

A Practical Guide to Venture Philanthropy and Social Impact Investment

VP/SI INDUSTRY BY THE NUMBERS:
FROM THE EVPA SURVEY 2013/201486

Figure 30: Investee identification activities in fiscal year 2015
(n=94, multiple choice, numbers in %)

90% of respondents identify and approach target
SPOs proactively, specifically through ...

63% of respondents identify SPOs
through applications ...

59
47

30
20

30
10

19
7

Professional
Conferences and
networking
organised events
and intermediaries

Existing portfolio Desk research
organisations

Business plan
competitions
for social prizes

Application –
Gated
Other
all year
application applications

According to the EVPA Survey 2013/2014, 90% of

yet developed its own network of potential SPOs to

VPO/SIs are proactive in their search to identify and

invest in. VPO/SIs increasingly make contact through

approach the SPOs to invest in, whereas 63% accept

networking and intermediaries (79%, an increase of

open applications. The latter increased from the latest

9 percentage points compared to fiscal year 2011),

data we had from fiscal year 2011 when the percentage

followed by conferences and organised events (62%,

of European VPO/SIs that accepted open applications

an increase of 14 percentage points compared to the

was 43%. The application process is normally used in

past), and existing portfolio organisations (59%, an

less developed markets or when the VPO/SI has not

increase of 5 percentage points).

In addition to attracting deal flow, your VPO/SI needs

process to employ. Several other measures can help to

to define clearly the type(s) of investments it is looking

optimise deal flow:

for, as well as the selection criteria and the application

MEASURES THAT HELP OPTIMISE

deal flow. These may be foundations or trusts, other

DEAL FLOW

individual philanthropists, or a corporate or even a
state funder. If the co-investors are older than your

• In the beginning, aim for quick wins by choosing

VPO/SI, they will have an existing pipeline, rela-

low-risk deals. Some early success stories can help

tionships and market knowledge, all of which can

to secure financing. Deals that offer higher levels

save you time. However, be specific about what you

of social return will more likely flow once a robust,

are interested in and what you are not interested

high-quality portfolio is in place.

in. Make a ‘what my fund will not invest in’ list and

• Working with a small group of aligned co-investors will significantly improve the quality of your

86 Ibid.

circulate it widely.

Part 4. The Investment Process

March 2018

• Select your marketing channels (but remember that

very clearly to SPOs. You will need to differentiate

word of mouth is the most powerful channel of all):

yourself from all other funding sources, including

-- Website, web links, annual report of the VPO/SI,
publications, conference presentations, etc.
-- Current investees
• Casting the net widely (e.g. by publishing informa-

other philanthropies, state and corporate funders.
• Do not be afraid to focus on organisations that
you already know - If rejected applicants have
had a positive experience and have received some

tion and application forms on the web) may trigger

added value, they will refer you on to others (clearly

many applications, but they may not be of the right

communicating positive feedback and constructive

quality. If you do communicate through the web

criticism arising from due diligence can represent

about the projects you prefer to do, it is advisable to

tremendous added value for an SPO; so can a

also communicate the type of projects you definitely
do not. Also provide a case example of an ideal
investment.
• Develop a clear positioning around your VPO/

referral by you to another funder).
• Provide a case example of an ideal investment, and
include a “what we will not invest in” list on your
website.

SI’s value-added services – and articulate this

4.2.2 First screening

The exit strategy of the VPO/SI is an integral part of its

The impact objectives of the VPO/SI will guide the deal

investment strategy and aligning the exit strategy and

screening step in the investment process, narrowing

the investment strategy is a crucial pre-condition for a

down the type of SPO that will be considered for invest-

successful exit. The key exit considerations developed

ment. For each potential investment, it is important to

in parallel to the investment strategy guide the VPO/

evaluate the expected outcome of its investment in the

SI throughout the investment process and especially in

SPO, i.e. the expected outcome of the SPO and how

the deal screening, i.e. in assessing which investment

the VPO/SI expects to contribute to achieving that

opportunities fit with the VPO/SI’s social impact and

outcome. To assess whether the potential investment

financial return goals (please refer to section 3.6)88.

opportunity fits with the VPO/SI strategy, the VPO/SI
can ask questions detailed in Step 1 of the impact measurement process proposed by EVPA (Setting Objec-

FIRST SCREENING:

tives)87, which are derived from the Theory of Change of

A TWO-STEP APPROACH

the VPO/SI and help guaranteeing alignment between
the goals of the VPO/SI and the goals of the SPO.

Step 1: Desk screening of strategic fit between investor
and investee

A two-step approach to first screening is recom-

• Thematic focus

mended, with ‘reject/continue’ decision points after

• Geography

each step.

• Investment size
• Social relevance/impact

The outcome of first screening is the basis for the initial
decision by the VPO/SI. Detailed screening will only be

Step

completed for organisations with a serious chance of

acquainted and to get an overall view of the organi-

securing investment. As such, it should not consume

sation and its activities, projects, partners, including

much time from the SPO.

a preliminary needs’ assessment and whether the

Discussions

with

management

get

VPO/SI can add value.

Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact – Second Edition”,
EVPA.
88 Boiardi, P., and Hehenberger,L., (2014), “A practical guide to planning and executing an impactful exit”, EVPA.
87

A Practical Guide to Venture Philanthropy and Social Impact Investment

4.3 DUE DILIGENCE

Considering the funding offer of the VPO/SI, at this
stage, there can be two different scenarios: (i) the

Detailed screening, sometimes referred to as due

VPO/SI has the possibility to pick among a wider range

diligence, will usually be performed (at least in part)

of FIs; (ii) the VPO/SI can only use a single type of

through analysis and validation of a business plan.

financial instrument, e.g. due to its legal structure.

Interviews with SPO management, staff and board,
review

focused

In the first case, the VPO/SI should assess what is

research on external information sources will be of

relevant

documentation

and

the best FI to use, among the different possibili-

crucial importance.

ties available, which can be successful in terms of
the VPO/SI’s expectations, SPO’s needs and impact

Stakeholder analysis (i.e. Step 2 of the impact meas-

achieved. In the second case, the VPO/SI needs to

urement process proposed by EVPA89) should be

assess whether the only FI it can deploy is really the

an integral part of the due diligence phase. To avoid

most appropriate to effectively finance the SPO and

wasting resources, it is advisable for the VPO/SI to

to match its own goals with the needs of the SPO. Or

increase the intensity (i.e. more stakeholders, more

whether, for the VPO/SI, it would be more convenient

involvement from the same stakeholders and higher

to find other SPOs to support and for the SPO to look

numbers involved from each group up to the number

for other types of financing90.

required for a non-biased and random sample) of the
analysis as it becomes more likely that the investment

The detailed screening process will cover at least the

will be realised.

following items:

ITEMS TO BE COVERED DURING

social performance. It is useful as part of the due

THE DUE DILIGENCE

diligence phase to check whether the impact
monitoring system the SPO already works with is

• Social Impact:

sufficient to meet the requirements of the VPO/

- Theory of Change – What is the theory of change?

SI. Otherwise, the VPO/SI may need to contribute

It is vital to gain a detailed understanding of the

to improving it through non-financial support and

current and expected social impact of the SPO.

those costs should be factored in before making an

It not only reduces the risk of making the wrong

investment decision.

investment, but also creates a common understanding of the impact of an organisation among

• Financial Sustainability:
-- Market – Market size, growth, developments,

all stakeholders and allows the VPO/SI and SPO to

segments; relevant other initiatives/competitive

‘speak the same language’. If an SPO is claiming

positioning. The appeal of a specific SPO can also

a certain outcome then they need to prove it. If

make the VPO/SI overestimate the future develop-

the SPO cannot deliver the data, the VPO/SI must

ment of a market: the recommendation here is to try

consider whether they will bring in the expertise
and provide the necessary support so the data can
be collected or question whether the SPO is an
appropriate investment at all.
-- Impact measurement systems – Track record

to be prudent when making predictions about it.
-- Sources of income – Funding trends and funding
mix.
-- Financial – History (results, previous financings);
budgets and forecasts; funding gap/financial ask;

of execution; impact measurement steps; social

co-financing; terms of investment, financial reporting

impact targets; monitoring and reporting on

and control process in place.

B
89 Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact – Second Edition”,
EVPA.
90 See Part 2, Chapter 4 (pages 49 and 50) in Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The Key Role of
Tailored Financing and Hybrid Finance”, EVPA.

Part 4. The Investment Process

• Organisational Resilience:
-- Organisation – Legal structure; quality of manage-

March 2018

-- Operations – What the SPO does to deliver on its
strategy, including details of the organisation’s

ment; governance; transparency of results, board

income-generating model, if relevant. A technical

quality. Dysfunctional SPO’s boards are time-

review of the appropriateness and solidity of the

consuming and can constitute a major problem.

product or service the SPO delivers/ performs may

Extensive reference checks on the management

be a part of the process.

team are important not to overestimate the
capabilities and the entrepreneurial spirit of the
management team of the SPO.

The detailed screening should deliver the key infor-

The first question to be answered in order to assess

mation needed to complete the investment appraisal

if there is a match between the VPO/SI and the SPO

process, including:

is: “Does a market (commercial or public) exist for the
SPO’s products/services or activities?”

KEY INFORMATION TO BE DELIVERED BY

As shown in the figure above, based on the answer to

THE DUE DILIGENCE

this question, four possible scenarios open up92:
1a. If the SPO has a business model that will never

• Needs’ assessment (to understand what type of

become self-sustainable, it will take a charity/NGO

financial and non-financial support is needed and

status and will need to be financed through grants

the status of development of the SPO in terms of

throughout its existence (eventually with different

social impact, financial sustainability and organisa-

amounts, depending on the decision to scale or not

tional resilience)91.

to scale). Here we are thinking of SPOs that are,

• Risks related to the investment.

for example, active in advocacy, and that are the

• Potential mitigation measures (conditions for

primary target for our members that do highly-en-

investment).
• Potential phasing of financing (milestones).
• Possibilities for scaling the initiative.

gaged grant-making and for the public sector in the
phase of scaling.
1b. If market infrastructures are not yet developed but

• Involvement by VPO/SI after investment.

there is a potential for the SPO to build the market

• Exit option(s) (see section 4.6).

and then become self-sustainable, we argue that
the VPO/SI will need to provide first grants, and
then social investment (in the form of patient

In the due diligence phase the VPO/SI and the SPO

equity, loans and hybrid financial instruments). This

work together to determine the financial needs of the

is one of those cases in which the SPO will need to

SPO. In chapter 3.3 of this report, we highlighted the

change its organisational structure while it evolves,

importance for the SPO to reflect on its own financial

moving from a grant-based model to a social-in-

needs (i.e. auto-assessment) already during the defi-

vestment model.

nition of its own business model. In the due diligence

2. If there can be a market (either immediately or

phase, it is important for the VPO/SI to assess on its

down the line) for some of the activities and/or for

side the financial needs of the SPO, to make sure there

the products/services developed by the SPO but

is a match between the financial instruments available

part of the activities will never become self-sustain-

on the VPO/SI’s side and the needs of the SPO. The

able, the SPO will take a hybrid structure and will

match will then be formalised in the deal structuring

need to have access to a mix of grants and social

phase (see chapter 4.4).

finance, provided often by different actors.

91
92

EVPA’s “A practical guide to adding value through non-financial support” provides a useful needs’ assessment tool.
See Executive Summary (page 9) in Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The Key Role of Tailored
Financing and Hybrid Finance”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

3. If the SPO has a business model that allows it to

The time required by the SPO for detailed screening

become self-sustainable, it will choose an organi-

should be in direct proportion to the size of the potential

sational structure which is very close to a traditional

investment. However, in practice, even small invest-

commercial organisation. In this case the SPO ideally

ments require substantial screening. VPO/SIs should

has access to social investment already in the early

consider the minimum size of investment required to

stage of development (so access to very patient

ensure that their own efficiency is not compromised.

equity, loans and hybrid financial instruments). In this
report we underline how these organisations still might
need grant in the seed stage, but should also have the
opportunity to access patient social finance.
Once the VPO/SI has assessed in which of the categories above the SPO falls, the VPO/SI, considering
the financial instrument(s) it has available, can decide
whether or not to invest in the SPO.

Figure 31: Path for the SPO – Assess the SPO’s financial needs
(Source: EVPA Knowledge Centre)

Ask the following question:
“Does a (private or public) market exist for the SPO’s products/services or activities?”

1A. THERE IS NO MARKET

Grants

The SPO will never become self-sustainable
due to the segment of the market it is
serving and/or due to the type of products/
services it is offering

1B. THERE IS NO MARKET YET
Market infrastructures are not yet
developed but there is a potential for the
SPO to build the market and then become
self-sustainable

50/50

2. THERE IS A MARKET FOR PART OF
THE SPO’s PRODUCT/SERVICES
There can be a market (either immediately or
down the line) for some of the activities and/
or for the products/services developed by
the SPO but part of the activities will never
become self-sustainable

YES

3. THERE IS A MARKET
The SPO has a business model that allows it to
become self-sustainable

Grants

Transition
from a grantbased model
to a socialinvestment
model

MIX of Grants and Equity
instruments, Grants and Loans,
Hybrid financial instruments

Equity instruments, Loans,
Hybrid financial instruments

Equity
instruments,
Loans, Hybrid
financial
instruments

Part 4. The Investment Process

March 2018

VP/SI INDUSTRY BY THE NUMBERS: FROM

performing at least a review of the investee docu-

THE EVPA SURVEY 2013/2014

mentation received online and 76% of the respond-

ents performing a general web search. Over 70% of
The EVPA Survey 2013/14 shows that European

the respondents meet with the key people in the SPO,

VPO/SIs are personally involved in due-diligence activ-

speaking with the members of the board of directors

ities, with 94% of the respondents performing a site visit

and to previous business partners and investors of

to interview top management in person. Performing

the SPO. Over almost half the respondents interview

general searches is done by the largest majority of

the employees in person and reaches out to the top

the VPO/SIs, with 88% of the survey respondents

management of the SPO, without meeting in person.

Figure 32: Due diligence activities in fiscal year 2013
(n=93, multiple choice, numbers in %)

Site visits: interview with
top management in person

Review of investee documentation received online
(annual reports, ﬁnancial statements, others)

88
76

Web search
Speak with members of the board
of directors of potential investee

Speak to previous business partners
or investors of potential investee

70
57

Speak with top managers (not in person)
Site visits: interviews with investee’s employees
(not top management) in person

Site visits: interviews with investee’s clients
or ﬁnal beneﬁciaries in person

Legal due diligence conducted by
an independent third party

Financial due diligence conducted by
an independent third party

Speak to government oﬃcials and
regulators involved in the sector of interest

Speak to local representatives of
multi-lateral organisations
(IADB, World Bank, ADB, IMF, UNDP, etc.)

Operational due diligence conducted
by an independent third party

28
11

Other
0

100

Hehenberger, L., Boiardi, P., and Gianoncelli, A., (2014), “European Venture Philanthropy and Social Investment 2013/2014 – The
EVPA Survey”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

THE STATE OF VENTURE PHILANTHROPY

result that may indicate an increase in the quality of the

AND SOCIAL INVESTMENT IN EUROPE |

deal screening process in the VP/SI sector. On average,

THE EVPA SURVEY 2015/201694

each VPO/SI screened 86 organisations in 2015, did
further due diligence on 17 of them and selected

On average, VPO/SIs performed due diligence on 20%

9 investees.

of the screened organisations and selected 53% of the
organisations that had gone through due diligence. The
share of organisations that were funded after passing
due diligence has increased compared to the past, a
100

93
FY 2012

FY 2013

Screened

FY 2015

7 4

Due
Funded
Diligence

Screened

Average
Median

40
19

Figure 33: Average and median number of SPOs screened,
under due diligence and funded per VPO/SI in fiscal years
2012-2015

7 3

Due
Funded
Diligence

Screened

Due
Funded
Diligence

Fiscal year 2015 n=87
Fiscal year 2013 n=77
Fiscal year 2012 n=69

The entire appraisal process, and the due diligence in

Building a close relationship between the two parties

particular, is a two-way process that will require coop-

(culture and personality fit, mutual trust).

eration between VPO/SI and SPO, enabling each to
see where and how they can add value (it is a learning

ADVANTAGES OF BUILDING A CLOSE

process). We encourage transparency as many SPOs

RELATIONSHIP BETWEEN THE VPO/SI

may not be familiar with practices that the investor

AND THE SPO

may regard as a standard way of working that requires
no explanation. Being involved in the appraisal process
also creates commitment and a motivation for a

• Involves different management levels from each
organisation.

positive outcome. The VPO/SI should only engage in

• Allows meetings to take place at different locations

areas where it can add value and not seek to compen-

• Allows experiences and expectations to be shared

sate for the target SPO’s lack of resources. Notwithstanding this, outsourcing due diligence to a third

(results, timing, effort).
• Lays the basis for future cooperation.

party, or compensating the SPO for undertaking the
task itself, creates a more arm’s-length relationship
and can make rejection decisions further down the line

The extent of engagement during the appraisal process

easier and more objective. Regardless of the level of

should be weighed against the level and form of

involvement agreed, it will be important to spend time

engagement the VPO/SI will adopt during the invest-

with the SPO’s entire management team and board, to

ment phase. In the appraisal phase the VPO/SI and

judge their quality and general ‘buy-in’ to the plan.

the target SPO should explicitly discuss the scope and
style of their engagement during the investment phase.
Potential forms of engagement available include active

94 Boiardi, P. and Gianoncelli, A. (2016), “The State of Venture
Philanthropy and Social Investment in Europe | The EVPA
Survey 2015/2016”. EVPA.

participation,

reporting,

coordinating

engagement

with other investments, taking a board seat (active or
observer), etc.

Part 4. The Investment Process

March 2018

4.4 INVESTMENT DECISION AND DEAL
STRUCTURING

screening and discussions. However, other organisa-

The relationship that develops between a VPO/SI’s

The VPO/SI should only assist in fields in which it can

management team and the leadership of an invest-

add value. In all cases, there should be a sense of joint

ment candidate is a crucial factor in the investment

development and ownership of the business plan, with

decision, as the judgement of the quality of the lead-

objectives that incorporate the perspectives of each

ership (non-profit CEO, social entrepreneur, etc.) and

organisation. Cooperation in business planning creates

the executive team, enabling the VPO/SI to build trust

commitment and buy-in from both sides. Co-developed

and confidence in the SPO’s ability to deliver during

business plans are generally developed after the first

the investment phase.

screening analysis and discussion has been completed

tions will require assistance with business planning.

(i.e. there has been a preliminary approval).
The interaction with the potential investee SPO will
help to answer certain key questions (see box below).

When deciding about investments, the recommendation in general is to avoid investments in SPOs with

QUESTIONS THAT WILL BE ANSWERED

high product/service risk; in sectors or geographies

THANKS TO THE INTERACTION WITH THE

that the VPO/SI does not know or where the risk of not

POTENTIAL INVESTEE

creating impact is too high; investments too quick or
only to fill quotas, without adding strategic value; or

• Is the leadership truly and deeply motivated by the

finally in SPOs not ready for the VP approach95.

mission of the organisation?
• Is it focused on maximising the organisation’s social
impact?

To reduce the risks of failures in deal selection, the
VPO/SI should consider undertaking stepped invest-

• Does it have a clear vision of where the organisation

ments96 in target SPOs. The VPO/SI can ‘test the water’

needs to be in three to five years – and how to get

with new organisations by completing small invest-

there?

ments initially as:

• Does the leadership have the critical competencies
and skills needed to execute its plans effectively?
• Does the board add value where needed?
• Can we work together?

• This can limit risk and minimise failure.
• Seeding multiple SPOs through small capacity-building investments or donations can allow a
VPO/SI to ‘get to know’ the organisations and test

In many cases, there will be a need to develop and

them without risking too substantial funds.

review a business plan for the target SPO. This can
happen at different points in time, depending on the

Managing negative decisions is another important part

size and capabilities of the SPO. Larger, more estab-

of the investment process. The VPO/SI should build in

lished SPOs should be able to write their own plan. This

several evaluation and decision-making steps within the

ensures that the applicant maintains ownership of the

overall appraisal process, so that it can, where necessary,

plan and the objectives it contains, and that the social

refuse funding at an early stage. The applicant should

mission is built into the organisational culture so that at

be made aware of each step in the decision-making

the time of exit there is no incentive to discontinue it.

process, and the key criteria considered at each step.
One challenge in deal selection is to say no (an early

If the SPO is capable of writing up its own plan, limited

no) to appealing but unpromising ventures. Even more

commitment will be needed from the investor, with

difficult – and of utmost importance – is to distil this skill

the business plan acting as the starting point for first

into a code of practice that is to develop the knowledge

95 Hehenberger L. and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.
96 Incremental investments to the same investee.

A Practical Guide to Venture Philanthropy and Social Impact Investment

and skills to have a feeling for what is right, a sort of

responses to the essential questions to help them

screening skills apprenticeship. To achieve this ability,

express their objectives. Defining in the initial stages of

it is necessary to build up experience – and experience

the relationship with the SPO exactly what it wants to

stems from attempts97.

deliver makes it much easier at a later stage to assess
whether this has been achieved. To remove a reliance

If and when a positive decision on the investment is

on and/or culture of ‘gut feeling’, it is essential that

made, understandings and agreements should be laid

the VPO/SI works with the SPO to develop an impact

down in an investment contract between the VPO/SI

monitoring system which can be integrated into the

and the SPO. Before this is finalised, legal due diligence

management processes of the organisation, defining

may be performed to eliminate, where possible, the

timings for each indicator (as not all impact happens

risk of any further obstacles or surprises.

at the same time), tools to be used and responsibilities. The cost to support and maintain such a system

Ideally, when the deal is structured, apart from financial

(including personnel time and costs) should be part of

considerations, the VPO/SI and SPO should work

the SPO’s budget and hence may be part of the nego-

together to develop a plan that allows the VPO/SI to

tiation with the investor in order to decide how costs

work towards an exit (exit plan), and a plan where the

should and/or could be split.

development needs of the SPO and the main aspects
of the non-financial support have been identified (non-

At the deal structuring phase, it is important to

financial support plan).

clarify who is responsible for measuring what. The
responsibilities of who measures what could and

4.4.1 Non-financial support plan

probably should evolve over time as the SPO grows

When the deal is signed, the VPO/SI and the SPO

and develops and should be reviewed on an annual

discuss and develop the non-financial support plan

basis. For impact measurement the expected outputs,

(see Figure 34 p. 66-67). For each development area

outcome and impact, and the corresponding indicators

that has been agreed as priority to tackle, including

should be defined before the investment is made and

impact measurement, the non-financial support plan

agreed upon by the VPO/SI and the SPO. The VPO/SI

should include the baseline, goal, milestones, and

should ask the SPO to focus on those indicators that

target outcomes for the SPO, along the dimensions of

are directly related to the SPO’s Theory of Change and

financial sustainability, organisational resilience and

hence in line with their operational process. Any addi-

impact objectives.

tional indicators required for the VPO/SI to satisfy its
own impact measurement needs should be collected

The plan should also include the details of the support

by the VPO/SI. Similarly, for the objectives in terms of

the VPO/SI will provide to the SPO to achieve the

financial sustainability and organisational resilience,

planned milestones, and the concrete deliverables, e.g.

the VPO/SI and the SPO need to agree on what data

have a governance system in place.

will be collected during the investment management
phase and how the SPO will be able to give feedback

The resources of any SPO are limited and decisions have

on the non-financial support provided.

to be made about the amount of time and resources
that an SPO should dedicate to impact measurement99.

Reporting

An important role of the VPO/SI is to convince the

upfront between the VPO/SI and the SPO, preferably

investees of the value of impact measurement, provide

involving co-investors in the decision-making process

assistance where possible and define with them the

to eliminate a multiple reporting burden for the SPO.

requirements

should

also

agreed

97 Hehenberger L. and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA
98 This section was developed based on the EVPA report on non-financial support: Boiardi, P., and Hehenberger, L., (2015), “A practical
guide to adding value through non-financial support”, EVPA
99 Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact – Second Edition”, EVPA.

Part 4. The Investment Process

March 2018

Managing expectations about frequency and level of

In the table below, EVPA combines three broad

detail for reporting, and the way the SPO reports will

VPO/SIs’ impact strategies and the four possible

reduce the risk of problems later on in the process.

different scenarios – described in chapter 4.3 – considering the existence or not of a (private or public) market

Both SPO and VPO/SI should formally engage in

for the product/service/activity of the SPO. Then, for

fulfilling their part of the non-financial support plan,

each combination, there are types of financial instru-

and to flag potential issues or problems as they arise,

ments more appropriate than others. It is important to

allowing the plan to be flexible. It is good practice to

highlight that all these considerations strictly depend

present the non-financial support plan as a part of the

also on the stage of development of the SPO.

documents signed in the deal structuring phase, so
that it represents a ‘charter of engagement’, which can

Table 1 summarises the options that, in a perfect market,

be used by both parties as a pressure point towards

are the most advisable to choose to support each

the other to ask for delivery of results or of support.

category of SPO. For example, SPOs that offer products
and services that will never have a market should be

4.4.2 Choosing the best financial instrument

100

supported by VPO/SIs that seek exclusively to generate

In the deal structuring phase, the VPO/SI and the SPO

a social impact. On the other hand, VPO/SIs that want

need to choose which financial instrument will be used

to generate a social impact but also look for a financial

to support the SPO.

return should finance SPOs that are or will be able to
generate returns through their business model.

Table 1: Matching the expectations of the VPO/SI with the
financial needs of the SPO
(Source: EVPA Knowledge Centre)
NO MARKET

MARKET
SPO’S BUSINESS MODEL

1A. THERE IS NO
MARKET FOR THE
PRODUCTS AND
SERVICES OF THE
SPO

1B. THERE WILL BE
A MARKET FOR THE
PRODUCTS AND SERVICES
OF THE SPO

2. THERE CAN BE A
MARKET FOR SOME OF
THE PRODUCTS/SERVICES
OF THE SPO BUT PART
OF THE ACTIVITIES WILL
NEVER BECOME SELFSUSTAINABLE

3. THERE IS A MARKET
FOR THE PRODUCTS
AND SERVICES OF THE
SPO

• Grants

• Grants (seed/market
building)

• Grants (for the non-profit
part)

• Grants (seed)

B. Social
impact first,
financial return
accepted

• Grants (seed/market
building)
• Hybrid financial
instruments
• Social Investment
(validation and scaling)

• Grants (for the non-profit
part)
• Social investment (for the
income-generating part)

• Grants and social
investment
• Hybrid financial
instruments

C. Social Impact
and financial
return on the
same level

• Hybrid financial
instruments
• Social investment
(scaling)

• Social investment (for the
income-generating part)

• Hybrid financial
instruments
• Social investment
(scaling)

VPO/SI’S IMPACT
& FINANCIAL RETURN
EXPECTATIONS

A. Social
impact only

100 Section based on Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The Key Role of Tailored Financing and
Hybrid Finance”, EVPA.

Part 4. The Investment Process

A Practical Guide to Venture Philanthropy and Social Impact Investment

March 2018

TOOL
Figure 34: The non-financial support plan
(Source: EVPA)

TOOL
Derived from discussion on needs’ assessment in Step 2
(matching VPO’s and SPO’s views)

Monitoring
(for Step 4)

Derived from needs’ assessment (Step 2) and
NFS mapping (Step 1)

From the VPO’s asset
mapping (core vs noncore) in Step 1

Monitoring
(for Step 4 and Step 5)

Outcome

Mapping NFS
needed to achieve
milestone / objective

Who provides it?

Deliverables

Capability
Specific need of
the SPO

Priority
for SPO?
(1 to 3)

Baseline

Goal

Milestone

Social Impact

Financial Sustainability

Theory of
Change
and Impact
Strategy
Impact
Measurement

Fundraising

The SPO has limited
access to multiple
categories of
funders

70% of SPO
revenues coming
from VPO’s
investment

<30% of SPO
revenues coming
from VPO’s grant

50% of SPO
revenues coming
from VPO’s grant by
the end of year 1

• Assistance securing
funding from other sources
• Networking with potential
funders and government
• Practical support with
fundraising
• Fundraising advice or
strategy

Core and in-house expertise
B VPO staff

The SPO has limited
financial plans &
monitoring

Financial planning
and reporting tool
insufficient

Fully fledged
financial planning
and reporting
system in place
by the end of the
financing period

Have a version of
tool X tailored to
the SPO

• IT support to develop the
tool in line with the needs
of the investee
• Train the CFO to use the
tool

Core but very specialised B
External paid consultant

Revenue
Strategy

Financial
Management

Organisational Resilience
Governance
Support

Human
capital
Support

CFO capable of
using the tool by
the end of year 1

Organisational Resilience

Tailored to by [DATE]
CFO training: 2 days / month
for 5 months

A Practical Guide to Venture Philanthropy and Social Impact Investment

Some SPOs may be hesitant to work with funding

4.4.3 Exit plan103

instruments other than grants because they perceive

On top of the non-financial support plan, the VPO/SI

them as risky or simply confusing . Grants can be used

and the investee should discuss and co-develop an

in situations that overlap with other types of financing.

exit plan upfront. The exit plan allows the two parties

These situations can be geographically specific (to the

to clarify the key points related to the exit, which

funding market in a particular country for example) as

include the general goals of the investor (related to the

well as specific to the solution provided by the invest-

financial, organisational and impact milestones of the

ment and to the length of time needed to solve the

investment), the expectations of both parties and the

problem. Grants are particularly well suited to situa-

timing of the exit. The aim is to maximise the trans-

tions where the possibility of generating earned income

parency of the relationship between the investor and

is highly unlikely, undesirable or difficult to achieve

the investee and to clarify expectations. The exit plan

within the investment horizon of the VPO/SI. Large-

must be matched with the deal structuring, and the

scale systemic change processes that attempt to alter

resources necessary to monitor the investment and to

an entire sector may require ten years or more before

roll out the overall exit plan need to be allocated.

101

generating revenue and would therefore require grantmaking rather than other types of financial instruments.
Furthermore, grants or grant-related instruments will

Figure 35: Key elements of an exit plan
(Source EVPA)

be preferable when earned income of the recipient
organisation is anticipated to be insufficient to cover
expense budgets, and in the absence of securitable

Investment
targets of
the VPO

assets. However, in the EVPA report “Learning from
failures in Venture Philanthropy and Social Investment”102, experienced VPO/SIs expressed some frustrations in the use of grant instruments. Issues arise
because it is sometimes difficult to control what grant

Goals for
the SPO and
milestones

Exit market
scenarios

money is used for and in some cases the lack of high-

Exit
plan

quality projects that can be financed through grants.
Suggestions on how to overcome these challenges
include disbursing the grant according to milestones
and requesting a matching grant. However, grants are
essential to act as risk capital in particular to fund

Timing of exit

Resources

high-risk organisations.
In the same report, debt is recommended as a good

Mode of exit

funding solution when starting to experiment with VP.
In particular, convertible loans can be used instead of
equity to avoid costly valuations. However, one should
bear in mind that non-grant instruments have limitations, as they imply some level of income generation.
Repaying a loan from third-party grants or donations
may not be acceptable. Moreover, they can also give
rise to conflicts between social and financial objectives.
101 To have a complete overview on when it is most suitable to use a certain type of financial instrument, and a list of pros and cons of
the financial instruments listed in this paragraph, see: Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact | The Key
Role of Tailored Financing and Hybrid Finance”, EVPA.
102 Hehenberger, L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.
103 This section was developed based on the EVPA report on exit strategies: Boiardi, P., and Hehenberger, L., (2014),
“A practical guide to planning and executing an impactful exit”, EVPA.

Part 4. The Investment Process

March 2018

The key elements of the exit plan are:
KEY ELEMENTS OF

• Mode of exit – including how and whom to exit to,

THE EXIT PLAN

both of which largely depend on the financial instrument used.

• Investment goals of the VPO/SI – as derived from
the key exit considerations.

• Resources – to monitor the investment and roll out
the exit plan (should be included in non-financial

• Goals of the SPO and milestones – as defined in the
non-financial support plan, used to help determine
when exit readiness is achieved.

support plan).
• Exit market scenarios – in which the VPO/SI tries to
predict whom it will exit to and what the market will

• Timing of the exit – i.e. the investment horizon,

be like at the time of exit.

which largely depends on the flexibility offered by
the financial instrument used.

The development of the exit plan is a joint effort of

and clear (including when the VPO/SI will exit, how and

the VPO/SI and the SPO, and the goals and milestones

to whom), but also needs to provide sufficient flexibility

should be formalised and included in a Memorandum of

(and liquidity) to be able to react to deviations.

Understanding (MoU). The exit plan needs to be detailed

VP/SI INDUSTRY BY THE NUMBERS:
FROM THE EVPA SURVEY 2013/2014

104

Figure 36: % of VPO/SIs that involve the investee in the
development of the exit plan in fiscal year 2013
(Source: EVPA) (n=60)

The statistics from the EVPA Survey 2013/14 confirm the

Rarely

importance of engaging the SPO in the development
of the exit plan. Co-creation generates commitment

and ownership in the SPO and improves the whole exit

strategy process. Half of the VPO/SIs surveyed always
involve the SPO in the development of the exit plan, and
32% asserts to involve SPOs often. Only 1% of the VPO/
SIs involve the SPO rarely in the development of the
investment plan of their investment strategy to derive
key exit considerations.

Sometimes

Always

32
Often

104 Hehenberger, L., Boiardi, P., and Gianoncelli, A., (2014), “European Venture Philanthropy and Social Investment 2013/2014 – The
EVPA Survey”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

4.5 INVESTMENT MANAGEMENT

sufficient spread in terms of investment risk and to demonstrate that their investment model works in a variety of

The management of the VPO/SI’s investments is closely

situations. Interestingly, the EVPA Survey 2015/2016

connected to the size of its portfolio, i.e. the number

shows a sharp increase in the average number of investees

of SPOs supported. Investment management for VPO/

per VPO/SI in fiscal year 2015 compared to the past (see

SIs operates on two levels: at the level of each investee

Figure 37 below). These results could be driven by the

SPO, and at the level of the portfolio as a whole.

increase in the size of VPO/SIs’ funds and the economies
of scale that can be generated by investing through

4.5.1 Size of portfolio

bigger funds. The portfolio size will be determined by

A defining characteristic of VPO/SIs, especially as

the size of the fund, the average size of the target organ-

compared to many pure grant-makers, is the relatively

isations and the average level of support needed (taking

small size of the portfolio of organisations being actively

into account the need to avoid financial dependency).

supported at any time. However, in choosing the size of
their portfolios, VPO/SIs will also be guided by the need

However, there are other factors to consider, as shown in

to have a minimum number of investments to provide a

the box below.

FACTORS TO CONSIDER WHEN ASSESSING

lead to the creation of significant added value with

THE SIZE OF THE PORTFOLIO

little or no additional cost. Building the portfolio
selectively can drive the emergence of this incre-

• Is the relationship limited to a single ‘investment

mental value.

round’ or will follow-on funding be needed? The

• A large number of small portfolio companies will, in

term of the initial investment and the stage of devel-

general, consume more support costs (fund manage-

opment of the investee can influence this question.

ment costs) than a small number of large portfolio

• The cost (internal or external) of any non-financial

companies, without necessarily generating any addi-

support to be provided to the SPO.

tional impact.

• The value of leverage – the exchange of knowledge
and experience between portfolio organisations can

THE STATE OF VENTURE PHILANTHROPY

For fiscal year 2015, the average number of total

AND SOCIAL INVESTMENT IN EUROPE |

investees in the portfolio of a VPO/SI was 36, a 50%

THE EVPA SURVEY 2015/2016105

increase compared to fiscal year 2013, and the median
number was 16. The average number of new investees

Figure 37: Median and average investees per VPO/SI in fiscal
years 2012-2015
New investees

added to the portfolio in fiscal year 2015 was 9 and the
median was 3.

Total current investees

24
20

14
10

Average

Median

Average

Median

Fiscal year 2015 n=87
Fiscal year 2013 n=78
Fiscal year 2012 n=72

105 Boiardi, P. and Gianoncelli, A., (2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

Part 4. The Investment Process

March 2018

4.5.2 Investment management at the SPO level

There are two key questions that will drive the VPO/SI’s

The plan for the investment phase engagement should

preferences on board representation:

be discussed and agreed with the SPO during the
investment appraisal process, to ensure there are no
surprises.

• Can we really add value to the board and is it useful
for us?
• Do we have the capacity to do this?

The key elements of the investment management
strategy should include:

The decision will often depend on the size of the
investment and its importance within the VPO/SI’s
overall portfolio. In addition, VPO/SIs considering

KEY ELEMENTS OF THE INVESTMENT

taking a board seat will need to think about how they

MANAGEMENT STRATEGY

will handle conflicts of interest (when re-investment
is on the agenda, for example). The VPO/SI should

• Agreed social outcomes/targets and targets for the
organisational development of the SPO.
• The nature of the relationship (ideally based on
openness, partnership and trust)

try to anticipate such situations upfront and plan its
approach accordingly. Using different people to take
on the roles of portfolio manager and board representative can help. EVPA has developed a code of practice

• Rights and obligations of both parties.

that can serve as a useful guide in taking board seats

• Frequency of meetings (generally monthly or half-

– it can be found in the membership section of our

yearly)

website.

• Right of the VPO/SI to appoint a board member or
not (see below)
• Funding plan (including co-investment) with key
milestones.
• Key areas for capacity building or adding value (see
section 4.4.1).
• Exit planning (see section 4.4.2).

Taking a board seat is not the only way to learn about
or influence an SPO’s activities. In some cases, it may
be adequate to have an ‘observer’ seat on the board.
This can be a good compromise when there is resistance from the SPO to the VPO/SI taking a full seat. A
VPO/SI may also be able to achieve its objectives by
introducing external people to the board as opposed
to taking a seat itself. If a third party is appointed

As mentioned in section 4.4, these issues should

to the board through the VPO/SI’s introduction, it is

generally be set out in an investment agreement with

important to spell out that person’s role: does he or

the SPO in order to limit future misunderstandings or

she have any obligation to the VPO/SI? Is the board

disappointments.

member formally the VPO/SI’s representative, with
an obligation to report on what happens at board

4.5.2.1 Taking a seat on SPOs’ board

meetings?

Many European VPO/SIs take a seat on the SPO’s
board in at least some of their investments. Initially,

However, some European VPO/SIs actively decide not

it was very difficult to secure a board seat, but the

to take a seat on the SPO board (see Impetus-PEF case

practice has become more acceptable as the added-

study below).

value dimension has become more recognised. Often,
especially in start-ups, VPO/SIs take an active board
seat that can almost be likened with co-entrepreneurship. In those cases, VPO/SIs do not manage, but are
involved in all major decisions.

A Practical Guide to Venture Philanthropy and Social Impact Investment

CASE STUDY: IMPETUS – THE PRIVATE

no board seat at this stage but Impetus-PEF commu-

EQUITY FOUNDATION

nicates that in the next stage it would want a board
seat. The SPOs then move through a ‘funnel’ model,

in the UK initially chose not to take

where only a certain number progresses through each

a board seat in order not to confuse its role as a VP

Impetus Trust

subsequent stage of investment all the way up to scale

funder and the role of charity board as fundraiser.

funding. Impetus-PEF may ask for a board seat so as

Impetus Trust thought a presence on the board would

in later funding stage. So far Impetus-PEF has insisted

have reduced the motivation to raise additional funds.

that investment directors are not the ones taking the

In 2002, there was a lot of suspicion around private

board seat so as not to complicate the relationship

sector people entering the social sector, and Nat Sloane

between investment directors of the VPO/SIs and

recalls that Impetus thought it could ‘spook’ the boards.

CEOs of the SPOs. If a VPO/SI is genuinely committed

This was probably a misjudgement. Impetus-PEF now

to a long-term partnership and impact, why not be on

has a staged process, working with the investee for

the board?107

106

around a year to get to know the organisation. There is

THE STATE OF VENTURE PHILANTHROPY

A notable percentage of VPO/SIs take board seats with

AND SOCIAL INVESTMENT IN EUROPE |

their investees to support the SPO from within, similar

THE EVPA SURVEY 2015/2016108

to the approach in venture capital. A total of 25% of
the VPO/SIs surveyed always take a seat on the board

Figure 38: % of investees where the VPO/SI takes a board

of its investees and 27% of the sample is part of the

seat in fiscal year 2015
(n=55)

SPO’s board in the majority of cases. However, 44% of
respondents takes a board seat only in a minority of

4 Never

cases, while a negligible 4% of the VPO/SIs replied that
they have never taken a board seat.

Always

25
27

Minority of cases

Majority of cases

106 Impetus-PEF after the merger between Impetus Trust and the Private Equity Foundation in 2013.
107 Hehenberger L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.
108 Boiardi, P. and Gianoncelli, A. ,(2016), “The State of Venture Philanthropy and Social Investment in Europe | The EVPA Survey
2015/2016”. EVPA.

Part 4. The Investment Process

March 2018

4.5.2.2 Monitoring the achievement of the goals set

4.5.2.3 Non-financial support delivery models110

in the non-financial support plan109

The VPO/SI delivers non-financial support (NFS) either

A monitoring of the progress of the SPO against the

directly or through a third party. There is a variety of

objectives set in the non-financial support plan needs

NFS delivery modes, including one-on-one coaching,

to be conducted regularly during the investment

group trainings and offering access to networks. Each

process. Some indicators may be reported by the SPO

delivery mode has its pros and cons, which need to be

more frequently than others. For the impact meas-

weighed before taking a decision on how each type of

urement system, typically, output indicators can be

non-financial support is to be delivered. The develop-

captured more frequently than outcome indicators that

ment of the SPO is monitored using the non-financial

might require more time and effort to collect relevant

support plan as a dashboard and corrective actions

data. VPO/SIs usually require their investees to report

are implemented, if need be. The non-financial support

against the predefined indicators every quarter, every

plan shall also highlight when it is time for ending the

six months or on an annual basis during the investment

relationship between the VPO/SI and SPO. The VPO/

period.

SI and the SPO need to clarify upfront how heavily
the VPO/SI will be engaged with the SPO and set the

Stakeholder analysis may need to be repeated either

targets that will determine if exit readiness has been

at predefined intervals during the investment period or

achieved. Non-financial support will be delivered until

when significant developments occur, such as a change

the desired impact is seen, or until the VPO/SI realises

to outcomes being achieved, major new funding

it cannot add any more value to the SPO.

streams, new business lines being entered, changes to
policy environment, etc. It is advisable to get back to

4.5.2.4 Determining exit readiness111

the key stakeholders to verify that their expectations

The VPO/SI monitors the investment based on the exit

are being met. Verifying and valuing results should be

plan co-developed with the investee. The SPO coop-

repeated as a ‘reality check’ at several points during

erates with the VPO/SI by providing information on

the investment and value creation process of a VPO/SI.

the status of development of the project and on the

We recommend that this step be performed at least

achievement of the goals set in the plan. The moni-

once during the investment period to check that the

toring is crucial, as it allows the VPO/SI and the SPO

impact is achieved and valued.

to take action in case of deviations from the original
exit plan.

The main objective of monitoring is to learn from the
data collected and analysed so that changes can be

Based on the monitoring, the VPO/SI and the SPO

made and corrective actions implemented. The VPO/SI

determine if readiness is reached relative to the

together with the SPO should use the data collected

planned date of exit.

to analyse the results against the initial objectives and
decide which strategies and interventions worked and
which did not. The indicators set at the deal structuring
stage can be revised if significant changes are made in
the business and impact model of the SPO during the
investment process.

109 Boiardi, P., and Hehenberger, L., (2015), “A practical guide to adding value through non- financial support”, EVPA. And Hehenberger,
L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact – Second Edition”, EVPA.
110 Boiardi, P., and Hehenberger, L., (2015), “A practical guide to adding value through non- financial support”, EVPA.
111 Boiardi, P., and Hehenberger, L., (2014), “A practical guide to planning and executing an impactful exit”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

Exit readiness is measured along three dimensions:

At the moment of determining exit readiness, five
scenarios are possible:

Figure 39: The three areas of development of the SPO

DETERMINING EXIT READINESS – FIVE

(Source: EVPA)

Social impact

Financial
sustainability

Organisational
resilience

The social change on the target
population resulting from an
SPO’s actions.
The assessment that an SPO
will have sufficient resources
to continue pursuing its social
mission, whether they come
from other funders or from own
revenue-generating activities.
The assessment of the degree
of maturity of an SPO, in terms
of the degree of development
of the management team and
organisation (governance,
fund-raising capacity etc.).

SCENARIOS
• Readiness is reached or partially reached, to the point
that the VPO/SI can no longer add value to the investee.
In this case the VPO/SI can exit the investment according
to plan.
• Readiness is reached or partially reached, to the point
that the VPO/SI can no longer add value to the investee,
but investment readiness is not reached. In this case the
VPO/SI can:
-- Invest more resources to bridge the gap between exit
readiness and investment readiness
-- If there is no market for the SPO, let go.
• Readiness is reached or partially reached, and the VPO/SI
feels it can still add value to the SPO. In this case the
VPO/SI re-invests in the SPO taking it to the next level.
• Readiness is not reached or only partially reached and

It is important that the SPO reaches the goals on all

the VPO/SI feels it can still add value to the SPO. In this

three dimensions because a strong, financially viable

case the exit strategy process needs to go back to step 2:

organisation is the pre-requisite for the long-term

the VPO/SI and the SPO need to develop a new exit plan.

achievement of the social impact goals.

• Readiness is not reached and the VPO/SI cannot add
more value to the SPO. In such case the VPO/SI needs to

The VPO/SI also considers exit readiness from the

accept the failure and let go, while trying to minimise the

perspective of its own social impact and financial

loss of social impact.

return goals.

Figure 40: Relative importance of the three dimensions of

VP/SI INDUSTRY BY THE NUMBERS:
FROM THE EVPA SURVEY 2013/2014

112

the SPO’s exit readiness (n=62 weighted average)

Financial sustainability is stated by roughly one-third

Other

of VPO/SIs (32%) to be the most important dimension

of exit readiness of the investee, followed by social
impact (29%) and organisational resilience (27%). This
result points to the fact that follow-on investors are
increasingly interested in SPOs that are reaching break
even or self-sustaining and that VPO/SIs consider their
job done when the SPO is not only exit ready but also
investment ready, i.e. attractive for follow-on investors.

Social Impact

Financial Sustainability

%
27

Organisational Resilience

B
112 Hehenberger, L., Boiardi, P., and Gianoncelli, A., (2014), “European Venture Philanthropy and Social Investment 2013/2014 – The
EVPA Survey”, EVPA.

Part 4. The Investment Process

March 2018

Figure 41: Relative importance of the two dimensions of the

Almost all VPO/SIs (93%) consider societal return

VPO/SI’s exit readiness (n=60 multiple choice)

crucial for determining the achievement of exit
readiness, while less than a half of the VPO/SIs surveyed
consider readiness to be achieved on the VPO/SI side if

93 48%

the financial return goals have been achieved.

Social return achievable

Financial return achievable

Building a good relationship with the SPO during the

To avoid any potential misunderstanding when problems

appraisal process is crucial to making a success of the

do arise, it is essential to set out in advance a process for

investment phase. The most successful relationships

dealing with underperformance. This should be part of

will be based on mutual trust and respect, not on legal

an overall culture or environment in which openness and

documents and fear of funding being withheld. To

honesty are rewarded – so that the SPO reports to the

achieve social innovation the VPO/SI has to allow for an

VPO/SI as a matter of course, even when results do not

element of risk, therefore giving the SPO the ‘permission

match expectations. Establishing an environment that

to fail’, while trying to mitigate the risks of failing. By

provides early visibility of problems will also allow for

acknowledging and accepting this condition, the VPO/

early identification of corrective measures.

SI can act to support the SPO and help it not to fail113.
Any potential solution that involves additional funding
Open engagement with the SPO is the best possible

should be treated as a new investment decision –

means of obtaining early visibility of problems. An

meaning that the VPO/SI’s investment appraisal process

open engagement can be maintained in several ways:

is applied in the usual fashion. It should be absolutely
clear to the investment committee that the risk/return

WAYS TO MAINTAIN AN OPEN ENGAGEMENT

profile of this investment (in social and financial terms)

WITH THE SPO

matches with the VPO/SI’s regular criteria. Possible
co-funders can be included in this process. It is

• Board representation or observer position (see
section 4.5.2.1).
• Regular (e.g. monthly or quarterly) progress
meetings with SPO management and staff.

important not to let emotion cloud judgment. Personal
commitment to investees and their objectives can
tempt funds to extend additional finance without a full
consideration of the merits of the deal.

• Regular financial and social performance reporting.
In the most severe cases, when the situation has deteWhen things go wrong the first reaction of the VPO/SI

riorated to such an extent that additional funding is

should be “How can we help?” rather than “Should we

needed but cannot be justified, the funders will take a

stop the funding?” or “Who is to blame?”. However, VPO/

decision to stop financial support. In these instances,

SIs should avoid the temptation to try to solve problems

the VPO/SI should consider whether it has a respon-

simply by making more funds available – this approach

sibility to help wind down the SPO responsibly. This

may actually exacerbate problems in some instances.

might involve the provision of some additional funds in

Sometimes, the most appropriate form of action may

the short term.

be to leverage your networks, provide specific market
intelligence to the SPO or even just offer moral support.
113 Hehenberger L., and Boiardi, P., (2014), “Learning from failures in Venture Philanthropy and Social Investment”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

It is important to recognise that the VPO/SI’s influence

within the VPO/SI’s focus area. VPO/SIs that have

depends in part on how much of the SPO’s funding

been active for several years will need to acknowledge

it supplies. It may be able to influence other funders

the greater need for portfolio management rather

with a similar agenda (e.g. other grant makers – see

than just individual investee management, managing

co-investment, section 3.4) but other funders, such as

investee

organisations

larger

portfolios.

government agencies, may have conflicting objectives.
In managing the portfolio, some aspects should be
4.5.3 Investment management at the VPO/SI level

taken into account:

A maturing VPO/SI will have a number of SPOs in its
portfolio, all of which will be – or should be – operating

ASPECTS TO CONSIDER WHEN MANAGING
THE PORTFOLIO

• Feedback from SPO: In addition to routine communication, VPO/SIs with a portfolio of investees can
commission independent feedback on the perceived

• Flagship investments: Since VP is an emerging

effectiveness of investment model and portfolio

practice, selecting investments in well-recognised

management practices, e.g. the value to the SPO of

and reputable SPOs can be a valuable way to build

investment appraisal processes, reporting processes,

credibility in the sector and provide leverage for

and non-financial value add. The Euro return on

future investment activity. This will be a particularly

time invested in investment appraisal can also be

useful strategy for new funds that are starting to

measured. It is also possible to benchmark these

build a track record.

against other VPO/SIs. This has provided valuable

• Leverage: It will enhance the mission of the VPO/
SI as a whole, as well as the prospects of individual
portfolio SPOs, when investments are made in

lessons to some European funds114. EVPA and AVPN
are planning to launch a project to assess the value
of the VPO/SI support on their investees.

organisations that complement each other rather

• VPO/SI’s cost efficiency: It is vital to track whether

than compete against each other. This approach

the VPO/SI uses its resources efficiently. This is a

creates the possibility to leverage knowledge and

critically important area to track as VPO/SIs need

experience. These opportunities for cross-SPO

to report to their funders/investors. As VPO/SIs

leverage should be pursued actively – they should

mature, and need to broaden their investor/funder

be identified and documented during the invest-

bases beyond founder and early-stage funders,

ment appraisal process.

measuring cost efficiency becomes increasingly

• Competition for resources: Inevitably, portfolio
SPOs will compete for resources – both funding
and support – within the VPO/SI. Good account
management can help to minimise any problems
that arise.
• Facilitation: Portfolio managers should be encour-

important. It is valuable for VPO/SIs to start thinking
about what to track and how to report on this right
from the start of the journey.
• VPO/SI’s impact measurement115: For a VPO/SI, it
is not enough to just consider the impact achieved
by the SPO, it is also important to assess the impact

aged to create links between portfolio SPOs that

of the work of the VPO/SI on the SPO. It is recom-

have the same client base, for example, or that

mended that VP/SIs use independent studies to

share the same suppliers. Regular meetings with

assess the value they provide to their SPOs, as

all portfolio organisations, or a relevant subset, will

directly questioning investees may be a delicate

enable experiences to be exchanged.

matter not always providing truthful answers.

114 One Foundation commissioned independent feedback from their grantees through a quantitative survey, carried out by Centre for
Effective Philanthropy in Boston. An independent evaluation of Inspiring Scotland’s portfolio companies was performed by Noah
Isserman.
115 Hehenberger, L., Harling, A., and Scholten, P., (2015), “A practical guide to measuring and managing impact – Second Edition”, EVPA.

Part 4. The Investment Process

March 2018

4.6 EXIT116

At the time of exit, the VPO/SI determines how to
exit (mode of exit) and whom to exit to (follow-on

In most cases, an SPO’s funding horizon will be longer

investors), balancing the financial and social return.

than a VPO/SI’s investment horizon. Hence there will

The exit strategy execution determines the end of the

be a point in time where the relationship between SPO

financial relationship of the VPO/SI with the SPO and

and VPO/SI will end. This separation is called ‘exit’. The

therefore coincides with the last step of the investment

‘exit’ is the end of the relationship between the VPO/

process.

SI and an investee organisation either after a pre-defined time, when the VPO/SI can no longer add value
or when the investment objectives have been achieved.
ELEMENTS THAT INFLUENCE THE

How the exit strategy is executed depends on:
• The context – as in different countries the exit

EXECUTION OF THE EXIT STRATEGY

process is implemented differently according to the
possibilities for an investee to find new sources of

• The type of financial instrument used – as some
instruments have a fixed duration (e.g. grant)

funding.
• The stage of development of the SPO – as different

and the support is withdrawn when the exit date

stages of development call for different exit modes

is reached, whereas other instruments are more

(see table below).

flexible (e.g. equity).
Financial Instrument

Grant
Find matching support
(follow-on grant sought)

Debt

Equity

Find matching support
(follow-on grant sought)

Endowment creation for
the investee
Follow-on loan sought

Follow-on loan sought
Buy-back, sale or hand-over of equity
stake

Exit mode

Strategic sale or merger of the SPO to an
industrial partner
Non-profit IPO
Let go (self-sustainability)

Let go (self-sustainability)

Let go (self-sustainability)
Not to sell equity B Stay on board

Franchise

In terms of whom to exit to there are three options:

Franchise

• The SPO has become self-sustainable, and can

• To find a new investor that can better support the

continue on its own with no additional support

investee, both in terms of financial and non-finan-

• The investee is not performing and has to shut

cial support, such as:

down its operations. This is a case of failure, and

-- A public funder

therefore the investment is not exited to any

-- A traditional grant-maker

specific entity.

-- A commercial/traditional investor
-- An industrial partner
-- Another VPO/SI
-- Stock exchange IPO

116 This section was developed based on the EVPA report on exit strategies: Boiardi, P., and Hehenberger, L., (2014), “A practical
guide to planning and executing an impactful exit”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

Whom to exit to

Opportunities

Risks

Public funder

•
•
•
•

Financial capacity
Can replicate the model at national level
Possibility to influence policy
Broader mission/lookout on public welfare

• Not capable of supporting long-term financial
resilience
• Might not be engaged
• Short-term approach depending on electoral
mandates
• It takes long to build relationships

Grant-making
foundation

• Financial capacity Social sector knowledge
• Able to achieve collective/systemic impact

• May be less capable of supporting long-term
financial resilience
• Might not be engaged
• Narrow mission

Commercial/
traditional
investor

• Support on business model Financial capacity

• Less focus on social impact

Industrial
partners

• Provides work and clients

• May have little knowledge of social impact
• May be less inclined to build capacity of SPO

Another VPO/SI

• Highly engaged Scaling Financial capacity

• Risk of misalignment of objectives (if additional
investor)

Stock exchange
IPO

• Potential to mobilise (large amounts of private
capital for public good

• Still under development / few experiences so far

Let the SPO
continue on its
own

• Self-sustaining/independent

• Not fully prepared

No exit options

• Continue funding for another round, hoping
that options will materialise or the investee will
become self-sustaining

• Cannot continue forever

Whatever the choice of whom to exit to, the decision

The VPO/SI and the SPO should discuss how much

needs to be guided by the objective of keeping the

responsibility is placed on the investor to help the

social mission of the SPO going, unless it has been

investee find follow-on financing versus this being the

demonstrated that the intervention of the SPO does

responsibility of the entrepreneurial team. Additionally,

not generate sufficient social return to justify its

the VPO/SI needs to assess whether the social mission

existence.

of the investee can create tangible value (mission
lock-in) such that the acquirer is de-incentivised from

The assessment of the ‘fit’ of potential new investors
– including whether they share the same position on
the social mission, their anticipated financial return,
the desire for influence and the level of engagement in
the investment – is an important exercise to enable the
social impact to be maintained after exit.

discontinuing the investee’s social mission.

Part 4. The Investment Process

March 2018

VP/SI Industry by the numbers: from The
EVPA Survey 2013/2014117
Figure 42: To whom have VPO/SIs exited (in fiscal year 2013)?
(n=57, multiple choice, numbers in %)

No one – the SPO had
become self-sustaining

46
28

Management team

Other VPO/SI

Public Funder
Corporate

Commercial Investor

14
4

Public shareholder base

Other
0

Almost half of the VPO/SIs (46%) have exited SPOs

to another VPO/SI, while almost one-fifth were taken

that were self-sustaining, while 28% have exited to the

over by a public funder. Corporate and commercial

management team of the SPO. These results are encour-

investors are an upcoming option to exit to, representing

aging, as VP/SI works to build stronger organisations

14% of the exits each. Only 4% of the investments were

that are capable to become self-sustainable and scale.

exited to a public shareholder base, pointing to a lot of

One-quarter of the exited investments were passed on

untapped potential for this exit option.

Figure 43: How have VPO/SIs exited their investments
(in fiscal year 2013)?
(n=61, multiple choice, numbers in %)

Repayment of debt
Buy-back, sale or handover
of equity stake

25
15

Strategic sale or merger of the SPO

Endowment creation for the investee

Other
0

The mode of exit depends on the financial instrument

In any case, 41% of the investments were exited through

used by the VPO/SI. In the case of a grant-funded invest-

debt repayment, and 25% through a buy-back, sale or

ment, the exit is a discontinuation of a grant, whereas

handover of equity stake. Strategic sales accounted for

for social impact investment the exit may involve

15% of the total exits and the creation of an endowment

repayment of a loan, or divestment of an equity stake.

for the investee accounted for 10% of total exit.

117 Hehenberger, L., Boiardi, P., and Gianoncelli, A., (2014), “European Venture Philanthropy and Social Investment 2013/2014 – The
EVPA Survey”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

4.7 EVALUATION AND POST-EXIT
FOLLOW-UP

been provided with, periodically, or at least at the

4.7.1 Evaluation

independent third party. We also recommend that the

Post-exit, there will also be an evaluation of the invest-

VPO/SI makes an assessment of how well the SPO has

ment (degree of achievement of investor’s and inves-

reached the objectives defined at the beginning of the

tee’s objectives and learnings from the process), and

investment – although it is difficult to assign the attri-

potentially a post-investment follow-up.

bution of the VPO/SI’s support to those achievements

end of the investment period. Ideally, this assessment
is made through a survey conducted by an external,

(or lack thereof). The learnings of the final impact
The VPO/SI evaluates the success of the project after

assessment will inform the future non-financial support

exit in terms of financial return and social return and

cycles, as they generate lessons learned as to what

the SPO determines how well it has achieved its objec-

type of support investees value most. With sufficient

tives along the three dimensions of social impact,

data, the VPO/SI should be able to discern patterns

financial sustainability and organisational resilience.

showing what types of non-financial support offered,

Importantly, the VPO/SI should also evaluate how well

as well as by whom and how, are generating the best

it has succeeded in supporting the SPO to achieve its

outcomes for SPOs’ development.118

objectives.
4.7.2 Follow-up activities
In terms of social return, a VPO/SI should aim to

The follow-up refers to all those activities that the

measure the outcomes of the investment against initial

VPO/SI puts in place to keep a link with the SPO

objectives. The outcomes should be verified, so that

after exit (offering additional non-financial support,

the resulting information can be used by the VPO/

networking, etc.) to keep contact with the SPO with

SI itself to assess its success as a ‘high-engagement’

the purpose of both monitoring and supporting the

investor and take away learnings for future invest-

achievement of the social impact goals after the exit.

ments. It will also be used to report back to donors and

Post-exit monitoring and support can be another way

investors on the ‘social return’ on their investment. The

to try to reduce the risk of mission drift and check

impact of the SPO itself may also be a selling argument

that the follow-on investor is continuing the original/

when ‘handing over the baton’ to future social impact

intended social mission/impact.

investors.
Follow-up activities are optional and the extent to
To understand the value of the non-financial support it

which they are performed depends on the strategy of

provides, the VPO/SI should measure how the investee

the VPO/SI and the willingness and incentives of the

perceives the value of the non-financial support it has

SPO to stay in touch.

118 Boiardi, P., and Hehenberger, L., (2015), “A practical guide to adding value through non- financial support”, EVPA.

Part 4. The Investment Process

March 2018

VP/SI INDUSTRY BY THE NUMBERS:
FROM THE EVPA SURVEY 2013/2014119

Figure 44: % of VPO/SIs that keep contact with the former

The vast majority (85%) of the VPO/SIs that keep

investees (fiscal year 2013)

contact with the former investee stated that they
provide access to networks to the former investees,

(n=60)

53% continue providing non-financial support and 37%

help the investee look for follow-on financing.

%
85
Yes
Figure 45: Modes through which VPO/SIs keep in contact
with the SPOs post-exit (fiscal year 2013)

75% Provide access to networks

53% In the form of
non-financial support

Yes

37% Help the SPO look for
follow-up financing

n=60

18% Other
12% Keep a seat on the
board after exiting

n=51
multiple choice

CASE STUDY:

1.8% share), with a member of Phitrust’s Investment

PHITRUST PARTENAIRES – ALTER-ECO

Committee actively participating in – and indeed
chairing, during the exit process – the company’s

Phitrust Partenaires is a social impact investment fund

executive board. Alter-Eco is a company that imports a

dedicated to providing hybrid support to economically

variety of products from small producers, paying them

viable, for-profit businesses in sectors that promote

above-market rates for their work, including 30–50%

positive social impact and sustainable development, in

upfront, and distributing their products through

Europe and globally.

large retailers in developed countries. Products are
packaged under a well-known brand name that is inte-

In 2006, Phitrust became involved with Alter-Eco via

grated into the market economy and recognised for its

a pure equity investment of €528,000 (€442,000 in

high-quality, fair trade products.

2006, 5.6% share, and €86,000 in 2009, an additional

119 Hehenberger, L., Boiardi, P., and Gianoncelli, A., (2014), “European Venture Philanthropy and Social Investment 2013/2014 – The
EVPA Survey”, EVPA.

A Practical Guide to Venture Philanthropy and Social Impact Investment

The table below provides an overview of the five steps
of the exit strategy process applied to the exit case of
Phitrust Partenaires from its investee Alter-Eco:

Case Study: Phitrust Partenaires – Alter-Eco120
Elements of
the exit strategy process

Phitrust Partenaires – Alter-Eco case

STEP 1

Given Phitrust’s investment strategy, the following exit strategy considerations have been
identified:

Key exit
considerations

- Social return and financial return are equally important for Phitrust. This implies that exit will
be considered successful when both social and financial return goals are met. Exit readiness
will most often be achieved when the investee has achieved its goals in terms of social impact, financial sustainability and organisational resilience.
- Phitrust envisions exits of the equity portfolio to occur at a point in time that is mutually
agreed upon between the Investment Committee of Phitrust and the entrepreneurial management team of the SPO. When using debt, the exit plan is kept flexible and the investment is monitored closely throughout the period to be able to quickly address the issues
when they arise.
- Phitrust needs to manage the exit process together with the co-investors, align the exit
strategy and the exit strategy process with them and be prepared to look for new co-
investors at the exit date of current co-investors.

STEP 2
Developing
the exit plan

Phitrust began addressing the idea of an exit prior to any actual investment in Alter-Eco,
during the due diligence phase. Phitrust wanted to ensure that the investee understood
that while Phitrust had a long-term investment and mentoring horizon, the exit remained a
certainty. When the deal was being structured, Phitrust worked with the Alter-Eco entrepreneur to define the exit plan. The SPO was asked to report (either annually or every six months)
on measurable impact criteria, directly related to the social mission of the organisation. The
company’s activities were linked to measurable results that led to the expected long-term
effects as shown in the figure:
Ideas,
contribution

• Improve the
income of fair
trade and organic
food producers in
countries in both
the South and the
North

Activities

Result

• Preﬁnance purchases
directly from
producer cooperatives

• Ensuring regular
income for producers at above market
prices

• Support and monitor
cooperatives

• Development of
activities to
transform products
in developing
countries

• Develop and market
a range of Alter-Eco
branded products in
supermarkets across
Western Europe and
North America

• Re-structuring
cooperatives to
ensure their
sustainability

Long-term eﬀects

• Poverty reduction in
rural areas
• Preservation of
agricultural family
model
• Raising awareness
about socially
responsible
consumption

The exit plan was revised regularly with Alter-Eco management team, on a formal and informal
basis.

120 Boiardi, P., and Hehenberger, L., (2014), “A practical guide to planning and executing an impactful exit”, EVPA.

Part 4. The Investment Process

STEP 3
Determining
exit readiness

March 2018

Phitrust Partenaires’ 2012 Annual Report indicates that while Alter-Eco was meeting its sales
goals and social return expectations, Phitrust felt that the company’s financial growth and
overall development were not progressing as quickly as had hoped, in large part due to headwinds in the fair trade market in France.
Faced with the fact that several equity investors in Alter-Eco were reaching fund maturity and
would soon need to sell their shares, and given the stagnant demand for fair trade products
in France, it became increasingly clear in 2011 that new investors were needed to provide the
capital necessary to open up new markets for the company. Thus began a two-year process of
discussions with potential follow-on investors (led by the executive board, chaired by a member
of Phitrust’s Investment Committee). Phitrust Partenaires had decided that the market context
and the need for an influx of new capital meant that its value-add to the SPO was increasingly
diminished, and that a strategic exit to an appropriate follow-on investor would be the most
beneficial decision for both Phitrust and Alter-Eco.

STEP 4
Executing the
exit

In late May 2013, subsequent to several rounds of negotiations with potential follow-on investors, Phitrust’s shares (and indeed all shares of Alter-Eco) were sold to Wessanen Distriborg, a
European leader in the sale of organic food products. Those who exited felt strongly that this
additional support was necessary to enable Alter-Eco to continue developing in an increasingly difficult fair trade and organic food market. The buyer offered to maintain the existing
business model (allowing small producers in developing countries to access Western European
customers) in addition to providing access to other European markets, particularly in Northern
Europe.
To Phitrust, it was crucial that the follow-on investor would ensure the continued growth of
the company, both from a financial and impact perspective. For this reason, it prioritised the
sale of its shares to a company that would maintain the existing business model, rather than
one which would have prioritised a financial strategy but potentially re-oriented the company’s social activities towards more commercially beneficial operations. This exit strategy was
a clear mandate from the Investment Committee, and was the lens through which Alter-Eco
approached each potential new investor.

STEP 5
Postinvestment
follow-up

When evaluating the achievement of its own social impact and financial return goals, Phitrust can
consider the investment to have been successful. Phitrust exited a strong company, importing
from a large number of high-quality producers paid above market rates. From a financial return
perspective, the transaction price retained was that of the balance sheet valuation of Alter Eco
as of 31 December 2012.
Dimensions

Results

Social impact

Working with 42 small holder farmers in South &
Central America, Africa and Asia Farmers paid 51%
above market rates
>8,000 tonnes of CO2 offset annually

Financial
sustainability

€17.7 million in annual sales in 2012
(+84% since 2005)

Organisational
resilience

Poised to continue expanding in new markets, be
they in other European countries or internationally

A Practical Guide to Venture Philanthropy and Social Impact Investment

KEY ISSUES

the VPO/SI can offer. The deal structuring is a

AND LEARNINGS

planning phase, during which the VPO/SI and SPO
develop the non-financial support plan, the exit plan

• Deal flow – Getting the right volume and quality
of deal flow is critical. Therefore, most funds take

and set the objectives for the SPO in terms of social
impact and its measurement.

a proactive approach to identifying and engaging

• Investment management – During the investment

with target SPOs, rather than establishing an open

phase, the VPO/SI will be actively engaged with

application process.

investee SPOs on an ongoing basis. This engage-

• Deal Screening and Due Diligence – While the

ment can take many forms but it should be agreed

precise process varies from organisation to organ-

on beforehand. The VPO/SI monitors the investment

isation, most employ multiple screens. Final invest-

by means of the plans agreed in the deal struc-

ments are usually made on the basis of the SPO’s

turing, takes corrective actions if and where needed,

business plan and match between (i) the social
impact objectives of the SPO and the social impact

and assesses when exit readiness is achieved.
• Exit – At the time of exit the VPO/SI will decide

and financial return objectives of the VPO/SI and

whom to exit to and the mode of exit. These will

(ii) the needs of the SPO and the offer of the

largely depend on the type of financial instrument

VPO/SI in terms of non-financial support.

used, the context and the stage of development of

• Investment Decision and Deal Structuring – The

the SPO. The VPO/SI is guided in its decision by the

VPO/SI shall choose to support SPOs that have

aim of keeping the social impact of the SPO going

alignment in terms of objectives and that can

even after exit.

benefit from the financial and non-financial support

March 2018

85
85

PART 5.
REFLECTIONS ON THE
JOURNEY SO FAR

A Practical Guide to Venture Philanthropy and Social Impact Investment

PART 5.
REFLECTIONS ON
THE JOURNEY SO FAR
Venture Philanthropy is a relatively new addition to the

In this edition, we close the cycle, with new insights

philanthropy toolkit. Although in Europe the industry

into how VPO/SIs tailor their financial instruments to

is just over ten years old, the VP approach is today

the needs of the investees, showing how the model of

considered one of the key tools of organisational

VP/SI has come to a crystallisation.

philanthropy in Europe, with its own practices that are
increasingly normalised and shared. European VPO/
SIs have been able to ‘bend’ USA models to match
their own political and cultural contexts, ranging from
Western European welfare states to emerging markets

WHAT ARE THE UPCOMING
CHALLENGES FOR THE SECTOR?

in Central and Eastern Europe121, where the approach is

Social investment funds are starting to raise bigger

spreading.

funds than before, thanks to the positive track record
with their first funds, but also with the increased access

In the first edition of 2008, we documented how VP

to institutional and public funding channelled through

itself was an innovation emerging from both the phil-

by funds of funds such as Big Society Capital in the

anthropic and investment worlds/markets, and the

UK, and the European Investment Fund’s (EIF) Social

founding players in Europe were innovating through

Impact Accelerator. Bigger funds will allow the social

applying investment principles to investees in order to

impact investment fund managers to hire more people

support them to make a step change in their impact.

and pay them more competitively, but it will also mean

The nature of the innovation was the development

that most likely they need to target higher financial

and testing of VP tools and approaches in different

returns. Such a pressure on financial returns may force

political economic and cultural contexts across Europe

fund managers to take less risk and invest in more

and also in the developing world. The second edition in

mature social enterprises, leaving early-stages entities

2010 showed how the VP approach emerged as a way

under-funded. In particular, we observe a lack of suffi-

to tackle social sector challenges in an environment

cient patient investment capital available in the sector

strongly hit by reducing Government budgets also due

to finance the so-called “valley of death”. It is hard for

to the financial crisis and how VP broadened the set of

SPOs – especially in the early stages of development

financial instruments used, catalysing a social impact

– to attract appropriate funding to grow and scale the

investment movement which complemented and built

social impact. In fact, without risk-adjusted rates of

on the use of grants in the initial VP movement. In the

return, it is hard to raise investments from mainstream

2016 edition we focussed on the learnings of five years

and even financial first impact investors. Furthermore,

of research of the KC, providing guidance to organi-

business models with high working capital needs are

sations that wanted to start investing using the VP

difficult to finance without a track record. Due to the

approach around what works and what does not, and

difficulty to attract both commercial capital, and social

helping established organisation refine their approach

investment capital from finance-first impact investors,

to achieve even greater social impact.

early stage SPOs face a strategic financing gap that

121 For more information on EVPA’s work on helping build the CEE market, check: https://evpa.eu.com/central-eastern-europe-cee/
cee-task-force.

Part 5. Reflections on the journey so far

March 2018

leads to a potential failure in their growth122. This is why

channelled via social sector financial intermediaries.

hybrid finance is emerging as a topic, with new hybrid

EFSI Social Impact Window directly targets social

vehicles being set up to accommodate for different

sector financial intermediaries linked to incubators and

impact/financial risk/return profiles of investors while

accelerators, business angels, as well as payment-by-

allocating the resources to SPOs in the most efficient

results mechanisms targeting social enterprises and

way. Hybrid finance is still in its infancy, so more

social sector organisations delivering social impact129.

research and analysis is needed to assess whether this
new path for VP/SI will bring more efficiency and effec-

The role of venture philanthropy in the social impact

tiveness in the market.

ecosystem is to enable a step change towards
achieving systemic impact, by bringing solutions and

It is clear that the global impact ecosystem needs to

organisations to a more sustainable and scalable level.

evolve further to cover all stages in the evolution of

In essence, by applying the VP model, the funder

both non-profit organisations and self-sustainable

should enable the investee organisation to move from

social enterprises. Some countries are more advanced

one level to the next (e.g. from start-up to growth),

than others, but in general, we need incubators, angel

by becoming more sustainable and scalable, on its

investors and grant-makers at early stages, social

trajectory towards achieving systemic change. Venture

impact investors at more mature and growth stages,

philanthropy can as such be seen as an approach that

and corporates and public funders to provide more

is applicable by funders interested in achieving social

resource-heavy investments to scale up massively. At

impact, whether they are interested in a financial return

the end of 2016, the European Commission’s Expert

or not.

Group on Social Entrepreneurship (GECES)

123

published

a report that represents a call for action for a European

We look forward to the next stage of innovation and

Action Plan for the Social Economy and Social Enter-

learning in venture philanthropy and social impact

prises. The report proposes a series of policy recom-

investment, to sharing that learning, and to contrib-

mendations in four key thematic areas, one of them is

uting to the emerging global debates on impact and

helping social enterprises to access finance.124 Comple-

practice. Lastly, we must remain humble as we remind

mentary, the European Commission is enlarging its

ourselves of why we do this work together, to improve

focus on social investment thanks to the European

the world we live in.

Fund for Strategic Investment (EFSI)

125

launched as one

of the three pillars of the Investment Plan for Europe –
also known as “the Junker plan”126. EFSI contributes to
social impact achievement through the reinforcement
of the EaSI Programme127 and the creation of a Social
Impact Window under the EFSI Equity Product128,
implemented by the European Investment Fund to be

122 Gianoncelli, A. and Boiardi, P. (2017), “Financing for Social Impact | The Key Role of Tailored Financing and Hybrid Finance”,
EVPA. p. 72.
123 For more info: https://ec.europa.eu/growth/sectors/social-economy/enterprises/expert-groups_en
124 To have access to the report GECES (Commission Expert Group on Social Entrepreneurship), (2016), “Social enterprises
and the social economy going forward – A call for action”, European Commission: http://ec.europa.eu/growth/content/
social-enterprises-and-social-economy-going-forward-0_en
125 For more info: http://ec.europa.eu/growth/industry/innovation/funding/efsi_en
126 For more info: https://ec.europa.eu/commission/priorities/jobs-growth-and-investment/investment-plan-europe-juncker-plan_en
127 To know more about the axis dedicated to Social Entrepreneurship of the European Programme for Employment and Social
Innovation (EaSI): http://ec.europa.eu/social/main.jsp?catId=1084&langId=en
128 For more info: http://www.eif.org/what_we_do/equity/efsi/index.htm
129 For more information, watch the EU webinar “EU Funding Update for VP/SI Practitioners: EFSI Social Impact” organised by EVPA
in November 2016: https://evpa.eu.com/pages/eu-webinar-8-eu-funding-update-for-vp-si-practitioners-efsi-social-impact.

A Practical Guide to Venture Philanthropy and Social Impact Investment

APPENDICES
SOURCES

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Achleitner, A., Schönig, M., Heinecke, A., Noble, A.,

social economy going forward – A call for action”,

and Spiess-Knafl, W., (2011), “Social impact investment

European Commission.

Manual An Introduction for Social Entrepreneurs”,

http://ec.europa.eu/growth/tools-databases/

Technische Universität München and Schwab Founda-

newsroom/cf/itemdetail.cfm?item_id=9024

tion for Social Entrepreneurship.
http://schwabfound.weforum.org/content/

Gianoncelli, A. and Boiardi, P. (2017), “Financing for

social-investment-manual

Social Impact | The Key Role of Tailored Financing and

Boiardi, P., and Gianoncelli, A., (2016), “The State of

https://evpa.eu.com/knowledge-centre/publications/

Venture Philanthropy and Social Investment in Europe

financing-for-social-impact

Hybrid Finance”, EVPA.

| The EVPA Survey 2015/2016”. EVPA.
https://evpa.eu.com/knowledge-centre/publications/

Damaschin-Țecu, R., and Etchart, N., (2016), “Building

the-state-of-venture-philanthropy-and-social-invest-

the Social Investment Industry in Central and Eastern

ment-vp-si-in-europe-the-evpa-survey-2015-2016

Europe | The Case of Romania”, NESsT.
https://issuu.com/nesster/docs/

Balbo, L., Hehenberger, L., Mortell, D., and Oost-

ro_bldg_social_investment_industry_

lander, P., (2010), “Establishing a Venture Philanthropy
Organisation in Europe: A Practical Guide”, EVPA.

Hehenberger, L., and Boiardi, P., (2015), “Learning
from failures in Venture Philanthropy and Social

Boiardi, P., and Hehenberger, L., (2015), “A practical

Investment”, EVPA.

guide to adding value through non-financial support”,

https://evpa.eu.com/knowledge-centre/publica-

EVPA.

tions/learning-from-failures-in-venture-philanthro-

https://evpa.eu.com/knowledge-centre/publications/

py-and-social-investment-a-practical-guide

adding-value-through-non-financial-support-a-practical-guide

Hehenberger, L., Boiardi, P., and Gianoncelli, A.,
(2014), “European Venture Philanthropy and Social

Boiardi, P., and Hehenberger, L., (2014), “A practical

Investment 2013/2014 – The EVPA Survey”, EVPA.

guide to planning and executing an impactful exit”,

https://evpa.eu.com/knowledge-centre/publications/

EVPA.

evpa-survey-2013-2014-european-venture-philanthro-

https://evpa.eu.com/knowledge-centre/publications/

py-and-social-investment

planning-and-executing-an-impactful-exit-a-practical-guide

Hehenberger, L., and Harling, A-M., (2013), “European
Venture Philanthropy and Social Investment 2011/2012

Buckland, L., Hehenberger, L., and Hay, M., (2013), “The

– The EVPA Survey”, EVPA.

Growth of European Venture Philanthropy”, Stanford

https://evpa.eu.com/knowledge-centre/publications/

Social Innovation Review.

evpa-yearly-survey-2011-2012-european-venture-phi-

https://ssir.org/articles/entry/

lanthropy-and-social-investment

the_growth_of_european_venture_philanthropy

Appendices

March 2018

Hehenberger, L., Harling, A., and Scholten, P., (2015),

Proscio, T., (2014). “Harvest Time for The Atlantic

“A practical guide to measuring and managing impact

Philanthropies. 2012-2013: Decline and Rise”, Center

– Second Edition”, EVPA.

for Strategic Philanthropy and Civil Society. Stanford

https://evpa.eu.com/knowledge-centre/publications/

School of Public Policy. Duke University.

measuring-and-managing-impact-a-practical-guide

http://www.atlanticphilanthropies.org/app/
uploads/2015/09/Atlantic-Philanthropies-Har-

John, R., (2006), “Venture Philanthropy: the evolution

vest-Time-2012-2013.pdf

of high engagement philanthropy in Europe,” Skoll
Centre for Social Entrepreneurship, Said Business

Spiess-Knafl, W., and Struewer, B., (2015), “Social

School, University of Oxford.

Investing Fundamentals of an impact-first investment

http://www.sbs.ox.ac.uk/sites/default/files/Skoll_

strategy”, Zeppelin University and Roots of Impact.

Centre/Docs/Venture%20philanthropy%20in%20

http://www.roots-of-impact.org/wp-content/

Europe.pdf

uploads/2015/01/Social_Investing-An-Introduction-vfinal.pdf

Letts, C., Ryan, W., and Grossman, A., (1997),
“Virtuous Capital: What Foundations Can Learn from

Varga, E., and Hayday, M., (2016), “A recipe book for

Venture Capitalists”, Harvard Business Review.

social finance. A practical guide on designing and

http://www.wheatridge.org/wp-content/

implementing initiatives to develop social finance

uploads/2012/03/Virtuous_Capital_HB.pdf

instruments and markets”, European Commission.
http://ec.europa.eu/social/

Metz Cummings, A., and Hehenberger, L., (2010),

BlobServlet?docId=15079&langId=en

“Strategies for Foundations: When, why and how to
use Venture Philanthropy”, EVPA.

Varga, E., (2015), “Corporate social impact strategies

https://evpa.eu.com/knowledge-centre/publications/

– new paths for collaborative growth”, EVPA.

strategies-for-foundations-when-why-and-how-to-use-

https://evpa.eu.com/knowledge-centre/publications/

venture-philanthropy

corporate-social-impact-strategies-new-paths-for-collaborative-growth

OECD netFWD, (2014), “Venture Philanthropy in
Development: Dynamics, Challenges and Lessons in

Vecchi, V., Casalini, F., Cusumano, N., and Brusoni, M.,

the Search for Greater Impact”, OECD Development

(2010), “Oltre Venture: the first Italian impact invest-

Centre.

ment fund”, SDA Bocconi School of Management.

http://www.oecd.org/dev/Venture%20Philan-

http://www.sdabocconi.it/en/site/

thropy%20in%20Development-BAT-24022014-

impact-investing-lab/materials-and-events/materials

indd5%2011%20mars.pdf
Porter, M.E., and Kramer, M.R., (1999), “Philanthropy’s New Agenda: Creating Value”, Harvard Business
Review.
https://hbr.org/1999/11
philanthropys-new-agenda-creating-value

A Practical Guide to Venture Philanthropy and Social Impact Investment

WEBSITES

Glossary of Terms
• http://www3.weforum.org/docs/WEF_Blended_

Part 1: Introduction

Finance_A_Primer_Development_Finance_Philan-

• http://www.socialimpactinvestment.org/

thropic_Funders_report_2015.pdf

• https://evpa.eu.com/membership/our-members

• https://en.wikipedia.org/wiki/Loan_guarantee
• http://www.schwabfound.org

Part 2: Key issues for the Venture Philanthropy
Organisation and the Social Investor (VPO/SI)

• http://ec.europa.eu/growth/sectors/social-economy/
enterprises_it

• https://en.wikipedia.org/wiki/.Carried_interest
• http://www.eif.org/what_we_do/equity/sia/index.
htm
• http://www.bridgesfundmanagement.com/
our-team/
• http://www.phitrustactiveinvestors.com/data//
Rapport_annuel_2014_version_finale.pdf

List of interviewees (alphabetical order):
• Luciano Balbo, Founder and President, Oltre
Venture.
• Emilie Goodall, Director of Projects, Bridges Fund
Management.
• Deirdre Mortell, CEO, Social Innovation Fund Ireland.

• https://evpa.eu.com/policy/eu-funding

• Pieter Oostlander, Fund manager, SI2 fund.

• http://www.bigsocietycapital.com/

• Chloé Tuot, Social Investment Manager, former

• http://www.oltreventure.com/en/
Part 3: The Investment Strategy
• http://www.theoryofchange.org
• http://europa.eu/rapid/press-release_IP-14-696_
en.htm
• http://www.socialimpactinvestment.org/reports/
Measuring%20Impact%20WG%20paper%20FINAL.
pdf
Part 5: Reflections on the journey so far
• https://ec.europa.eu/growth/sectors/socialeconomy/enterprises/expert-groups_en
• http://ec.europa.eu/growth/content/social-enterprises-and-social-economy-going-forward-0_en
• http://ec.europa.eu/growth/industry/innovation/
funding/efsi_en
• https://ec.europa.eu/commission/priorities/jobsgrowth-and-investment/investment-plan-europejuncker-plan_en
• http://ec.europa.eu/social/main.jsp?catId=1084&langId=en
• http://www.eif.org/what_we_do/equity/efsi/index.
htm
• https://evpa.eu.com/pages/eu-webinar-8-eu-funding-update-for-vp-si-practitioners-efsi-social-impact

Phitrust.

Glossary of Terms

March 2018

GLOSSARY OF TERMS
Accelerator

and formal descriptions to represent core aspects of a

A programme through which an organisation supports

business, including purpose, business process, target

investment-ready social enterprises by providing them

customers, offerings, strategies, infrastructure, organ-

with business development support, mentoring, infra-

isational structures, sourcing, trading practices, and

structure, and access to relevant networks in order to

operational processes and policies including culture.

help them grow.
Business plan
Attribution

Document which describes an organisation’s goals and

Attribution takes account of how much of the change

the operating model and financial resources which will

that has been observed is the result of the organisa-

be used in order to reach them.

tion’s activities, and how much is the result of actions
taken simultaneously by others (e.g. other SPOs,

Co-investment (aka co-investing or co-funding)

government).

In private equity, co-investment is the syndication
of a financing round or investment by other funders

Baseline

alongside a private equity fund. In venture philan-

The baseline is the initial collection of data that

thropy, it involves the syndication of an investment into

describes the state of development of the SPO when

a social purpose organisation (SPO), by other funders

the VPO/SI starts investing in it. The baseline serves as

(e.g. grant-makers or individuals) alongside a venture

a basis for comparison with the subsequently acquired

philanthropy organisation.

data on the development of the SPO.
Convertible loans and convertible debts
Beneficiaries

Convertible loans and convertible debts are “two

The people, communities, broader society and environ-

different circumstances in which the loan may be

ment that a SPO seeks to reach through its activities.

converted into equity.” In both cases we are looking at

Beneficiaries can be affected positively or negatively

“a loan that has to be repaid. However, in one circum-

by the activities of the SPO.

stance, because the lender is willing to vary the loan
terms in the borrower’s favour, the borrower gives the

Blended Finance

lender rights to exchange its creditor position for an

The OECD defines blended finance as “the strategic

ownership in the enterprise at a later date. In another,

use of development finance and philanthropic funds to

more challenging circumstance, a loan is converted

mobilize private capital flows to emerging and frontier

into equity either because the borrower’s regulator

markets” (Source: http://www3.weforum.org/docs/

requires the intermediary to bolster its capital or upon

WEF_Blended_Finance_A_Primer_Development_

the occurrence of a future funding round. It is particu-

Finance_Philanthropic_Funders_report_2015.pdf)

larly useful where the enterprise is so young that a
valuation is not possible and an equity price cannot be

Business model

set” (Varga and Hayday, 2016).

A business model describes the rationale of how an
organisation creates, delivers, and captures value,

Deal flow

in economic, social, cultural or other contexts. The

Deal flow refers to the number and/or rate of new

process of constructing a business model is part of

proposals presented to the investor. This term is

the business strategy. In theory and practice, the term

used with respect to venture capital/private equity

business model is used for a broad range of informal

funds, venture philanthropy funds, and has also been

A Practical Guide to Venture Philanthropy and Social Impact Investment

borrowed and used by philanthropists in reference to

the enterprise. An exit strategy is the action plan to

‘deals’ or potential projects to be awarded grants.

determine when the VPO/SI can no longer add value to
the investee, and to end the relationship in such a way

Debt instruments

that the social impact is either maintained or amplified,

Debt instruments are loans that the VPO/SI can

or that the potential loss of social impact is minimised.

provide to the SPO, charging interest at a certain rate.
The interest charged can vary depending on the risk

Financial instruments (FIs)

profile of the investee and on the securitisation and

Financial instruments are contracts involving monetary

repayment priority of the loan (senior vs subordinated

transfers through which, in the VP/SI space, venture

loan).

philanthropy organisations and social investors financially support social purpose organisations.

Due diligence
Due Diligence is the process where an organisation or

Financial sustainability

company’s strengths and weaknesses are assessed in

Financial sustainability for a social enterprise is the

detail by a potential investor with a view to investment.

degree to which it collects sufficient revenues from the
sale of its services to cover the full costs of its activ-

Endowment

ities. For charities, it involves achieving adequate and

A donation of money or property to a non-profit organ-

reliable financial resources, normally through a mix of

ization, which uses the resulting investment income for

income types.

a specific purpose. “Endowment” can also refer to the
total of a non-profit institution’s investable assets, also

Foundation

known as “principal” or “corpus,” which is meant to be

Public-benefit

used for operations or programs that are consistent

purpose- driven. They have no members or share-

with the wishes of the donor.

holders and are separately constituted non-profit

foundations

are

asset

based

and

bodies. Foundations focus on areas ranging from the
Equity instruments

environment, social services, health and education, to

Equity instruments are contracts through which a VPO/

science, research, arts and culture. They each have an

SI provides funding to SPOs and in return acquires

established and reliable income source, which allows

ownership rights on part of the SPO’s business. This can

them to plan and carry out work over a longer term

be appropriate when the prospect of a loan repayment

than many other institutions such as governments

is low or non-existent. If the SPO is successful, the

and companies. In the context of VP, foundations are

equity share holds the possibility of a financial return

non-profit organisations that support charitable activ-

in the form of dividend payments.In addition, it allows

ities either through grant-making or by operating

for the possibility of a transfer of ownership to other

programmes. Source: www.efc.be

funders in the future.
Fund
Exit

A fund is a vehicle created to enable pooled investment

The end of the relationship between the venture philan-

by a number of investors and which is usually managed

thropy investor and social purpose organisation (SPO).

by a dedicated organisation.

The nature of the exit will normally be agreed before
the investment is completed. In the case of a charity,

Grant-maker

the venture philanthropy funder will ideally be replaced

Grant-makers include institutions, public charities,

by a mix of other funders (see financial sustaina-

private foundations, and giving circles, which award

bility). The time scale for the exit can be agreed upon

monetary aid or subsidies to organisations or individ-

at the outset. In the case of a social enterprise, exit

uals. Generally known as foundations in Continental

may require the repayment of a loan, for example, and

Europe, grant-makers also include certain types of

the timing will depend on the commercial success of

trusts in the United Kingdom.

Glossary of Terms

March 2018

Grants

Hybrid Financing Vehicles

Grants are a type of funding in the form of a cash allo-

Funds developed to provide finance to SPOs in a more

cation that establishes neither rights to repayments nor

efficient way, while satisfying different risk/return/

any other financial returns or any form of ownership

impact profiles of investors. (Source: Gianoncelli, A.

rights on the donor.

and Boiardi, P., 2017)

Guarantee

Hybrid structure/nature

A guarantee is a promise by one party (the guarantor)

The hybrid structure of the SPO is a combination of a

to assume the debt obligation of a borrower if that

for-profit entity and a not-for-profit entity. The hybrid

borrower defaults. A guarantee can be limited or

structure is an innovative way to address the issue of

unlimited, making the guarantor liable for only a

access to finance. By setting up a hybrid structure, the

portion or all of the debt. In the VP context, guarantees

SPO can attract grants through the non-profit entity

are one of the financial instruments available for VPO/

and social investment through the for-profit entity,

SIs to support SPOs. The VPO/SI in this case does not

hence increasing the pool of resources available while

need to supply cash up-front, but it opens up access

channelling them in the most effective way. (Source:

to bank funding by taking on some or all of the risk

Gianoncelli, A. and Boiardi, P., 2017)

that the lender would otherwise incur. (Source: https://
en.wikipedia.org/wiki/Loan_guarantee)

Impact investing (II)
Impact investing is a form of investment that aims at

High-engagement partnership

generating social impact as well as financial return.

Creating hands-on relationships between the supported
organisation’s management and the VP/ SI organisation.

Impact measurement and management (IM or IMM)

This practice foresees VPO/SIs taking board seats in the

Measuring and managing the process of creating social

organisations they invest in or give a grant to, and/or to

impact in order to maximise and optimise it.

frequently meet with investees’ management.
Incubator
Hybrid Finance

A programme through which an organisation supports

Allocation of financial resources to impact-oriented

very early-stage social enterprises by providing them

investments combining different types of financial

with business development support, mentoring, infra-

instruments and different types of risk/return/impact

structure, and access to relevant networks in order to

profiles of capital providers. (Source: Gianoncelli, A.

make them investment-ready.

and Boiardi, P., 2017)
In-house resources
Hybrid Financial Instruments (HFIs)

Resources provided within the venture philanthropy

HFIs are monetary contracts that combine features of

organisation itself, through its staff members or volun-

the traditional FIs (grants, debt instruments and equity

teers, as opposed to people within the greater network

instruments) in order to achieve the best possible

of the venture philanthropists, service providers, or

alignment of risk and impact/financial return for

portfolio organisations.

particular investments.
Indicators
Hybrid Financing Mechanism

Indicators are specific and measurable actions or

Financing schemes developed to increase the resources

conditions that assess progress towards or away from

brought to impact-oriented investments by de-risking

outputs or outcomes. Indicators may relate to direct

traditional capital (i.e. retail, commercial or public).

quantities (e.g. number of hours of training provided)

(Source: Gianoncelli, A. and Boiardi, P., 2017)

or to qualitative aspects (e.g. levels of beneficiary
confidence).

A Practical Guide to Venture Philanthropy and Social Impact Investment

Investee

Mission-related investing (MRI)

The social purpose organisation that is the target of

The dedication of the full portfolio of assets and invest-

the VPO/SI activity and the recipient of financial and

ments of a foundation to its social mission.

non-financial support.
Non-financial support (NFS)
Investment

The support services VPO/SIs offer to investees (SPOs)

An investment is the use of money with the expecta-

to increase their societal impact, organisational resil-

tion of making favourable future returns. Returns could

ience and financial sustainability, i.e. the three core

be financial, social, and/or environmental.

areas of development of the SPO.

Investment proposal

Organisational resilience

The investment proposal is the document prepared

The assessment of the degree of maturity of an SPO,

by the VPO/SI to present a potential investment

in terms of the degree of development of the manage-

(including nature, goals and funding) to the investment

ment team and organisation (governance, fund raising

committee.

capacity etc.).

Key performance indicators (KPIs)

Organisational support (also known as capacity

Key Performance Indicators (KPIs) are a business

building)

metric used to evaluate the extent to which the

Approach

organisation has achieved a goal and factors that are

supported to increase their overall performance by

crucial to the success of an organisation. KPIs differ

developing skills or improving structures and processes.

aimed

strengthening

organisations

per organisation, business KPIs may be net revenue
or a customer loyalty metric, while government might

Outcomes

consider unemployment rates.

The changes, benefits, learnings, or other effects (both
long and short term) that result from the organisation’s

Long-term investment

activities.

A long-term investment is made over a period of five
years or more.

Outputs
The tangible products and services that result from the

Mezzanine finance

organisation’s activities.

Mezzanine finance is a hybrid of debt and equity
financing, usually used to fund the scaling of an

Portfolio

organisation. Although it is similar to debt capital, it

A portfolio is a collection of projects and/or organisa-

is normally treated like equity on the organisation’s

tions that have received sponsorship from the investor.

balance sheet. Mezzanine finance involves the provision

A distinction is often made between ‘active’ and ‘past’

of a high-risk loan, repayment of which depends on the

portfolio, distinguish between the organisations with

financial success of the SPO. This hybrid financial instru-

which the investor is actively involved. Usually, however,

ment bridges the gap between debt and equity/grant

all portfolio organisations are included in the greater

through some form of revenue participation. Examples

network of the investor.

include a loan that is only repayable through royalties
based on the future sales of a product or service; or a

Portfolio manager (also Investment manager)

royal- ty-sharing agreement that can be activated once

A portfolio manager is given the responsibility of

an agreed profitability threshold has been reached.

tracking the performance of and maintaining communi-

These hybrid financial instruments can offer an appro-

cations with the various organisations and/or projects

priate balance of risk and return (Balbo et al., 2016).

within the investor’s portfolio.

Glossary of Terms

March 2018

Pre-investment stage

Seed financing

The pre-investment stage is the process during which

Seed financing is money used for the initial investment

the investor examines the operations and leadership of

in a start-up company, project, proof-of-concept, or

the project or organisation with a view towards making

initial product development.

an investment. This might include a detailed review
of the financials, operations, or reference checks for

Short-term investment

organisational leaders. The term due diligence is also

A short-term investment is made over a one-year

used, which has a legal definition as a measure of

period less, or an investment that matures in one year

prudence. In other words, the investor is assessing if it

or less.

is likely to get what it thinks it is paying for.
Social enterprise
Private equity

A social enterprise is an operator in the social economy

Ownership in a firm which is not publicly traded and

whose main objective is to have a social impact rather

which usually involves a hands-on approach and a

than make a profit for their owners or shareholders.

long-term commitment for the investors.

It operates by providing goods and services for the
market in an entrepreneurial and innovative fashion

Pro-bono contribution

and uses its profits primarily to achieve social objec-

Professional work undertaken voluntarily and without

tives. It is managed in an open and responsible manner

payment. Unlike traditional/unskilled volunteerism, it

and, in particular, involves employees, consumers and

is service that uses the specific skills of professionals

stakeholders affected by its commercial activities.

to provide services to those who are unable to afford

The Commission uses the term ‘social enterprise’ to

them.

cover the following types of business:

Pro-bono contributor

• Those for who the social or societal objective of

A professional who provides specific skilled support to

the common good is the reason for the commercial

an organisation without the payment of a fee.

activity, often in the form of a high level of social
innovation.

Recoverable grants
Recoverable grants are grants that can be returned to

• Those where profits are mainly reinvested with a view
to achieving this social objective.

the VPO/SI, under certain terms and conditions agreed

• Those where the method of organisation or ownership

in advance by the VPO/SI and the SPO. Recoverable

system reflects the enterprise’s mission, using demo-

grants are “designed to focus the recipient on sustain-

cratic or participatory principles or focusing on social

ability and reduced risk of grant dependence”. (Varga

justice.

and Hayday, 2016).
There is no single legal form for social enterprises.
Return on Investment (ROI) (see also Social Return

(Source: European Commission http://ec.europa.eu/

on Investment (SROI)

growth/sectors/social-economy/enterprises_it)

The Return on Investment (ROI) is the profit or loss
resulting from an investment. This is usually expressed

Social entrepreneur

as an annual percentage return.

Social entrepreneur is defined by the Schwab Foundation as a leader or pragmatic visionary who:

Scaling up

-- Achieves large scale, systemic and sustainable

Processes of developing and growing the activities

social change through a new invention, a different

of an SPO to expand its social reach and increase its

approach, a more rigorous application of known

social impact.

technologies or strategies, or a combination of
these.

A Practical Guide to Venture Philanthropy and Social Impact Investment

-- Focuses first and foremost on the social and/or

Social investment intermediaries

ecological value creation and tries to optimise the

Organisations that aim at increasing the pool of financial

financial value creation.

resources available for SPOs to reach and scale their

-- Innovates by finding a new product, a new service,
or a new approach to a social problem.
-- Continuously refines and adapts approach in
response to feedback.

social impact by bridging the demand and the supply
side of capital, channelling funds towards SPOs in a
more efficient way and bringing more resources into
the VP/SI space.

(Source: http://www.schwabfound.org)
Social Purpose Organisation (SPO)
Social impact

An organisation that operates with the primary aim

The attribution of an organisation’s activities to broader

of achieving measurable social and environmental

and longer-term outcomes. To accurately (in academic

impact. Social purpose organisations include charities,

terms) calculate social impact you need to adjust

non-profit organisations and social enterprises.

outcomes for: (i) what would have happened anyway
(‘deadweight’); (ii) the action of others (‘attribution’);

Socially Responsible Investing (SRI)

(iii) how far the outcome of the initial intervention is likely

Also known as sustainable, socially conscious, “green”

to be reduced over time (‘drop off’); (iv) the extent to

or ethical investing, this term defines any investment

which the original situation was displaced elsewhere or

strategy seeking both financial return and social good.

outcomes displaced other potential positive outcomes

In its broadest usage, SRI refers to proactive practices

(‘displacement’); and for unintended consequences

such as impact investing, shareholder advocacy and

(which could be negative or positive).

community investing. Socially responsible investments
encourage corporate practices that promote environ-

Social Investment (SI) (also known as Social

mental stewardship, consumer protection, human rights

Finance)

and diversity. They can also represent the avoidance of

Social investment is the provision and use of capital to

investing in industries or products that can be socially

generate social as well as financial returns. The social

harmful, including alcohol, tobacco, gambling, pornog-

investment approach has many overlaps with the key

raphy, weapons and/or the military. The term dates

characteristics of venture philanthropy, however social

back to the Quakers, who in 1758, prohibited members

investment means investment mainly to generate social

from participating in the slave trade.

impact, but with the expectation of some financial
return (or preservation of capital).

Social Return on Investment (SROI)
The SROI concept, essentially a cost-benefit analysis,

Social Impact Bond

is used by charities, donors and non-profit organisa-

Results-based contracts between governments/public

tions to rate the results of their endeavours with firm

entities and social investors that enable federal state,

evidence of impact and value created. The idea of social

and local governments to partner with high-per-

return on investment was pioneered in the 1990s by a

forming service providers by using private investment

U.S. venture fund called REDF and has since caught on.

to develop, coordinate, or expand effective programs
(Source: Dear et al., 2016 Available here: http://socialfi-

Social sector

nance.org/social-impactbonds-the-early-years/).

Social sector is an alternative term used in reference
to the non-profit sector, non-governmental sector,

Social Innovation

voluntary sector, independent sector, or third sector.

Social innovations are new ideas that meet social needs,
create social relationships and form new collaborations.

Social venture capital

These innovations can be products, services or models

Social venture capital

addressing unmet needs more effectively. The European

Commission’s objective is to encourage market uptake

supporting the creation and the expansion of commer-

of innovative solutions and stimulate employment.

cially sustainable enterprises to maximise social and

(Source: European Commission http://ec.europa.eu/

financial returns. In developing countries, this approach

growth/industry/innovation/policy/social_it)

is used to create jobs and empower the poor.

tackling

social

problems

enterprise
through

approach
investment,

Glossary of Terms

Tailored financing (TF)
The process through which a venture philanthropy
organisation or a social investor (VPO/SI) finds the
most suitable financial instrument(s) to support a
social purpose organisation (SPO), choosing from the
range of financial instruments available (grant, debt,
equity, and hybrid financial instruments). The choice
of the financial instrument(s) will depend on the risk/
return/impact profile of the VPO/SI and on the needs
and characteristics of the SPO.
Theory of change (ToC)
A theory of change defines all building blocks required
to bring about a given long-term goal. This set of
connected building blocks is depicted on a map known
as a pathway of change or change framework, which is
a graphic representation of the change process.
Venture philanthropy (VP)
VP is a high-engagement and long-term approach to
generating social impact through three practices:
• Tailored financing: using a range of financial instruments (including grants, debt, equity and hybrid
financial instruments) tailored to the needs of organisation supported.
• Organisational Support: added-value support
services that VPO/SIs offer to investees (SPOs)
to strengthen the SPO’s organisational resilience
and financial sustainability by developing skills or
improving structures and processes.
• Impact measurement and management: measuring
and managing the process of creating social impact
in order to maximise and optimise it.
Venture Philanthropy Organisation/Social investor
(VPO/SI and/or VP/SI organisation)
An organisation pursuing a venture philanthropy/social
investment approach.
Volunteer
A person who voluntarily offers himself or herself to
performs a service willingly and without pay. For the
purpose of this report, differently from pro-bono and
low-bono supporters, volunteers offer unskilled labour.

March 2018

A Practical Guide to Venture Philanthropy and Social Impact Investment

March 2018

A Practical Guide to Venture Philanthropy and Social Impact Investment

100

Rue Royale 94
1000 Brussels, Belgium
Tel: +32 (0) 2 513 21 31
Email: info@evpa.eu.com

THE EUROPEAN VENTURE PHILANTHROPY ASSOCIATION (EVPA)

EVPA is grateful to Fondazione CRT for
the support of its Knowledge Centre

Established in 2004, EVPA works to enable venture philanthropists
and social investors to maximise societal impact through increased
resources, collaboration and expertise.
EVPA’s membership covers the full range of venture philanthropy and
social investment activities and includes venture philanthropy funds,
social investors, grant-making foundations, impact investing funds,
private equity firms and professional service firms, philanthropy
advisors, banks and business schools. EVPA members work together
across sectors in order to promote and shape the future of venture
philanthropy and social investment in Europe and beyond.
EVPA is committed to support its members in their work by providing
networking opportunities and facilitating learning. Furthermore, we
aim to strengthen our role as a thought leader in order to build a
deeper understanding of the sector, promote the appropriate use of
venture philanthropy and social investment and inspire guidelines
and regulations.
http://www.evpa.eu.com

VENTURE PHILANTHROPY
SOCIAL INVESTMENT
SOCIAL ENTREPRENEURSHIP

789082

494044

ISBN 9789082494044

With the financial support of the
European Commission

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