Venture philanthropy seems to have become something of a buzzword. But what is it?

It’s the social entrepreneur’s equivalent of venture capitalism. A VC puts money into a company, uses their time, expertise and connections to make it successful, and then pulls out once agreed objectives are met. A venture philanthropist does the same with social or charitable causes. In the case of venture philanthropy (VP), the aim is to make a ‘social return’ on investment rather than a financial one, (although some VPs look for financial gain as well). Naturally, this affects exit strategies: in VP, withdrawal is often linked to the self-sustainability of the client organisation.

I am interested in dedicating funds to venture philanthropy. What options are available?

There are plenty. The route you take will depend on: how much time and money you want to commit; how long you plan to leave your money tied up and on what terms; and if you want any money back at the end. If you don’t want to commit too much of your own time, you can invest in an existing VP organisation. One such option are Community Development Finance Institutions (or CDFIs). They provide financial help rather than business management support, but there are tax incentives for investing in them if you are prepared to keep your money invested for a number of years.

At the other extreme, you may want to set up your own VP organisation. Here, there are numerous alternatives – in terms of structure (limited company, trust, community interest company, etc), legal status (charitable or not), the social causes you want to champion, tax consequences and your modus operandi. If you decide to do this, you should take professional advice to ensure you come up with the best solution.

Perhaps you want to put some of your own time in, but not to the point of establishing your own project. Here, you may be able to come to an arrangement with a local charity or community organisation. Again, advice might be appropriate.

Can I use my existing company for VP purposes?

Yes. Your venture could come out of your corporate social responsibility budget.

Is there anything I need to be wary of?

The culture of charities and social enterprise is, in some ways, quite different from commercial business culture. These organisations do not exist only to make profits and so their priorities tend to be different. In the case of charities, they are also subject to regulation and to legal restrictions on what they can do with their funds.

Moreover, while the emphasis that VP puts on outcomes is positive, it can also stifle innovation. If an organisation is under pressure to deliver specified results, it may hesitate to try something risky and it may back away from projects whose outcomes are harder to measure.

Where can I find more information?

For further details on VP, visit www.philanthropyuk.org and www.evpa.eu.com, the website of the European Venture Philanthropy Association. Meanwhile, for more on CDFIs, visit www.cdfa.org.uk, the website of the Community Development Finance Association.

James Carleton is a partner at Farrer & Co,  legal advisers to entrepreneurs and family businesses. www.farrer.co.uk or call 020 7242 2022