The term “venture philanthropy” has come of age as wealthy individuals seek more developed ways of achieving measurable benefits for causes they want to champion, argues Cheviot Asset Management in a recent report.

Perhaps fittingly on the eve of Christmas, which is traditionally a time when people are urged to think of philanthropic causes, the VP idea deserves close scrutiny, Cheviot’s head of alternative investments, David Miller, argues.

“Without wishing to overstate the case, there is evidence of changing attitudes to philanthropy. A number of factors such as generational change have an influence, but perhaps most importantly it is clear that donors are looking to retain greater control by self management of their philanthropic activities rather than subcontracting to traditional charities,” said Miller.

The development of VP highlights how business and modern financial ideas are affecting how charities operate. Also, with some governments looking to cut public spending, there is interest on how philanthropic organisations can embrace business ideas to fill any gaps. The term is gaining currency: in June this year, the UK disability charity, Scope, launched what it called a pioneering investment platform for venture philanthropists, raising money for apartments in Essex in the UK, tapping high net worth individuals as contributors. In December 2009, the UK private bank Kleinwort Benson entered an association with specialist advisory organisation Investing for Good to strengthen its offering of social impact investment opportunities.

Venture philanthropy, as a term, dates back to the US, in a Harvard University paper and a community foundation in California’s Silicon Valley, Miller said. “Venture philanthropy is like venture capital from which it was born; in its purest form it is a specialist activity, undertaken by a few. It is defined by the leverage it seeks, as it aims to build stronger social purpose organisations using a mix of financial and non-financial support,” he said.

As a starting point, Miller points out that venture philanthropy accounts for a tiny fraction of all charity income in England and Wales, at just 0.172 per cent, out of a total figure of £52.86 billion (about $80 billion).

Miller said he estimates that the total assets of the UK's ten leading VP funds reached £2 billion in 2010 with income, in 2009, of £91 million.

“VP is not about “giving money away” to needy causes. A VP approach would be to find an organisation that meets a social or environmental need (anything from an educational charity to a community transport service) and then to strengthen the organisation, so that it can do more,” Miller said.

“Just like venture capital, this means high engagement with the cause (many VP funds insist on a seat on the non-profit's board), tailored finance over a number of years, non-financial support – often in the form of advice and training - and performance measurement,” he continued.

“The simple idea that a funder should insist on a seat on the board has meant that many potential partnerships never got past the first meeting between VP and non-profit. The tailored finance area has been the source of some clever financial architecture, including organisations that link philanthropy, investment in social enterprises and pure VC, in order to generate profits from the latter to feed the former,” he said.

Miller argues practitioners are pushing new measures of performance, creating what is called “Social Return On Investment”.

Fund models vary – some going for grants, attached to strict structural change and SROI measures, others, such as Venturesome, providing loans and soft equity.

In the case of Venturesome, it is an offshoot of the long-established Charities Aid Foundation, he said.