Category Archives: New Philanthropy

Conversations with a New Donor

April 17, 2008 – 8:46 am

I had a fascinating conversation over lunch at the Global Philanthropy Forum with a young philanthropist. He was in his 20’s and along with his uncle had started a pretty large family foundation. He described the difficulty they had just trying to figure out how to get things started and how now after 18 months they were ready to really work on developing programs.

I mentioned in my last post on GBF how the intention of this conference is to bring together family foundations who can learn from each other and influence each others grant making. What I found interesting was this young philanthropist’s comment that many of the sessions seemed to focus on big policy issues. While clearly important, these issues did not help my lunch partner figure out how to create his programs. This gap, the gap in information available to individual philanthropists, is the information gap I’m focused on. A small segment of this gap is what I’ve designed Ensemble Capital to fill (the gap that led to the young philanthropists 18 month journey of simply getting his foundation up and running). But program development, either official foundation programs, or just strategic family giving, is a another huge gap. I suggested the book Inspired Philanthropy to him and told him about a program consultant I could introduce him to. But that’s not enough.

I think that supply begets demand as well as responding to demand. It is interest from donors that has led to the creation of Charity Navigator, the increasing level of philanthropy coverage in the mass media, the new philanthropy TV shows and Ensemble Capital. But on the other hand, I’ve found that most people who come to my firm for assistance don’t know what they don’t know. As they become educated about the possibilities, their interest and engagement in philanthropy grows.

Who is going to tell people the great story that is philanthropy? Who is going to weave the true story of the Second Great Wave of Philanthropy. Who is going to educate donors about the possibilities of philanthropy?

When an intelligent, young philanthropists like the one I had lunch with today has a hard time finding information about how to achieve impact (even after catching a long plane flight to one of the premier philanthropy conferences) how is it possible to make the argument that donors have always been focused on impact? To believe that donors have always wanted something and yet the market simply has not delivered it to them, is to believe in a massive market failure. The supply of impact-oriented philanthropy information does not exist because the demand is very new. The demand is small because the supply does not exist. I believe deeply that we are seeing the very early signs of supply coming to this market. I think the latent demand is massive. As the demand materializes in response to the coming supply, a feedback loop will develop and a Second Great Wave of Philanthropy will begin to crest.

What will these individuals fund? How will they conduct themselves? I met Case Foundation CEO Ben Binswanger at the conference. Have you seen the Case Foundation Make It Your Own program? Ben is one person who is already positioning his foundation to figure out how to leverage this Second Great Wave. Are you ready?

By Sean Stannard-Stockton | Also posted in Foundations, Grantmaking, Philanthropy | Comments (1)

Robert Egger in the Financial Times

April 15, 2008 – 6:56 am

The most recent Tactical Philanthropy reader to be published in the Financial Times is Robert Egger (click here to hear/read the podcast I produced with him).

Charity must harness power of politics

By Robert Egger

Published: April 12, 2008

In you were savvy enough to have invested $1,000 in Microsoft when it went public in 1986, the value of your stock today would be close to $½m.

But what if you had invested the same amount in a high-performing non-profit group; one that could show measurable, financial impact in your community? All you would have been eligible for is a one-off tax deduction.

Think boldly for a moment. Imagine if there was a way to measure and then reward strategic investments in non-profits in the form of an annual and potentially growing tax deduction based on the same rate of return principle as the dividend. Imagine how that would revolutionise the productivity of non-profits, as well as create an incentive for individuals to seek out and support some of the most dynamic social and economic stimulators in their communities.

More importantly, since Americans donated $295bn to non-profits in 2006, while businesses spent $1.2bn on cause-related marketing to trumpet their philanthropy, a shift like this might also lead to coverage of the sector with the same level of critical analysis that is afforded traditional businesses.

Imagine how this might challenge the entire notion of “charity” in the US and usher in a bold new era of social and economic innovation.

Leaders in the non-profit sector have been asking questions such as these for years, but for the first time charitable organisations are speaking directly to political candidates. And, like their peers at the boards of trade and chambers of commerce, non-profits have also discovered the power of speaking with a shared voice.

And there has never been a better year, or more important time, to inaugurate this strategy. In November, the US will elect a new president. But over the course of the year, there will also be 404 mayoral elections, as well as 11 races for governorships, many taking place in cities and states at the forefront of a rapidly shifting economic landscape.

Simply put, the US’s once dominant role in the world economy is waning. As the global economy changes, white-collar jobs will most likely begin to leave our shores at a rate similar to that of blue-collar jobs in the 1970s. This decreasing tax base will leave municipalities throughout the country faced with growing fiscal pressure that will be compounded by the financial costs of caring for the 80m ageing baby boomers.

The social impact of these economic realities, as well as the sector’s growing cognisance of its own economic potential, are why so many charitable organisations are eager to explore their political options.

As significant employers in every city, and the conduit for more than 80m volunteers annually, non-profits are no longer willing to be sidelined, limited by their perceived ineligibility to engage in political discourse. Now, in elections taking place throughout the country, they are joining together to ask one, strategic question of each candidate for higher office: “If elected, how would you partner with the sector, and strengthen it to be a good partner in order to achieve your vision?”

What kind of partnerships are they seeking? A good example recently came from California, where Governor Arnold Schwarzenegger announced that he was elevating the state’s volunteer co-ordinator to a cabinet-level position. The governor’s foresight has the potential to effectively channel the creative energy of the state’s students, who have been raised to perform community service, while also tapping into the professional experiences of retiring boomers. When combined, this could greatly increase the capacity of his government to address natural disasters, while also mitigating predictable economic shortfalls that might put critical human services in jeopardy.

The goal of this new political awakening is not for non-profits to become another special-interest lobby, fighting for a larger slice of a shrinking economic pie. Rather, it is to ensure that the full spectrum of our country’s assets is utilised to maximum potential at this critical juncture in our history.

America’s fabric is going to be truly tested in the years ahead. In many cities, the difference between solvency and bankruptcy and social order and chaos could hinge on the way non-profits are valued and their energy channelled. Now is the time to move beyond the limited constructs of charity and fully explore the powerful potential of the US non-profit sector.

The writer is director of V3 Campaign, an effort to get non-profit views considered in elections at the city, state and federal level. He is also president of DC Central Kitchen, a non-profit organisation that combats poverty.

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (0)

Global Philanthropy Forum

April 10, 2008 – 12:13 pm

I’m at the Global Philanthropy Forum conference today and tomorrow. 500 people talking about international issues. Not the same crowd you get at a lot of these events because the forum targets family foundations. But the kinds of families that draw the Archbishop Desmond Tutu and the Queen of Jordan as opening speakers. Larry Brilliant and Richard Rockefeller are here, but so are Sean Parker (developer of Facebook Causes) and Peter Gabriel (the muscian).

The Forum was started in 2001 with a recession looming as a way to engage donors on international issues that are often abstract. In a recession, donors often pull back from causes that do not offer the immediacy of local issues. What I find interesting about the Forum is that the stated goal is to get the attendees to work together. About half have been giving for 7 years or less, while the other half are mostly multi-generational donors.

To measure the impact of the conference, Forum CEO Jane Wales says that their greatest metric is tracking how influential the attendees become in each others’ future giving. 83% of attendees from last year’s Forum say that an attendee they met was instrumental in a giving decision they made after the conference.

There’s a lot that I believe is brand new in today’s philanthropy, but I agree 100% with Amanda Moniz’s statement from yesterday:

In order to grapple honestly with the strengths and weaknesses of beneficence, it is important to recognise that new and better practices are often old methods that have been revived…

I just happen to think that concept is being applied incorrectly to the debate we’ve been having. A famous phrase of wisdom in financial markets is the often ignored warning to never believe that “Its different this time”. I’m glad to see that at the Forum we have a venue for new philanthropists to learn from multi-generational donors and vice versa.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Foundations, Philanthropy, Social Entrepreneurship | Comments (1)

Donors Want Impact?

April 9, 2008 – 9:43 am

In response to my recent Financial Times column about new approaches to funding growing nonprofits, the following letter to the editor appeared in the April 5 edition of the FT.

Sir, Sean Stannard-Stockton (“Non-profits look to invest in themselves”, March 29) errs when he concludes his interesting column by saying that “while yesterday’s donors were content to give to a non-profit based on emotional appeal, today’s donors want to know their money is really going to have an impact”.Since the late Renaissance and the Reformation era when the conceptual and applied shift towards “modern philanthropy” with its pursuit of rationalised solutions to systemic problems occurred, donors have sought to optimise the outcome of their investments. Today’s “venture philanthropists” promise greater results and more accountability by borrowing from the practices of venture capital, just as “scientific philanthropists” of the late 19th century did by adopting the principles of the reigning intellectual framework of science.

In order to grapple honestly with the strengths and weaknesses of beneficence, it is important to recognise that new and better practices are often old methods that have been revived - because the problem of an unequal distribution of resources endures - and that perpetual frustration with the limits of philanthropy is a prime reason for the continual reworking of ideas.

Amanda B. Moniz,
Department of History,
University of Michigan

Michael Edwards of the Ford Foundation responded to the same sentence in my column saying, “[you] assume that impact considerations are new, when in fact they have been around for fifty years or more - just not expressed in the ways you
think are satisfactory.”

I agree that the concept of impact (attempting to give in ways that can do the most good for your dollar) is not new within institutional philanthropy. Because a lot of my readers work at institutional foundations, consult for these foundations, or work at nonprofits that receive grants from these foundations, I often address issues of institutional philanthropy. But I’m not an expert in institutional philanthropy. My firm, Ensemble Capital, serves individual philanthropists. When I talk about The Second Great Wave of Philanthropy, I’m talking about major shifts going on with individual donors. When I write for the mass audience of the Financial Times, I’m writing for individual donors. But given how my writing on this blog veers into issues of institutional philanthropy on a regular basis, I can see how it is my fault if people perceive that I’m declaring “impact” as a new concept to foundations. It is not.

Individual donors have always been aware of the idea that their donations could do more or less good depending on which nonprofits they funded. While they might not often use the word “impact”, the concept makes sense if it is explained to them. But I reject the idea put forth by Moniz and Edwards that “donors” (and that was the word I used, not “foundations”) have embraced impact considerations for half a century.

If in fact donors understood impact, which at its core assumes that some donations do more than others, than you would assume that these donors would strive to achieve higher levels of impact. Yet there are almost no mass market books that discuss this issue, almost no articles in print or online, almost no organizations that help donors achieve impact.

Now before you send me emails pointing to Inspired Philanthropy or Don’t Just Give It Away, before you point out that I’m writing a mass market column on these very issues at the Financial Times, before you tell me about excellent consultants like The Philanthropic Initiative, Arabella Philanthropic Investment Advisors, or my own firm Ensemble Capital, let me just say that all of that adds up to just a bit more than zero.

Individual donors have access to almost nothing compared to individual investors. Every bookstore in the country has a whole section devoted to personal finance (books on which generally ignore charitable giving while lavishing pages of copy on other obscure financial issues). Every daily newspaper devotes space to advising individual investors and we have many mass market publications targeted directly to the individual investor. Investors issue with investment advisors is not so much finding one (believe me, there are thousands of advisors trying to find you right now), but picking from amongst the many qualified professionals.

Most individual donors don’t even know the difference between a nonprofit and a foundation. Institutional philanthropy actual is making a effort to let people know what they do since most Americans cannot even name a single large foundation. Individual donors with a portfolio of appreciated assets still mostly write checks to charity instead of transfering assets or setting up a philanthropic account (this is similar to saving for retirement in a checking account because an investor had never heard of a 401k).

I could go on and on.

I actual have my own criticism of the sentence in my column that Edwards and Moniz call out. When I wrote “while yesterday’s donors were content to give to a non-profit based on
emotional appeal, today’s donors want to know their money is really
going to have an impact,” I actually overstated the case in the opposite direction of the way they saw it. Edwards and Moniz argued that the statement was false because they believe yesterday’s donors were focused on impact. I would say that my statement was flawed because in fact, not even “today’s donor” knows what impact is. “Tomorrow’s donor” will be the ones deeply concerned with impact. But at least today we have real movement in that direction.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Foundations, Grantmaking, Impact Measurement, Media, Philanthropy | Comments (12)

George Overholser Responds: Sustainable Nonprofits

April 7, 2008 – 8:55 am

In response to my recent column in the Financial Times, Reader Jeremy Gregg has been asking what makes a nonprofit “sustainable”. George Overholser of the Nonprofit Finance Fund (profiled in the FT story), has sent an email my way that breaks down the distinctions between earned income, donations, and what makes a nonprofit sustainable. I think his line of thinking is a wonderful example of drawing on business thinking without committing the sins of “philanthrocapitalism”.

Although a nonprofit is driven by a mission to help others, it is inescapably in the business of turning funders’ money into program execution.

If I buy a tutoring session [from a nonprofit] for my own kid, that’s called “earned revenue”. If I make a donation that results in a tutoring session for someone else’s kid, that’s “unearned”. But in both cases, the nonprofit firm does the same thing: it turns someone’s money into a useful tutoring session. And it ought to be that good tutoring begets a sustainable flow of loyal paying customers, earned or unearned.

For this reason, I think it’s often best for philanthropists to avoid a “support the organization” mindset, in favor of a mindset that says “buy program execution from the organization”. That way, the earned vs unearned distinction stops being (incorrectly) mapped into the sustainable vs unsustainable distinction.

All this plays directly into the question of sustainability, because an organization that sells a product (superior program execution) is inherently more stable than one that asks for generic support (“we need your help… again!”). Likewise, funders that “purchase” program execution will come back for more (if they think they got a good deal) whereas funders that “support” an organization may begin to ask why the organization can’t seem to get past its difficulties.

All this to say, so-called “unearned” philanthropic revenues can be a fine source of sustainability.

[Not to be confusing, but all of the above excludes what I think of as Builder type funding relationships (as opposed to “Buyer”). Builders are the ones who provide one-time equity-like growth capital. Builders are decidedly not the source of an organization’s financial sustainability. Rather, they help pay the bills while an organization learns to attract Buyer types. Our SEGUE methodology is designed to attract Builder capital.]

When George writes about “Builders vs. Buyers”, he’s making a distinction between “investors” in the nonprofit and “customers” who buy from the nonprofit. This concept was discussed in the FT column and you can read George’s excellent paper on the concept titled “Building is not Buying”.

By Sean Stannard-Stockton | Also posted in Effective Giving, Fundraising, Philanthropic Capital Markets, Philanthropy, nonprofits | Comments (9)

Sustainable Nonprofit Operating Models

April 2, 2008 – 2:47 pm

In my recent Financial Times column on VolunteerMatch’s “growth capital offering”, I state that the organization’s prospectus says that the new capital will fund a plan to make VolunteerMatch self-sustaining and generating an operating surplus by 2012. Reader Jeremy Gregg, who writes the blog The Raiser’s Razor, leaves a comment asking about this claim:

I would be very interested to know how a non-profit can design a plan that meets these standards: we are so used to annual operations plans and short-term proposals that it is hard to envision such a concept. Are they tied to social enterprise and earned income strategies that can make the organization self-sustaining?

The VolunteerMatch prospectus does a good job laying out their self-sustaining operating model. Before I proceed, I should note that other than reading the prospectus and speaking with their president as well as some other related parties, I am not intimately familiar with VolunteerMatch. So please take my comments as my own personal opinion and realize that I am not speaking on behalf of VolunteerMatch in any way.

The VolunteerMatch proposal does not suggest that their model will earn a profit. There are three core areas where they will receive support, 1) payments from corporations that use their corporate volunteer program services, 2) payments from nonprofits who pay for premium access, and 3) reliable ongoing contributions from volunteers who use the network. This is not a “profitable” model, but it is a sustainable model. VolunteerMatch should be able to track what level of donations they can expect from the users of their service (the volunteers) and then count on that fundraising as they bring more users to the network.

A sustainable nonprofit operating model does not mean that the organization must charge for their services. I do not agree with the idea that nonprofits should seek to build models that earn income unless that model is the most effective way to further the nonprofit’s mission. Fundraising can and should be part of a sustainable operating model. Unfortunately, I too often hear of a nonprofit who will generate a loss (as is expected) and then “make up the difference with fundraising”. That is not sustainable. A sustainable fundraising plan should be built into the operating model. Note that VolunteerMatch does not just say that they will raise money; they relate their goals to their experience with their actual user base and then make projections based on certain growth plans.

Fundraising is something that organizations can invest in. The growth capital that VolunteerMatch is looking for is not sustainable funding. It is a onetime investment that will be used in part to build a sustainable stream of fees and donations.

A sustainable operating model that relies on fundraising (as most all nonprofits must, otherwise they should ask why they are not a for-profit), must be able to budget on certain fundraising goals. Not a fundraising budget that is whatever size fills the gap between expenses and revenue, but a budget that is based on reliable projections.

By Sean Stannard-Stockton | Also posted in Fundraising, Grantmaking, Philanthropic Capital Markets, Philanthropy | Comments (5)

The “Evaluation Revolution” & Problems with Measuring Nonprofits

March 19, 2008 – 9:26 am

In preparation for tomorrow’s Metrics Mania debate at the Hudson Institute, Gary Walker (former president of Public/Private Ventures) has written an essay titled “Reflections on the ‘Evaluation Revolution’”. As I write about the need for more evaluation of nonprofits and more funding for high performing nonprofits (and less for low performing nonprofits) I realize that many readers assume I am calling for more of the outcome and impact studies that have been used for some time. In fact, I believe that the kind of analysis needed is quite different.

The evaluations that Walker so eloquently discusses use a scientific framework. A framework that says we can quantitatively measure certain types of outcomes and that these results should be repeatable. This framework is borrowed from the hard sciences and I wonder how applicable they are in the social sciences. I believe that a better evaluation framework is that used in financial markets. Finance is not a hard science, it is a social science. One of my favorite books on investing is Investing: The Last Liberal Art by Robert Hagstrom in which the author lays out an approach to investing that draws on the lessons of literature, psychology, sociology and philosophy.

In financial markets much times is spent performing massive historical studies of what has or has not worked in the past. But every new investment decision must be made with the understanding that we’re not talking about physics here. Experiments are not repeatable. What worked last time, might not work this time. However, in the social sciences and in finance, we can study what has worked in the past and we can perform rational analysis about what might work in the future.

I’ve taken criticism in the past from people like Phil Cubeta who have suggested that I see philanthropy as a desk job where spreadsheets are run all day long. That is simply wrong and does not capture the kind of proactive philanthropic decision making within a social capital market framework that I think will lead to a nonprofit sector that performs at a much higher level.

I urge you to read Walker’s essay for a deconstruction of why traditional evaluation has not lived up to the promise.

By Sean Stannard-Stockton | Also posted in Effective Giving, Impact Measurement, Philanthropic Capital Markets, Philanthropy | Comments (1)

Donors and Proxy Voting

March 12, 2008 – 9:17 am

I asked yesterday what a “perpetual interest” in a nonprofit (as discussed in the VolunteerMatch prospectus) might mean to a donors. Reader Carl Shulman read my mind and left a six word comment:

Voting rights to elect the board.

As a shareholder in a company, investors get a share of the profits and voting rights. These voting rights do not give them authority to dictate the day to day running of a company. They do however allow them to vote on the membership of the company board. Certain issues must also be approved by shareholders. And shareholders have the right to bring certain items to the board’s attention and require a vote by all shareholders.

Personally I find this to be a pretty appealing concept. I think that donors should not tell nonprofits how to operate on a daily basis (part of the reason why I favor unrestricted giving), but I do think that nonprofits should be accountable to donors. I would guess that if donors were given voting rights, that they would be more engaged and likely to give more money over time.

I’d love to hear what others think about this idea.

By Sean Stannard-Stockton | Also posted in Philanthropic Capital Markets, Philanthropy, nonprofits | Comments (18)

VolunteerMatch and the Social Capital Markets

March 11, 2008 – 8:27 am

Greg Baldwin, president of VolunteerMatch, read my article about the social capital markets of 2033 and sent me an email:

I enjoyed your recent article in the Financial Times. I’m surprised our paths haven’t crossed yet.

I don’t know how much you know about VolunteerMatch, but we’ve decided not to wait around until 2033 for philanthropy to figure out it is time for some fresh thinking.

We are working on a growth capital project that is right up your alley.

He attached a “prospectus” for VolunteerMatch’s $10 million “Growth Capitalization Offering” (a prospectus is the word for a booklet describing a for-profit investment offer such as a new IPO):

The purpose of this offering is to expand and enhance VolunteerMatch’s capacity to engage a broad base of volunteers with diverse social purpose agencies throughout the United States, and to build a sustainable enterprise capable of delivering that mission indefinitely.

Units offered in conjunction with this prospectus represent a perpetual interest in VolunteerMatch. That interest is strictly philanthropic, with no provision for cash returns at any time. The investment is intended to: (1) bring material social and economic benefit to communities throughout the country, (2) support broad based civic engagement of millions of Americans, and (3) deliver a significant Social Return on Investment (SROI) in the form of valuable volunteer effort against tasks deemed valuable both by volunteers and the agencies that need them. Investments in these units may be tax deductible.

(1) As of the date of this offering, 10 units ($2,500,000) have been reserved under previous agreement with The Atlantic Philanthropies. $1,350,000 of this total is contingent upon a successful match of a minimum of 6 units ($1,500,000).

(2) Expenses associated with this offering have been pre-paid by VolunteerMatch, with the generous support of the Surdna Foundation. Proceeds will not be used for offering expenses.

(3) In the event of over-subscription, VolunteerMatch may, at its discretion, increase the offering by up to 10 additional units ($2,500,000).

The prospectus then goes on over 45 pages to lay out relevant financial data, the story of the organization, the issue they are focused on, why their solution addresses the relevant needs, the impact they’ve had to date, their competition (their word not mine), their growth plans, their capital needs to fund that growth, risks, and a explanation of how the growth capital funds will be accounted for.

I’m intrigued by the phrase in the summary, “Units offered in conjunction with this prospectus represent a perpetual interest in VolunteerMatch.” At the end of the day, I think that this “perpetual interest” is more a framing of the donation rather than any kind of legal distinction from a regular donation. But I wonder if there might be ways that donor/investors might receive some kind of “ownership” rights in recognition of their support. I do not mean financial returns. If you were to gain a “perpetual interest” in a nonprofit you cared deeply about, what rights and responsibilities would you like that interest to represent?

By Sean Stannard-Stockton | Also posted in Philanthropic Capital Markets, Philanthropy, Volunteering | Comments (6)

Do Nonprofits Want Funders to Be Critical?

March 5, 2008 – 9:25 am

A comment from an anonymous “director of development” was posted today on my Donors vs Investors III post (check out the growing conversation in the comment section of this thread):

Just to bring another perspective to this line of questions, here’s a fundraiser’s take. I’m sure there are lots of forward thinking, transparent non-profits out there who can speak candidly with anyone about mistakes and areas to improve, but my sense is that the vast majority are like my employer: they would never let any  information that might even suggest something less than sparkling about them be publicly revealed.

We have one foundation funder who is openly critical of us, and funds us with a contract and a set of concrete tasks the organization accomplish. I would call this funder a proactive investor. They didn’t just evaluate us, they made their findings known, and better yet continued to offer us money if we made an effort to clean up our act. Many staff are grateful for this funder, and believe our organization has improved with its participation.

So I guess my point is, perhaps a non-profit is best served by funders who can own their criticism, stand by it and use it as a tool. The many many non-profits out there who are less interested in critically evaluating themselves can benefit from proactive investors like the one I have described. And at least when I am in the room with this funder, I am more or less confident that what they say about us at conferences is what they say to my face.

Wow. I might be advocating for a more public dialog, but I’m surprised as anyone to hear a nonprofit employee say their organization has benefited from a major funder being openly critical.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Philanthropic Capital Markets, Philanthropy, Transparency, nonprofits | Comments (7)

The Donor Landscape of 2033 is Bright

March 3, 2008 – 9:35 am

My most recent column for the Financial Times:

The donor landscape of 2033 is bright

By Sean Stannard-Stockton

Published: March 1, 2008

Philanthropy is undergoing a transformational shift. While most donors continue to give in the same ways they have for 100 years, the vanguard of philanthropy is busily reforming the fabric of the charitable sector.

Often referred to as the “social capital markets” and characterized by a model of giving that mirrors the financial markets, this emerging model is still in its infancy. Since you can create only that which you imagine, I thought I would take a quick trip 25 years into the future to see what philanthropy might become.

For many donors, the year 2033 does not look a whole lot different from 2008. Many people simply write checks to charities and devote the bulk of their giving to non-profit organizations in their community.

But for some donors, the landscape is radically different. The “social stock exchanges” that became popular between 2011 and 2019 now include all but a few large non-profits and many small but ambitious start-ups.

These exchanges compete for non-profit listings. Exchanges include big national networks with some international organizations, down to small local exchanges.

The business of giving money away is particularly different for large private foundations and smaller “impact-oriented” foundations. Instead of expecting non-profits to solicit them for grants, these foundations’ “impact committees” and “program analysts” spend their days looking for and researching potential grantees. Given the considerable information disclosure required by the exchanges, much of the information required for grantee research is available online. Third-party evaluation firms provide regular reports on listed non-profits and these reports are a valuable input for the foundations.

While the cost to non-profits of conforming to the exchanges’ information disclosure requirements is steep, once listed they find grant dollars come looking for them rather than the other way round. Exchange-listed non-profits tend to have small fund-raising groups that focus on “donor relations”. They market the non-profit by attending “road shows” where they have the chance to make their case.

In the early days of the social stock exchanges, many funders and non-profits worried that the passion and joy of giving would be swept away, given the exchanges’ resemblance to financial markets. But the truth proved to be something else entirely. As funders became comfortable with the idea that sharing information with other donors provided greater social impact, a sense of community and camaraderie developed that set the social exchanges apart from the traditional financial markets. Non-profit presentations at the regular “road shows” were frequently interrupted by spontaneous conversations in the audience as funders debated the potential of each non-profit and canvassed for other people to join them in sponsoring their favorites. Working together, funders often organized big public funds that they would then direct at specific social problems. The non-profit competition for these funds was fierce but even those not funded felt the competition had helped them to improve.

Now in 2033, more and more individuals of moderate incomes are becoming interested in the social markets. Most Americans now have a donor-advised fund, since all big banks offer a zero-minimum, no-fee account that can be linked to your checking account. A quick search on Google Finance gives individuals access to multiple third-party evaluations of exchange-listed non-profits. International giving is even coming into vogue for the small donor now, so many “donor funds” managed by the largest foundations offer low-cost access to a basket of top-rated non-profits with particular causes.

The early 2030s are a good time for funders and non-profits in the US. Funding innovations are featured by the financial press and for-profit firms are constantly working to develop products and services for the social capital markets. But recently there has been some consolidation among the exchanges and some local non-profits fear funding will dry up for organizations without national scope. The default on a $1bn bond issued by a non-profit offering vaccines in Africa has sent shockwaves through the markets, and other non-profits have seen the availability of credit dry up. There are challenges in 2033 but it is an exciting time to be a philanthropist.

By Sean Stannard-Stockton | Also posted in Financial Times Column, Philanthropic Capital Markets, Philanthropy | Comments (0)

Investors vs Donors III

February 29, 2008 – 9:41 am

To recap, my questions from my earlier post were:

  1. Why do investors take credit for picking great investments (”look how smart I am, I bought XYZ stock!”), while philanthropists, especially foundations, claim that the credit goes to the nonprofits they fund (”the grantee did all the work”).

  2. Why is it acceptable for investors to talk about investments they think are bad (”Don’t buy ABC stock, their management is terrible!”), while philanthropists never badmouth nonprofits, even if they think they are ineffective?

  3. Related to #2: Why do public companies generally ignore all the talking heads who say negative things about them, while nonprofits find it intolerable to have a prominent person speak negatively about them in public?

The responses from readers can be found here.

The primary response to Question 2 was that funders/donors do say negative things about nonprofits behind closed doors and within private circles. But that they do not do the same publicly for fear of damaging their relationship with grantees. The point was made that funders (unlike investors in public companies), must maintain a healthy relationship with grantees to do their job well. Most readers seemed to appreciate the positive long term impact on the sector of public criticism and general truth telling, but worried that in the short term it would be a large negative.

I think this is an entirely solid argument. Philanthropy is currently much more like venture capital than investing in the stock market (it is no coincidence that venture philanthropy approaches have gained a lot of credence in recent years). Venture capitalists invest in private companies where funding comes primarily from a small set of large funders. They also have an active role and continuing relationship with the companies they fund. This is different from stock market investing where most investors are passive holders of stock and do not interact with the company at all.

Within the context of philanthropy as a private marketplace, I think the arguments for why public criticism does not work are valid.

I don’t think philanthropy is going to be a private marketplace for much longer.

Individuals already give seven times the amount that foundations give each year. Combining the Fidelity and Schwab donor advised funds (representing organized individual giving) gives you an annual grantmaker that rivals the Gates Foundation. Most high net worth individuals are only in the early stages of realizing that giving is something they can approach with a strategy that maximizes impact and tactics that make the most of what they have.

Public criticism of publicly traded companies is no big deal because the shareholder base is so broad. But a venture capitalist going on TV and knocking a private startup might cause it to go bankrupt as funding dried up.

Philanthropy is not yet a public market. The arguments presented against public criticism are all valid and correct today. We need to be preparing for tomorrow.

Venture Capitalists do talk about startups that they think are great. So do some foundations. Note the constant promotion of Nurse-Family Partnership by the venture philanthropy focused Edna McConnell Clark Foundation. You can read a great article about their approach here (note the reporter labels it as “controversial”). Maybe this positive commentary is a bridge to future criticism. Reader “young staffer” writes:

Foundations and donors actually don’t do enough to tout their successes and to make a strong, public case championing the relative effectiveness and strength of their best grantees. It’s not just that the grantees did all the work; it’s that we talk only about how our grantees do good things and yours do too. I think it would be way easier to get the ball rolling towards more criticism if it started from a place of making a case for the best social investments rather than highlighting the worst.

So why then don’t more “expert grantmakers” (mainly large foundations) publicly promote their knowledge? Reader Renata Rafferty writes:

Philanthropy in our society is frowned upon if it is considered self-serving. Therefore, to boast about one’s wise philanthropic investment “picks” would be, well, boastful and self-serving.

Look, if you have a billion dollar endowment and 30 employees working on a focused set of issues, it is not “boastful and self-serving” to talk about your “wise philanthropic investment picks”. If you are not making wise philanthropic investment picks there is something seriously wrong. I assume that large foundations are smart grantmakers. I’m not suggesting that they shout from the rooftops how great they are in an attempt to convince people. I just want there to be a public conversation about social investing the way we have a public conversation about the stock market.

Don’t forget that we’re talking about all of this within the context of a country where most people think nonprofits waste donations. It is hard to imagine that criticism could be all that damaging. You can’t fall very far once you’re already laying on the floor. Maybe Americans would have a better view of nonprofits if they heard experts talk negatively about some of them and positively about others. Realize that the underlying assumption that donors who want low “overhead expenses” from nonprofits is that the nonprofits are a value destroying entity that just gets in the way of the money going to the actual cause.

When a hedge fund manager goes on CNBC and talks about her favorite stocks, it is not “boastful and self-serving”. She is an acknowledged expert and the public appreciates (whether they agree or disagree with her picks) the opportunity to hear her thoughts.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Grantmaking, Media, Philanthropic Capital Markets, Philanthropy, Transparency | Comments (13)

Fortune Magazine on Kiva

February 27, 2008 – 1:18 pm

If you read one article about philanthropy this month, make it “The only nonprofit that matters” in the new issue of Fortune. Click here to access. It is an excellent review of Kiva.org and other organizations of this type. I found a couple things interesting:

  1. Fortune refers to DonorsChoose as a “peer” of Kiva’s. When I suggested that DonorsChoose, Global Giving and others were competitors, Kiva denied this comparison. I think they are all more similar than different. Global Giving later wrote on their blog that they agreed with my take.
  2. The article notes that DonorsChoose users can elect to send a portion of their gift to DonorsChoose to cover overhead rather than have 100% go to the project. They say 90% of users choose this option. When I suggested that Kiva use a similar pricing mechanism to fix their current supply/demand imbalance, Flannery said (scroll to bottom) that the 100% going to the project was a critical part of Kiva’s value proposition.
  3. Kiva has been criticized for not being “real philanthropy”, because users make loans not gifts. I think Kiva is so important because they’ve figured out how to give users both hard data (default rates on loans) and soft data (info directly from the borrower to the lender on how they’re doing. In the article Flannery says, “We think the users want information more than they want their money back.”

In case anyone is new to this discussion, I want to make it clear that I think Kiva is doing great work. I make the above points because I think that the philanthropy community should care deeply about Kiva’s decisions because I think they are creating a model that will find huge success.

You can read my prior thoughts on this issue here.

By Sean Stannard-Stockton | Also posted in Philanthropic Capital Markets, Philanthropy, Transparency, microfinance | Comments (0)

Social Marketplace Architecture

February 22, 2008 – 9:48 am

Reader Simon Marsh, shares his thoughts on the “Social Marketplace Architecture”:

The idea

A dynamic user led and focused software platform/environment for grant givers and grant seekers to interact and compete could be developed wherebytheir real time objectives and organisational identities interact and compete for the best ideas and resources. A second generation internet platform whereby a Foundation’s (for example) publicly available governanceand philanthropic objectives are matched (automatically) with various university (for example) academic objectives, personnel and events bothproactively and reactively.

You can read his complete comments here.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Philanthropic Technology, Philanthropy, Social Media, nptech | Comments (0)

Beth Kanter & Michele Martin

February 22, 2008 – 8:11 am

The America’s Giving Challenge Champions have been announced. This experiment/competition to see how web 2.0 tools can be used for fundraising has gotten a ton of national coverage. Here’s the thing: Beth Kanter and Michele Martin won. Beth, who I know from NetSquared events and from her blog, is someone I’ve always thought got web 2.0 and nonprofits better than anyone else. I’ve referred the media to her and called her the Queen of all things web 2.0 on this blog. Michele I only know from her blog, but she clearly knows her stuff.

If you are a nonprofit interested in how to use social media tools to fundraise or advance your mission, there’s no question who you hire. Go to their blogs (Beth’s is here, Michele’s is here), check them out, and hire them.

And if you work at a foundation, you might have noticed that nonprofits are way ahead of grantmakers in learning how to leverage social media tools. They’re generally way ahead of for-profit companies as well. So if you’re a grantmaker, check out Beth and Michele as well. Maybe you can talk them into helping you out.

By Sean Stannard-Stockton | Also posted in Fundraising, Philanthropic Technology, Philanthropy, Social Media, nonprofits, nptech | Comments (3)