However much foundations like to portray themselves as purveyors of social “venture” capital, often foundations and their program officers are in the business of removing as much risk as possible. Very few foundations in my experience take a systematic approach to risk, where they explicitly create a portfolio with certain percentages for high-risk, potential high-reward investments; medium risk w/a decent chance at spurring a new innovation; and low risk, stable, you know what you’re going to get investments (i.e., the blue chips).

Pyschologically, this means that most people tend to make grants only when they feel there’s an optimum chance for success (and an optimum chance for affirming their logic to make the grant in the first place) or they sort of create their own risk portfolio. It doesn’t mean that they will be totally risk averse, nor that they won’t point out relative levels of risk of different grants. But they are likely unclear as to the space they have to make big bets (and possibly fail) because it’s not explicitly integrated as part of the foundation’s overall strategy.

Pyschologically, program grants seem easier to “control” and reduce their risk than operating grants. Smaller grants also “waste” less money if they don’t work out as intended. And if a foundation overall makes significantly fewer but larger grants, as Phil suggests of Ford, it places more eggs in one basket and increases the risk of ending up with the proverbial egg on its face. (One unintended consequence is that larger grants over time would tend toward more “stable” but less creative organizations, undermining the frission of innovation.)

This is not simply an abstract notion nor a personal “CYA” exercise for program officers. As William Damon points out in the foreward to “Taking Philanthropy Seriously,” philanthropy is a serious intervention with potentially negative as well as positive consequences. Increasing the resources increases the potential risk for harm as well as good. And in this age of accountability, making lots of large bets that don’t pay off could put the foundation under a spotlight.

I mean to point out the pyschological trap and its effects, rather than suggest there’s no way out. Good strategy – the discussion that Phil and CEP have gone a long way toward promoting – can take this into account, and risk would preferably be a topic that boards address with much greater frequency and understanding. Good feedback loops and transparency help. But these tensions are inherent in the grantmaking process, and to my mind it helps for them to be explicitly and directly addressed.

This may be a subtle distinction but I believe it is an important one. I also believe that it supports Maggie’s comment that “depth is better than breadth when it comes to impact.”

As I mentioned in my earlier comment these are the adaptive challenges of the sector. They are complex, multifaceted problems that will require collaborative and innovative solutions. This will only happen if industry leaders can properly frame the challenges, raise awareness of them and organize the community to confront them head on.

Idealistic? Absolutely.
Optimistic? Probably.
Realistic? Hopefully!

Maggie’s Take: I still assume that “giving a little to a lot” is how most foundations make grants. It’s definitely my experience with companies.

I am also think there is room for improvement in the area of experience of individuals on foundation distribution committees.

While I don’t have research to support my statement here, “Depth is better than breadth when it comes to impact.” It’s merely my professional perspective in our field of philanthropy.