In KITE Invest’s articles, Profiling Private Equity and Hedge Funds, FDI Inflow of Emerging Economies in 2012 and Impact Investing, the new method of FDI, we have showcased how foreign direct investment (FDI) is delivered and received across the globe in a variety of sectors and done with a range of intentions and goals.
The combination of well intended social responsibility that is aspired to by impact investors and a good return on investment sought after by institutional investors has found its place in venture philanthropy. Coined by John D. Rockefeller III in 1969 as, “an adventurous approach to funding unpopular social causes,” but it has been in the last decade that venture philanthropy has found its full momentum, as a result of the encouragement and the high standard set by Bill and Melinda Gates and Warren Buffett.
As made evident by the names mentioned above, one main components of venture philanthropy that distinguishes itself from other institutional investors is the philanthropists themselves. As stated by another renowned philanthropist and investor, Sir Richard Branson, “For a successful entrepreneur it can mean extreme wealth. But with extreme wealth comes extreme responsibility. And the responsibility for me is to invest in creating new businesses, create jobs, employ people, and to put money aside to tackle issues where we can make a difference,” highlighting the combination of businessman / investor / entrepreneur and do-gooder, and as a result, creating the venture philanthropist.
Venture philanthropy distinguishes itself from traditional charitable giving and grant making, as it is specifically aimed towards long-term investments and applies the essential non-financial support of ‘know-how.’ While the core of venture philanthropy is good social impact, the businesslike component requires, in most cases, an eventual return on investments, and thus viable, mature recipients. Emphasis is placed on good business planning, measurable outcomes, achievement of milestones, and high levels of accountability, which are all weighed by performance rating systems.
This investment approach and businesslike application paired with a socially aware mindset that makes up the essence of venture philanthropy is of particular importance, because it initiates and sets in to motion a cycle composed of one, improving human life and two, facilitating economic growth. In order for this cycle to be sustainable, recent years have shown a shift towards more inclusive collaborations with businesses, non-profits, government agencies and private funders as to ensure the best and most wide scale impact. Such engagements have established a level of significance within the policy process, most notably identified by the wave of public private partnerships.
Lastly, it is the social issue that influences the direction of a venture philanthropy investment. The choice of social issue generally depends on the level of interest, location, and personal connection. While the focus area of the issue has first and foremost a social objective, there is an underlying component to generate economic growth, made evident by the relation and impact that venture philanthropy investments have on fomenting development.
KITE Invest believes that
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it is this interweaving social good and economic growth that will ultimately produce the greatest results of FDI to not only developing countries, but globally as well.