Israel’s IVN combines investment and philanthropy


The Wall Street Journal interviewed Israel Venture Network (IVN)‘s CEO Isabel Maxwell at the Webit conference in Istabnbul.  IVN introduces a new mix of investment fund and philanthropic endeavor – one which provides worthy causes both funding and mentoring.  Here’s what the WSJ had to say:

One of the more unusual presentations at the Webit conference here was from Israel Venture Network, a 10-year social entrepreneurship network targeting some of Israel’s deprived and excluded citizens… IVN is explicit in its aim:  “The point of social entrepreneurship is to drive social change through sound business principles,” said Ms. Maxwell. “If you are going to achieve something, you have to make money.” But as important as making money, she said, is making jobs, not fake jobs propped up by donations, but real jobs grounded in business.

The network has backed science and tech plans as diverse as using waste food to make compost (charge municipalities to collect the waste, sell the compost) to schemes to help Ethiopian immigrants, Druze, Israeli-Arabs and adults with disabilities get jobs in the hi-tech sector, or another one to help attract Arab academics into technology jobs in Israel.

The bulk of its work is not in tech at all, but social programs to help those on the fringes of Israeli society.

The funding model is interesting in that investments are loans not equity. At first glance, that seems curious and wrong. Surely start-ups, and social start-ups are no different, are funded through venture money, through equity not debt? Yes, says Ms. Maxwell, but that would tie up the money in an enterprise for too long, limiting IVN’s ability to promote other causes. The aim, says Ms. Maxwell is to increase the velocity of funds and to leverage the money.

“If the money is locked up in equity then it will remain with that company maybe for many years. We invest in the start-up and they have two years to grow the company. When they start to make revenue then they start to repay the investment money. The idea is that take the money that is given back and plough it back into another enterprise, and then another one and another one and so on.”

Like other business support networks, the funding is only a part of the program, it is the access to the mentors that makes schemes like this so attractive, so-called “smart money”– meaning you get more than a check, you get money and access to networks and mentors.

Not surprisingly, given Israel’s technology pedigree, a large number of the mentors have tech backgrounds in a good who’s who of the sector. (For those with a long memory, Ms. Maxwell is the former CEO of Magellan, one of the first Web search engines—long before Google. For those with even longer memories then yes, Ms. Maxwell is the daughter of the British media tycoon Robert Maxwell.)

But as any investor will tell you, unless you are running a charity, then return on investment is what counts.

Social entrepreneurship is no different. You have to have a return on investment. But the word “social” is key here; social entrepreneurship features what is known as a double bottom line; the normal financial ROI, and then in addition a measure of the the social returns. “You need to add another letter. it isn’t ROI, it is SROI, Social Return on Investment,” she says.

But while setting targets for, say, the number of prisoners not returning to gaol may seem a worthy objective, and is certainly measurable, isn’t it all getting a bit charity-ish. Far from it retorts Ms. Maxwell. “You can put a price on it,” she says. Prisoners, she points out, cost the state a lot of money. If you can reduce recidivism then everyone benefits; the would-be criminal does not waste their life in gaol, crime is reduced so that has societal and financial benefit to the community; and the state saves money by not having to pay for incarcerating people. Everyone wins. All of it is measurable in real financial terms.

Ms. Maxwell bats off suggestions that the IVN is unique to Israel, that the particular historical, cultural and religious aspects of the country mean the scheme could only work in Israel.

“Every society is looking to provide work for its people. If young people have no jobs they have no hope, they have no stake in the future. And we have all seen what happens then.”

For the full Wall Street Journal article click here.