Unveiling Philanthropy: what it takes to produce meaningful social change

Philanthropy is a risky business and most initiatives, when rigorously tested, do not prove effective. Our interview with Andy Ratcliffe, CEO of Impetus – The Private Equity Foundation (Impetus-PEF), shows the way to funders to define their impact models in the search of greater effectiveness

Unveiling Philanthropy: what it takes to produce meaningful social change

Impetus-PEF was formed in 2013, following the merger of two venture philanthropy organisations in the UK, Impetus Trust and the Private Equity Foundation. To harmonize two separate models after the merger Impetus-PEF chose to revisit its model to focus its scope and empower its approach to support charities with a high-potential of delivering outcomes in a meaningful and consistent way.

The result of this strategic process led to two main results. In primis, Impetus-PEF refined its Theory of Change, narrowing its investment focus and establishing a model of support on the long term (about 10 years) that put emphasis on developing grantees’ impact management capacity before scale-up rather than on early scaling. The second result was to hone the area of focus and develop the necessary expertise to become a more effective and credible capacity builder.

Professionalisms and time are both essential steps in the philanthropic world to avoid wasting resources on initiatives that will not produce any relevant result for final beneficiaries. But change does no come cheap. Impetus-PEF, undoubtedly a best practice among grant-making models, invests substantially not only in grantees but on its internal capacity as well. Since 2013, Impetus-PEF investment team has screened more than 2,000 charities but invested in only 1 every 40, with each investment director managing two or three grants at a time – far fewer than the typical foundation officer. The personnel costs for this investment team represent about 20 to 30% of the amount the organization gives out each year in grants but this effort allows Impetus-PEF to identify and support charity partners to develop what works – and prove its added-value. In 2016 Impetus-PEF generated €9.5m in value for its charities: 49% in grants, 17% in pro bono support, 21% in investment team support and 13% in additional funds raised.

In the interview with Andy Ratcliffe, CEO of Impetus-PEF, we went through the drivers, challenges – and benefits of adopting a committed approach to building high-impact charities wider social impact. Philanthropy is a risky business but capacity builders as Impetus-PEF can show the road to funders to creating lasting change while raising the bar on how effectively their financial resources can be put to use.


Let’s start with a question on Impetus-PEF’s approach: could you highlight the milestones that led to your current model of support to grantees?

Impetus PEF was born by the will of two separate organizations that wanted to prove there was a new way to philanthropy that could borrow some insights from the venture capital world and apply those concepts to the charitable sector to building high-performing organizations and helping them grow.

The merge between Impetus and the Private Equity Foundation was eased by different similarities in place – both organizations pursued a venture philanthropy approach and were quite focused on growth to help charities scale-up quickly. Still, there were several divergences that needed to be reconciled: the two organizations worked on quite different issues (education, rehabilitation of prisoners etc.) with a diverse geographical scope. Thanks to the workshop with David Hunter, we made two main fundamental decisions that shaped our new Theory of Change: the first was to focus much more on a particular issue. We realized that we needed to gain a deep understanding of an issue in order to develop the model properly and demonstrate that we could produce a meaningful impact. Reducing the scope led us to redefining our mission with the goal of helping young disadvantaged people (11-24) in the UK succeed in the fields of education and find and keep a job.

The second decision was to move from an early focus on scale to an impact-first approach. This is one of the areas where the analogy between private sector investment and philanthropy does not necessarily hold. If you buy a business and it grows, with more people buying your products, it is normally defined a success; the same financial empowerment does not define the impact of a charitable organization.

“Thanks to the Theory of Change workshop, we made two main fundamental decisions: to focus much more on a particular issue and to move from an early focus on scale to an impact-first approach”

We knew that in the UK there were some very high-performing charities that struggled to raise their finances together with some very financially successful charitable organizations that were not so impactful. The risk, very simply put, was that we were trying to grow organizations that did not actually work! This is the reason we moved to this model: we decided to strongly focus on building the organization‘s capacity in order to prove that it could have an impact and that it could deliver it consistently before thinking too much about scale-up.

Today, we got a portfolio of 17 charities across education and employment at various stages of development. From my appointment as new CEO of Impetus-PEF, I tried to bring in two major changes: first, a stronger sense of how overall portfolio success looks like. We got this gap in the UK in how poor children perform in school in comparison to higher-income peers. In 5 years time if we are successful as a portfolio, how much can we narrow down that gap? Now our definition of success looks to the extent organizations in our portfolio first improve their effectiveness and strengthen their leadership and finances, and are then better able to manage their impact and suitable for growth.

“The risk was that we were trying to grow organizations that did not actually work! This is the reason we moved to this model, strongly focusing on testing results and building the organizations to prove that it could have an impact and deliver it consistently”

The second part comes from the recognition of a market failure, i.e. that even if we help build a really great charity, with superb evidence of impact, with a sustainable business model, resources will not necessarily flow in. If we really want to help the best organizations succeed, we must become better and more active to making sure that the big pots of resources go where they need to, to ensure the money and the evidence get connected. We are now much more active to get co-investors, attracting new resources that can side us along the path of growth of our charities, particularly when the organization is reaching a point where it starts to grow. And also we are envisioning actions to influence policy-making: the UK Education Department spends £6 billion per year – it’s pretty clear that if our model and approach can work, public finances are going to be a primary part of the picture. In short, we are becoming much more active also on the demand side of resources that only on the supply side.

“If we really want to help the best organizations to succeed, we must become better and more active to making sure that the big pots of resources go where they need to, to ensure that the money and the evidence get connected”


What does Impetus-PEF’ model of support to grantees envision in terms of approach and time horizon

Our approach consists in funding long-term and providing unrestricted grant to charities and social enterprises, not financing a particular program but rather investing in the organization, the development of its business plans and its capacity. Funding is linked to the organisation meeting pre-agreed milestones, which are tracked on a quarterly basis. In the initial stages of the programme, the funding allows the leadership to focus on understanding their current impact and deciding on the changes they will need to make if they are to improve. Later, the funding helps to actually meet the costs of implementing, testing and evaluating these changes. Finally, funding will allow charities to meet and overcome the challenges of scale-up. All along the way, our investment team works shoulder to shoulder with the charity leadership to build the capacities needed to manage impact and scale-up, using our pioneering approach.

In terms of amount and timing, our model of support envisions different phases:

  1. Screen. We perform a due diligence to explore suitable candidates through a mixture of referrals and market scans, looking for different factors as “Ambition for impact” -“Prospect of sustainability” – “Commitment to developing measurement and evaluation systems”. We assess charities in detail through site visits, discussions with leadership and Board, scanning of documentation. This helps both us and the charity come out with an aligned partnership.
  2. Focus. We start through a one year support with a £100,000 grant (111,400 euros): that’s the period we spend working on the impact strategy, ensuring the charity Board is aligned with the new direction, coming out with a new program design or a refinement of an existing program, and discussing the capacity changes needed to deliver it, on a three years horizon. Simply put, we assist the charity to develop a clear mission and an implementation plan.
  3. Build. The third phase consists in supporting the three years plan with a £150,000-250,000 ( 170,000 – 280,000 euros) grant per year. The goal is putting the new impact-driven model in place: this means focusing on building the program capacity needed to deliver the program (through training and hiring specialised staff) and start testing its effectiveness and ability to replicate by collecting outcomes data and, after a few years, through an external impact evaluation. Also in this phase, we provide support other areas required for growth and sustainability, e.g. financial controls, HR, and leadership development. The goal is helping the charity manage its impact, establishing systems and collecting data to deliver outcomes reliably and sustainably.
  4. Scale. Once the program is correctly implemented, the last phase consists in another multi-year – generally three – commitment to foster scale-up, through growth planning, support with go-to-market strategy, and further empowerment of the senior team. Normally that will envision a support of more than £250,000 (280,000 euros) per year, but it depends very much on organizational needs. We are just learning on the right amount, we had a couple of scale experiences in the past, but it is just now that we are starting to approach them within our new model. Also, we would like as to bring in new capital to channel more resources in the organization and reduce its degree of dependency on us. The goal of the expansion phase consists in the ability to produce better outcomes for many more young people.

Our main tool is grant-making, but I think there is a quite natural transition point where we will work alongside social investors, engaging with other instruments as debt or quasi-equity models: if we can get an organization reach a certain level of impact and financial sustainability, then we can start thinking about making social investors enter – probably during the last step of our journey, in the scale phase.


How do you manage to balance monitoring grantees’ performance and building a positive relationship whereby data are not perceived as something to fear? Essentially, how do you build a trust relationship within an effective philanthropy approach?  

It’s a complex model and I can only do that thanks to an incredibly proficient team of experts. Impetus-PEF has 35 staff members, 14 of whom are brilliant investment team colleagues that select grantees and supports their journey to higher performance, providing very intensive hands-on support to empowering the impact model and developing the organization.

Partnerships generally begin with investment directors leading multi-day “Driving Impact” workshops to produce a blueprint for the organisation’s impact goals and model. Investment directors work hard to become a close ally and critical friend of the charity CEO, building a very deep relationship: they would spend about one day per week on one charity (more than 200 hours a year), meeting the charity CEO every month, attending board meeting, coaching executives on change management, and helping to guide implementation and evaluation planning.

It is important to get to know each other very well before anything happens: the due diligence is not just about us examining the organization, it’s more like dating – the organization has to understand if we are the right kind of match for them. We are only useful to our grantees if they are completely open with us: so during the due diligence and the first phase, there must be a moment where the organization CEO understands that, if he tells us how things really are, we will not run away. One of our partners described that as the moment where he “got naked in front of the investment director”. At that moment you start building the right trust. It will be rocky, not linear, with difficult moment in the relationship, but it’s worthy and necessary.

Investment directors also play the role of matchmaker, identifying the most critical needs of our portfolio charities and then sourcing highly skilled volunteers from our extensive pro bono network of 400 individuals from top UK management consulting, legal, accounting, and communications firms to find the best fit for projects that charity CEOs determine they need to undertake as part of their drive for higher performance. In 2014, firms and individuals in our pro bono network donated over 10,000 hours to 150 projects for our charity partners – and we aim to grow this amount every year. The way I like to think is that there is no single problem that a small charity CEO has to face where we don’t know someone who can help him fix it, whether it means building financial systems, hiring a new CEO, buying the first IT system etc. It ranges from big strategic questions to big operational issues: we’ll channel our expertise in to help the organization take on those challenges. 

“The way I like to think is that there is no single problem that a small charity CEO has to face where we don’t know someone who can help him fix it. We’ll channel our expertise in to help the organization take on strategic and operational challenges”


Which are the main challenges in your impact model – for the charities in your portfolio as well as for Impetus-PEF?

For what concerns our charities, I suppose the most challenging part of what we offer is that we are very supportive but very provoking about their impact model. Even if some of those are very familiar to tools as theory of change, in almost all our relationships we go back to the fundamentals during our “Driving Impact” workshops: which people are you trying to help, which outcomes are you trying to obtain for them, how is it working, what you need to do to improve it… That’s normally a quite difficult conversation for any organization because it will nearly always show some things that are not working, some that need to stop, and some that need to stop that people have been doing for many many years.

One of the things I found more fascinating in the philanthropy world is the theme of incentives: there are so many incentives for grantees to present a very positive picture to funders that we have gotten used to every charity having a 75% success rate because it’s the “quite good but not too good to be true” rate: it’s sort of a joke, but not too much. We now dig much deeper into the numbers, asking questions as: “Of that 75%, who got jobs? How many kept the job? For how long? And by the way, if you helped 75% get a job, how many people dropped out of the program and are not factored into your 75%? And going back to the start, who do you actually work with, are those the people that most needed the support or were you just taking the people that would have got a job anyway?

That kind of process of getting to the true organizational performance is what you need to do, even if it’s difficult and demanding. For us it provides the platform that you need to first fix your programs, then define how you want to build the organization, and eventually make it grow and make sure that more people can benefit from that.

It is important for funders to understand how difficult it is for a charity CEO to be really serious about impact, the kind of changes that are necessary to understand that a long-time model needs to be modified to really be effective. This envisions hard choices – perhaps stopping working with some young people because you know you cannot help them. Beside, one must considers the perceived risks. One of the things we see when we help a charity in its impact process is that they need to spend more: we can show them how that produces an added value but it’s very scary in the current funding environment. If we go back to our previous example, very often you will find that the program stops when someone enters the job but actually, if the support was extended for the first three months of the job, those youngsters would be much more likely to keep their job long-term. But doing that add 20% to your cost base: it feels very scary when funders look at your overhead structure. It’s a very brave CEO the one who does that, and funders must understand that is rare and difficult to find organizations committed to this kind of impact-journey.

“Funders must understand that is rare and difficult to find organizations committed to this kind of impact-journey”

 In terms of our own challenges, I can count three fundamental ones. The first is that most things do not work, that is an important thing funders should know: in education when you are testing rigorously with RCT studies, the main finding is that most programs are not effective and those that work, work a little bit. We don’t find a silver bullet: most things, even if they sound perfectly sensible, are run by really passionate and smart people, do not work either. So, that means that a lot of charities will not succeed, and a lot of organizations and initiatives that we select, once rigorously tested, will not prove successful. It’s an incredibly risky business. I think venture philanthropy is quite hard for funders – they are giving your money away, they want to make sure it’s working: it takes quite a sophisticated and brave funder to understand that you cannot have that level of confidence. You must accept that if you are really good at building your portfolio at least some things will fail: that’s the nature of philanthropy.

“When you are testing rigorously, the main finding is that most programs are not effective. We don’t find a silver bullet: a lot of charities will not succeed, and a lot of organizations and initiatives that we select will not prove successful. Philanthropy is an incredibly risky business”

The second challenge is to find the right organizations to work with: in my opinion the main difficulty is finding leaders that are open to a challenging conversation. This is not to say that leaders don’t care about impact, obviously they do care about the purpose of their organization but that is not enough. There was a moment that enlightened me: we were supporting a charity that helps young people get into university, and they were doing incredibly well, a very high-impact organization. When I met the CEO and congratulated him, he just talked about the few people that did not make it: that’s the kind of mentality you got to find, identifying organizations that have evidence of impact but also the proper leaders’ attitude.

The third is quite practical: it is really hard to find resources to finance venture philanthropy. We are not an endowed organization so I have to fundraise each year. I have to make the case that we are a really value-added organization, because everyone that funds us could easily fund directly the organizations we support and consider me and my team just a overhead cost. My point of entry is that we are funding the right organizations and genuinely sustain their performance and sustainability in the long term. So my case to a lot of funders, many from the investment world, is that they are smart investors in the business world, they should be as smart in the philanthropy world as well. I recall that line “Half the many I spend on advertise is wasted but I do not know which half(John Wanamaker – author’s note). That’s the thing I tell them about philanthropy: a lot of things you fund in philanthropy don’t work, we are the one who help you know which ones do.

“I have to make the case that we are a really value-added organization: a lot of things in philanthropy don’t work, we are the one who help you know which ones do”


Do you believe that funders are diverting more money to organizations that can prove they’ve created social change?

I am very sympathetic to funders because it is a really hard job. We have to go through years of incredibly deep engagement with organizations to see if their models work. It’s not that funders are not concerned about impact, but ultimately it is intrinsically difficult – that is why you need intermediaries, advisor or aggregators.

I think we have seen quite an increasing focus about impact in the UK over the last years. Even if in many cases Social Impact Bonds (SIBs) are not the necessary tool, the SIB agenda has put some very healthy focus on genuine added value and measurable change: the financial mechanism is highlighting the importance of the impact methodology.

My concern is that everyone speaks impact now because they are supposed to – it is not the same as doing impact. Overall it is a positive shift, but this also means there is a slight risk of being unable to differentiate between a set of quite similar looking organizations that talk about effectiveness and impact.

“The SIB agenda has put some very healthy focus on genuine added value and measurable change: the financial mechanism is highlighting the importance of the impact methodology”


How do you think the Brexit is (or will be) influencing the UK social sector?

I think the referendum was determined by a combination of a long period of austerity and retreat of the State in the UK, with the result of the consultation being much more on deep inequalities in our society than on the EU. This highlights the central importance of the social sector to replace some of the activities traditionally performed by the State. There’s a huge new role to step in – both to challenge the State to stay focused on some issues and to come up with new effective solutions.

For what concerns consequences, it is too soon to say but surely there will be repercussions. One point of attention will be London, one of the leading point of philanthropy in the UK: social investors come in particular from of the City and the Brexit could lead to a loss of pivotal players from the financial sector.


For further information 

Additional sources:

  • Driving Impact – Helping charities transform the lives of disadvantaged young people”, Impetus-PEF, 2016
  • Invested in Empathetic Challenge – A profile of Impetus-PEF”, Leap of Reason Ambassadors Community, 2017
This website uses cookies to improve your browsing experience or help us provide our services. By closing this banner, scrolling this page or clicking any of its elements, you give consent to our use of cookies.