When Investments are Grants and Grants are Investments

These days, many foundations in Europe and the United States struggle to prevent erosion of the value of their endowments.  But some people say philanthropists should rethink grantmaking, operating and investment policies altogether.

Between 16 and 17 November, I was in Turin at the annual conference of the European Venture Philanthropy Association.  For me, venture philanthropy (VP) is uncharted territory.  It brings the spirit and the modi  operandi of venture capitalism to the world of philanthropy.  VP invests in emerging social businesses to take them to scale and, as an investor, the venture philanthropist is often directly involved in that business to coach and manage the risks involved in the enterprise.

Dealing with the jargon in Turin was an issue. Traditional philanthropists make grants, and can also be involved in what in the US would be called Programme Related Investment, or PRI.  And obviously endowed foundations invest their assets, sometimes ethically or in a socially responsible way.

Venture philanthropists always invest. They invest their time and expertise, give grants and invest through other financial instruments (very much like the ones that you would use for PRI in the US).   Some venture philanthropists seek funds from third parties to invest. Most use the proceeds of past or current commercial activities of their founders.  Some actually pursue their mission solely through the way they manage their portfolio of investments –  a branch of VP that seems to be called ‘impact investing’ – as was illustrated at the Turin conference by the founder of KL Felicitas.

It seems different, but it’s not. While negotiating the jargon, I think it was interesting to see how in venture philanthropy instruments are easily blended. In many traditional foundations grantmaking and managing endowments are strictly separated with their own language, policies and people. But in venture philanthropy everybody does and speaks “investment”.

Traditional philanthropy has also moved beyond grants. Earlier GrantCraft developed guides on and Providing for the Long Term (2004) and on Programme Related Investment (2006). In Europe in 2011 Mistra, an EFC member, published 360-Degrees for Mission - How Leading European Foundations Use Their Invested Endowments to Support the Greater Good, which includes eight case studies that illustrate how foundations used  a variety of instruments  to align their investments and investment policies with their mission.

The key recommendation of the Mistra report is that everything starts with a well-thought out investment policy. And many European foundations are looking at their investment policies these days. What seemed to be safe and high yielding investments may not be considered as such any longer, and, for example, some more ethically driven banks, as opposed to financially driven,  seem to be doing surprisingly well despite the crisis.

So, besides experiencing a comprehensive introduction to venture philanthropy, what did I learn in Turin? That it will be a challenge to update the GrantCraft materials on management of endowments and investment strategies in such a way that are low on (country specific) jargon and at the same time high on practical insights. If you feel you can contribute, we need your experience (and glossaries) from around the globe.