October 02, 2017

Venture Philanthropy & Social Investment in the age of a changing Europe

Country Meeting Uk

At EVPA we run "country meetings" to bring together the top players in venture philanthropy and social investment (VP/SI). It's an afternoon of peer-to-peer learning, discussions and exploration into the many ways that VP/SI can be used to address societal challenges. Last week I ran the EVPA UK Country Meeting, generously hosted by Bank of America Merrill Lynch in London. When I was planning the event four months ago, I was faced with a challenge: in a market as well developed as the UK, what would be the best way for EVPA to add value to the "British" conversation around VP/SI.

"Brexit. We all know what it is, but nobody quite knows what it means. Yet."

I started to think about the big challenges we're faced with today, issues like Brexit and the refugee crisis. And I thought about the tools that we have at our disposal to address societal issues. For example, it was the UK the launched the world's first Social Impact Bond, and it's now gaining traction across the world. Other hot topics include how to scale impact and how to successfully exit a social investment (these two topics being inexorably linked). How could I marry the societal challenges with the solutions being experimented with in a way that would be interesting to UK players?

"Brexit. We all know what it is, but nobody quite knows what it means. Yet." The picture above appeared behind me as I addressed the thirty or so participants at the EVPA UK Country Meeting last week. The sign "EU" pointed in one direction and another one for "Brexit" pointing in the opposite direction.

The truth is that we don't know yet how Brexit will affect us. But what troubles me is that it is a sign that the UK, a proud country that already prefers to do many things "it's own way", is moving farther away from Europe. Well, if we can't bring the UK closer to Europe then let's bring Europe to the UK. And we flew in three experts to share the latest social innovations from the continent.

Jussi Nykänen from Epiqus (EVPA member in Finland) talked about how his country is racing ahead of the Scandinavian pack in developing Social Impact Bonds (SIBs). The latest fund from Epiqus is the biggest in Europe and they even develop SIBs for other countries, like Serbia. The secret to their success? Strong support in the early days from the Finnish government, particularly through Sitra (the Finnish Innovation Fund), an independent public foundation which operates directly under the supervision of the Finnish Parliament. This helped launch their first fund, a small but viable "proof of concept" that helped pave the way. More recent success is partially due to a healthy diversity of investors, including sizable co-investment from the European Investment Fund (EIF). And, of course, none of this would have been possible without Epiqus's own staff/talent, methodology and sheer drive. Their biggest challenge? SIBs can't work properly without impact measurement so it's critical to have access to accurate and specific economic data that can easily be sliced and diced. Some of the economic indicators they need simply don't exist. "If the problem can't be measured, we can't begin to tackle it", said Jussi. One future innovation is using Big Data to address this challenge. The capability of service providers and authorities to utilise Big Data will open new doors to overcome this challenge.

Francisco Soler from Creas (EVPA member in Spain) shared insights into the Spanish social investment market as well as their own approach to successfully exiting social investments. The effects of the financial crisis seriously hit the Spanish third sector around 2011, interestingly because many of the savings banks collapsed. It turns out that many Spanish charities were supported by those very same banks. On one hand, this meant hard times ahead for many charities who had survived on traditional philanthropy up until then. On the other hand, it created a real imperative for charities and NGOs to consider more enterprising approaches to affecting societal change, such as social entrepreneurship, revenue generating activities, profit-with-purpose, etc. Being open to new ways of solving societal issues is critical for a country like Spain that has so many challenges (youth unemployment in Spain has been as high as 50%). But this also means being open to new ways of funding those societal solutions. And although Spanish venture capitalists seem to "lack vision" when it comes to investing for both society and profit, at least Creas has shown over the past eight years that it is possible. Since launching, they have made 13 investments and finalised four exits, three of which were successful. How? Francisco explained that:

  1. Interests must be aligned between the social entrepreneur and the investor(s)
  2. Flexibility is key - avoid strict deal structures that don't allow you to have partial exits or longer investment time horizons
  3. Non-financial support is invaluable - Creas has a huge network of support for their investees
  4. Support the entrepreneur by being a "hands-on" investor during the entire process, don't leave them alone when it comes to the exit phase
  5. Never lose sight of the social mission, especially not during the exit. Transparency and honesty is only in everyone's benefit.

Stichting De Verre Bergen have pioneered an approach of using social investment as a tool to address the Syrian refugee crisis.

Roelof Prins from Stichting De Verre Bergen (EVPA member in the Netherlands), shared insights into the Dutch market for venture philanthropy - a small but growing part of the pie. By setting up Stichting Nieuw Thuis Rotterdam, they have pioneered an approach of using social investment as a tool to address the Syrian refugee crisis in Rotterdam. Essentially, they buy up some 200 houses in Rotterdam to house refugees and simultaneously provide wraparound support for the participants, including language training, access to childcare, a bicycle, etc. Once the participants are in a stable situation and can support themselves financially, they move out in order to allow for more participants in the programme. So far the results have been very promising. In fact, one risk is actually running out of refugees. Roelof advises that only by being rigorous in their impact measurement approach (and honest about the results!) can they seriously begin to affect change. And because they only work in Rotterdam, they have the added benefit of being very well integrated into the local communities and in close partnership with the municipal government.

It was an inspiring afternoon that made for plenty of food for thought. The issues we discussed like SIBs, successful exits in social investment, using VP to address the Syrian refugee crisis will are among the many topics in the world of venture philanthropy and social investment that we will explore at our annual conference in Oslo (9-10 November). If you haven't registered yet, do so before we run out of tickets. I look forward to seeing you there!

Kindly supported by

European Commission

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