How Do Philanthropic Venture Capitalists Choose Their Portfolio Companies?

Abstract

This paper examines the deal flow and screening process characterizing the philanthropic venture capital investment model. The practices explicitly adopted by philanthropic venture capitalists are then compared to those employed by traditional for-profit venture capitalists to understand whether the investment behaviour of the two investor categories is the same. By surveying the population of European and US philanthropic venture capitalists, results suggest that they originate and select deals similarly to traditional venture capitalists. However, they also adopt different deal origination criteria which are not traditionally used by venture capitalists, such as, incubation and direct creation of an organization in the event of not finding a suitable one. Furthermore, screening variables such as “deal terms” and “technology” are not considered to be as important as in the case of venture capital.

Keywords: Venture philanthropy, venture capital, social entrepreneurship

JEL Classification: G24, M13