Chen Yet-Sen Family Foundation urges VC approach to philanthropy
One of Hong Kong's well-known philanthropists is keen to encourage other wealthy families to adopt a more venture capital-like approach to philanthropy by funding innovative ideas to solve important socio-economic issues.
It’s an approach ultra-high net worth individuals and wealthy families can afford to take as they can take high risks on ideas that haven't become mainstream yet, according to James Chen, chairman of Hong Kong-based Chen Yet-Sen Family Foundation.
It's a philosophy he describes as 'moonshot' philanthropy.
“It’s how I approached our philanthropic ventures ... because we are really talking about impact [of this philanthropy] here," Chen told AsianInvestor.
Real impact, according to Chen, is when “you identify an issue as a hard-to-solve social issue and try to figure out what the barriers are to solving that issue.”
“Sometimes, it’s technology, sometimes, it’s science. Most people haven’t thought about doing things differently. And that is where philanthropists like us step in,” he said.
“The key question here is, what is the risk-taking appetite and how much risk are you taking?”
TAKING BIG RISKS
The Chen Yet-Sen Family Foundation is a Hong-Kong based foundation with a strategic focus on early childhood literacy and vision correction.
Chen has implemented that risky venture capital-style approach in previous philanthropic projects, most notably in Vision for A Nation, which has transformed eye care in the African nation of Rwanda.
Chen’s Vision for a Nation worked in partnership with Rwanda’s Ministry of Health to train thousands of nurses, helping more than 2.5 million Rwandans received vision screening via local health centres or outreach programmes.
In 2012, only 15% of Rwanda had access to local eye care services. Now, the entire nation has access to vision correction services, and the model is being replicated in Ghana and other nations, according to the foundation.
Much of the initial capital for the project came from Chen’s family. Eventually funding also came from UBS Optimus Foundation, USAID and the UK’s Department for International Development – after the model was proven to work.
As a philanthropist, Chen’s family had to take the initial, very high risks on the project. “If the project failed, it would be my family’s capital that would lose out,” he said, adding that he could afford to take that risk.
That's a key difference compared to large institutional investors such as the World Bank or USAID, whose money belongs to governments and ultimately taxpayers. “If they make mistakes, then it’s very hard to explain,” he said.
It’s an approach that Chen describes as ‘moonshot philanthropy’ – an approach similar to taking a venture-capital-like approach to philanthropy.
“Because I am an investor on the family office side, I understand how venture capital works. And I’ve applied that concept in the philanthropic space."
He considers philanthropy different from impact investing, noting that philanthropy comes in much earlier before impact investing and involves higher risks.
"In impact investing, essentially the issues are already known. Someone has already done the work to figure out there is a model that works. And what investors are doing is just scaling up the model with their impact investments. You could even get a good financial return on it, but to me that is not real impact,” said Chen.
Image credit: Shutterstock
HIGH RISK, HIGH GAINS
Some experts agree this 'moonshot' approach could make a big difference in solving intractable issues.
“Like a venture capitalist, you make that initial investment because you like the idea, And then you have milestone-based payments, depending on how the idea/project performs. Of course, you need to have a more patient approach,” said Naina Subberwal Batra, CEO of AVPN, a social impact network.
"When most people think of philanthropy, they think of it as money that is designed to be given away, she noted. “It’s money from which you do not expect to gain any financial returns,” she said.
AVPN
“What better money than philanthropic capital to use as catalytic capital to use for ‘first loss’ or to use that capital to prove the concept or the model works.
"And then you can attract impact investors who are not just looking at an impact return but also a financial return. And then they put that money in that model so it can be scaled up.”
Chen shares that view, noting that when they discover an idea that works, they promote it and open up the opportunity to other investors.
“That is where the institutions come in, because they are good at scaling things up. The risks are already mitigated and institutions can scale up the solution,” he said.
With moonshot philanthropy, the ultra-high net worth community has the ability to take high risks and fund ideas that might seem crazy to the establishment, according to Chen.
More family offices and UHNWIs are increasingly adopting a portfolio approach to their philanthropy and in the way they look at the impact their money has on society, said AVPN’s Subberwal.
“If we look at the scale of social problems in Asia, we need trillions of dollars. Philanthropy only generates billions – Asia’s needs are too huge to be met by philanthropy alone. So we need to look at different forms of capital, and philanthropy is just one form,” she added.
AsianInvestor will be hosting its Family Office Briefing in Hong Kong on November 28. For more details, click here.