Philanthropic Venture Capitalists’ Post-Investment Involvement with Portfolio Social Enterprises: What Do They Actually Do?

This chapter presents results from an empirical study concerning post-investment value-added services provided by philanthropic venture capitalists to their backed social enterprises. Results show that the most important activity consists in the provision of strategic advice for organizational development. Philanthropic venture capitalists act as advisors and mentors of social entrepreneurs. Also, findings show how important is facilitating access to future potential funders on the side of the social enterprise

Capital riesgo filantrópico: generación de deal-flow y selección de proyectos

El capital riesgo fi lantrópico es un nuevo modelo de fi nanciación similar al capital riesgo pero que invierte en empresas sociales, es decir, aquellas empresas cuyo primer objetivo es la maximización del retorno social. Este artículo describe el proceso de generación de deal fl ow y las variables usadas en el proceso de selección de los fondos de capital riesgo. El análisis llevado a cabo, basado en el estudio empírico de una muestra representativa, indica que estos inversores utilizan mayoritariamente métodos proactivos en la búsqueda de inversiones, apoyándose en su red de contactos. Respecto al proceso de selección, el factor clave en la decisión es el perfi l del emprendedor social. Palabras clave: Capital riesgo filantrópico; deal flo

Philanthropic venture capital: a new model of financing for social entrepreneurs

Part I of this book begins with a review of alternative forms of venture capital. Part II of this book highlights the structure of venture capital investments

Deal structuring in philanthropic venture capital investments

The philanthropic venture capital investment model is a financing option available for social enterprises. Its value proposition combines the maximization of social impact with the ability of backed organizations to become sustainable, accomplished through the provision of capital and non-financial services. This paper examines how the financing of the deal is structured and which contractual provisions are included in the financing agreement. By content analyzing a set of semi-structured interviews and thereafter surveying the entire population of philanthropic venture capital funds active in Europe and in the United States, results suggest a high use of grants as financing instrument both on aggregate level and across all staged of development of backed organizations. If the deal is financed through grants, the philanthropic venture capitalists’ deal structuring appears to differ from that characterizing traditional venture capital in that no valuation is performed and no formal contractual provisions are retained by the investor. On the contrary, trust plays a key role while shaping the relationship between investor and investees, whose importance decreases when equity is used. On an general level, findings show that moral hazard issues, which typically characterize the venture capital model, are superseded by a stewardship view of the relationship between the philanthropic venture capital investor and the backed social entrepreneu

Deal structuring in philanthropic venture capital investments: financing instrument, valuation, and covenants

Philanthropic venture capital (PhVC) is a financing option available for social enterprises that, like traditional venture capital, provides capital and value-added services to portfolio organizations. Differently from venture capital, PhVC has an ethical dimension as it aims at maximizing the social return on the investment. This article examines the deal structuring phase of PhVC investments in terms of instrument used (from equity to grant), valuation, and covenants included in the contractual agreement. By content analyzing a set of semi-structured interviews and thereafter surveying the entire population of PhVC funds that are active in Europe and in the United States, findings indicate that the non-distribution constraint holding for non-profit social enterprises is an effective tool to align the interests of both investor and investee. This makes the investor behaving as a steward rather than as a principal. Conversely, while backing non-profit social ventures, philanthropic venture capitalists structure their deal similarly as traditional venture capital, as the absence of the non-distribution constraint makes such investments subject to moral hazard risk both in terms of perks and stealing and social impact focus