How Do Philanthropic Venture Capitalists Choose Their Portfolio Companies?

In recent years, philanthropic venture capital (PhVC) has developed as a new financing model for social entrepreneurship. First presented by Letts et al. in 1997, PhVC is the application of the venture capital (VC) strategies and techniques to the financing of social enterprises (SE). Like venture capitalists (VCs), PhVCs have developed specialized abilities in selecting entrepreneurial projects. However, while VCs select deals in terms of shareholder value maximization (Amit et al., 1998), PhVCs engage in a partnership aiming at maximizing social impact. Because of the few PhVCs and the high engagement philosophy, a limited number of SE receive support after a tough selection process. Despite the growing interest in PhVC, no study has investigated its selection. Specifically, it is unclear: a) which variables are considered; b) their degree of importance; and c) the relationship with VC variables (Kaplan and Stromberg, 2000). Additionally, no research exists on whether different types of PhVCs consider different screening variables and the existence of differences in US and European selection process.