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July 27, 2011updated 05 Jun 2017 11:36am

The business of giving

The new breed of entrepreneur has a much more hands-on approach to charitable giving demanding new services from their wealth managers Alison Ebbage finds out about venture philanthropy, hyper-local giving and how government spending cuts could help boost the charitable sector.

By Alison Ebbage

The new breed of entrepreneur has a much more hands-on approach to charitable giving demanding new services from their wealth managers. Alison Ebbage finds out about venture philanthropy, hyper-local giving and how government spending cuts could help boost the charitable sector.

 

The nature of philanthropic giving is changing. As a new generation of entrepreneurs realise their wealth they want to choose their causes carefully and get much more involved than their cheque-writing predecessors.

It is about giving time and sharing skills and networks – much like building a business – and aptly named venture philanthropy.

“When people are selling a company, or otherwise realising wealth, they have the time to focus on their giving in a more structured way,” says Rebecca Eastmond, head of EMEA philanthropy at JP Morgan Private Bank.

“That means that people are thinking hard about how to best make their giving work. The trend is giving to a smaller amount of charities over a longer time frame.”

A number of high-profile entrepreneurs, notably Bill Gates, have publicly professed the desire to do something meaningful and lasting with their wealth.

Private banks are a key link in the philanthropic chain. They can work with the client to identify causes that resonate the most; they can provide the structures to facilitate giving as well as provide advice around tax efficiency; and manage philanthropy as part of the overall wealth portfolio.

Charitable giving is also important from an educational viewpoint, with a growing number of the wealthy using it as a means to involve younger family members and educate future generations.

One of the most important elements is being able to introduce clients with other like-minded individuals; be that other wealthy philanthropists that might have more or relevant experience to share or to charities.

HSBC Private Bank UK and Channel Islands chief executive Declan Sheehan says private banks and wealth managers need to have the capability to bring together the structures, the tax efficiency and the contacts so the wealthy can deal with philanthropic matters in much the same way as they would any other investment.

“Clients want to be mentored and guided from the beginning through the middle to the end of their philanthropic journey,” says Sheehan.

“It is all about helping them make the right decisions for them by identifying what is important to them and then providing them with the right networks of people and structures to make it work.”

From left: Declan Sheehan, HSBC Private Bank; Maya Prabhu, Coutts; Rebecca Eastmond, JP Morgan

 

Less giving, more time

The higher up the wealth scale philanthropy becomes, the more targeted and structured the giving becomes getting the right cause critically important.

“Having gone to so much effort to actually make their wealth, the new breed of philanthropists want to be able to remember who they have given to rather than just writing cheques,” says Eastmond.

“They also want to be more involved with their giving and have a real understanding of the charity to be able to see how their money will actually make a difference.”

In practice this means thinking about what will work best to solve a problem and make it self-sustaining and scalable in the future, much like start-up business.

In the developing world, this might be about creating a local market in rehydration salts, in a deprived area of the UK it could be making office space available as a means to encourage business start-ups and kick-start the local economy.

The distinction between giving and business is becoming increasingly blurred as entrepreneurs use their skills, experience and networks to motivate others to help themselves and develop something that is sustainable.

The return is the impact of their actions and investment. The ultra wealthy want to be involved in their charities at a very granular level or even setting up a charity of their own. UK entrepreneur James Caan, of Dragon’s Den television show fame, helped social issues-focused magazine The Big Issue with a new business plan. John Caudwell of UK mobile provider Phones4U fame set up his own charity.

This type of giving is especially interesting in a UK context, since many charities will suffer as a result of funding cuts to local authorities which will no longer be able to pay them for carrying out certain functions.

Maya Prabhu, head of philanthropy at Coutts, thinks funding cuts could force charities to become more efficient. She thinks this could make them more attractive to entrepreneurs when they look to identify causes and charities likely to benefit the most from their involvement and that are receptive to change.

“In some ways the spending cuts in the UK will force charities to be more focused on their cause rather than focused on doing whatever it is that will get them funding. Some charities will need to streamline but they will emerge more focused and efficient,” she says.

As in the private sector, cuts will also lead to consolidation and collaboration. One example is the UK youth charities – Prince’s Trust, which is good at fundraising, and Fairbridge, which is strong at implementing programmes at ground level. The two combined should be a powerful force.

Cool2Care is another example of the new model of philanthropy. Launched by Big Issue Invest, it is a childcare introductory service that recruits, screens and trains care-workers for disabled children. It is a social enterprise, not-for-profit organisation but the model of development is similar to a small business with ‘profit’ being reinvested.

Chief executive Nigel Kershaw says Big Issue Invest grew out of The Big Issue, itself a social enterprise, and has the experience to guide others.

“It is a venture capital model of active engagement. It creates opportunity, can be scaled up and thus create more opportunity on a sustainable basis. It is a business-like solution and this resonates more with entrepreneurial types,” he says.

Pie charts showing philanthropic tendencies of wealthy

 

Venture philanthropy: the cutting edge

But Kershaw sees this model as still “frontier” and says that although attracting the right people and skills has not been an issue, getting the investment, for social enterprises at least, has been harder as the tax regime is not as efficient as it is around charities. The Venturesome report, published in February 2011, could help address this gap between charities and commerce. It looks at the lessons that can be learnt from the microfinance industry when it comes to attracting guaranteed funding, scaling business models, guarding against mission drift and the speed of growth in a market and depth of impact.

Eastmond is bullish on venture philanthropy. She sees it reflecting the new breed of self-made entrepreneurial wealth and their desire to have hands-on dealings in their causes.

“It is treating philanthropy like a venture capital project but with less expectation on financial return, she says.

“It is about using skills for the better good and growing charities, getting the management trained and the ‘business’ properly positioned and focused, as you would in the private sector. The idea is to eventually recycle the money so the investment has an impact, the charity can reinvest the money or the return.”

Pie charts showing how UHNW remain highly motivated donors

 

Keeping it local

In tandem with venture philanthropy, the concept of hyper local giving continues to be popular.

This has always been a very evident segment of philanthropic giving but does especially well as local projects tend to be intrinsically smaller and thus easier to influence than national, or even international, campaigns.

Local giving is a global phenomenon and stems from people wanting to give back to the region they originally came from, be that the ethnic Chinese community in Asia, or the non-resident Indian community (NRI) giving back to India.

“As self-made wealth in Asia rockets, giving back to the region of origin is growing,” says Prabhu.

“In India for example, those who have made their wealth from the telecoms boom are now looking to invest in a stable society by stopping the gap between rich and poor from growing. They are looking to fund local initiatives and fill local gaps in, say, educational provision or health care,” she says.

In the UK too hyper local giving is very much on the up and is expected to increase as cuts dig in and the concept of the Conservative government’s ‘Big Society’ is more fully grasped.

“In the UK, the hyper local aspect goes hand in hand with the recession where the gap between rich and poor is growing and people feel more responsible for their local community,” says Eastmond.

In this context, the role of private banks and the links they have with charities and organisations will only become more important.

“Philanthropy might be a small part of the overall portfolio but takes up a large proportion of the conversation. Private banks with the right know how and contacts can make a huge difference to their clients’ philanthropic lives,” says Kershaw.

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