The rich take to a new style of giving

Charity is old-fashioned and stuffy. Venture philanthropy is cool. Anna Coote explains

You can bet your last stock option that venture philanthropy will feature strongly in the lexicon of Labour's second term. Inevitably, it is a US import - an idea born in Boston and raised on the West Coast, in and around Silicon Valley. Put simply, it is a new way of transferring resources from the super-rich to disadvantaged communities. But it is a far cry from traditional charity.

Labour wants to revive neighbourhoods blighted by poverty and powerlessness. But the community-based organisations and enterprising local leaders (or "social entrepreneurs") who can make a tangible difference are pitifully strapped for cash. Government money is highly conditional, time-limited, and competition to access it is considerable. The grant-giving foundations and National Lottery support countless local endeavours, but usually on an ad hoc basis: here today, gone tomorrow. So voluntary groups limp exhaustedly from crisis to crisis.

The Blairite vision is not to redistribute wealth through taxation, but to encourage business to make a profit while "enabling" the poor to dig themselves out of the ditch. But how can successful enterprise be embedded in excluded communities? This is where venture philanthropy comes in.

Vanessa Kirsch is one of the pioneers. After years raising funds in the non-profit sector in Boston, she concluded that conventional philanthropy was keeping client organisations in a state of inefficient and precarious dependency. "Most non-profits," she says, "are under-resourced mom-and-pop stores. And despite all the work they are doing and the money available, our social problems are not going away. I want to see a shift from a culture of charity to a culture of investment."

In 1998 she set up New Profit Inc, based on the model of a venture-capital firm, but focused on social rather than commercial enterprise. It seeks out individuals with promising ideas for meeting social needs, and organisations with potential to grow. Initially, it chose a pre-school tutoring scheme for at-risk inner-city kids; an out-of-school programme for nine- to 14-year-olds; a health centre; and an organisation offering insurance and advocacy to part-time and temporary workers.

It provides financial backing for core functions (not projects) for at least five years. More importantly, it develops a close relationship with its clients, offering technical assistance for things such as personnel, business planning and communications, and agreeing performance targets. It pitches to investors by promising more philanthropic bangs for the buck: they can help select the beneficiaries, mentor social entrepreneurs and see investments flourish through active portfolio management.

The model has proliferated across the United States. For example, affiliates to the Entrepreneurs' Foundation, set up by Silicon Valley tycoons, donate company shares to local education and youth development programmes and volunteer their expertise in IT, accounting, law, media relations, headhunting and financial planning.

Can the idea take root in the UK? Henry Drucker of Oxford Philanthropic, a consultancy, argues that a new generation of wealthy donors is needed because the traditional philanthropists are not reproducing themselves. That select band of the great and the good, who hobnob with royalty and support a narrow but prestigious list of worthy causes, is failing to attract newcomers. The younger super-rich are impatient with the culture of the charitable sector and alienated from its social circles.

Gordon Brown has introduced tax relief on equity donations. You can now give blocks of shares in a quoted company to your favourite charitable cause and claim back their value against income tax. The new Local Investment Fund, backed by the government, seeks to bridge the gap between "grant dependency and mainstream banking finance". And this year a UK-based "social venture fund" is being planned by unLTD, a new body set up to administer the £100m legacy of the Millennium Commission. It hopes to attract the support of Britain's new millionaires.

But much of the energy (and cash) behind venture philanthropy in the US came from young people who were staggered to find themselves making so much money so fast. Now the growth area in Silicon Valley is redundancy counselling. Although not all the new millions are at the fluffy end of the high-tech market, a serious slump would tighten fists on both sides of the Atlantic. There's a further problem in the UK: we're squeamish about money. We don't like talking about it, asking for it or showing it off. In the US, ostentatious giving is a mark of status and the rich vie with each other to make bigger and better donations. For venture philanthropy to take off here there will need to be a change of attitude as well as a return of the feel-good factor.

To enter Upstarts 2001, the NS-Centrica awards for social entrepreneurs, go to www.upstarts.org.uk