Category Archives: New Philanthropy

The Big Give

July 15, 2008 – 10:50 am

The Big Give (not to be confused with Oprah’s Big Give television show) is an interesting UK based website that allows donors to search for projects to fund. Much like a stock screening tool (which lets you look for stocks to buy that fit your criteria), The Big Give lets donors “screen” projects based on size of gift, charitable “sector”, geographic location and beneficiaries. The site is a good example of the type of tool that I think will become the leading way that donors of all size will find the nonprofits they support. See the column I wrote for the Financial Times that looked at philanthropy in the year 2033 for more details.

Tactical Philanthropy reader Jon Brooks is Managing Director of The Big Give. Rather than explain the site myself, I thought I’d let Jon take the floor. (FYI: Jon sent me a note about The Big Give after I suggested that most foundations should stop accepting most grant requests and instead proactively seek out grantees. At the time, I said that being deluged by grant requested “sounds like spam to me.” So one way to think of The Big Give is as anti-spam software for your foundation!)

In 2007 the UK-based Reed Foundation was struggling to find quality funding proposals for its £1m/year grants. Unsolicited requests were never appropriate and seemed a waste of valuable charity resources.

With no paid members of staff, processing requests also used valuable foundation resources. Promoting the foundation’s need for quality proposals (e.g. through a website/marketing) would have only led to more administration work for both charities and the foundation.

We felt the most suitable solution was an online database of charity projects, and so developed The Big Give. UK charities upload and categorize their own projects - remaining responsible for all content - which allows the Reed Foundation to filter by various factors. Once we have a short-list of projects, we can contact the charity to discuss their proposal in more detail.

The beauty of the web is that we can share The Big Give with other donors looking for new projects. The site is free, and users remain anonymous until they decide to contact the charity. With over 4,500 charities registered, we do not carry out in-depth due diligence. Instead, we provide links to third party websites - such as the Charity Commission - to make it easy for donors to research potential charities to a level that suits their needs.

An example:

In 2007, the Reed Foundation trustees wanted to consider a £100k donation to rainforests. Other websites provided limited information on the work each rainforest charity did, and the charities’ own websites concentrated on the £5/month donors. The only way to find out if a charity could provide us with an interesting project was to ask - and that led to face-to-face meetings, offers to tailor projects to our needs, and so on.

With The Big Give, we are able to search for rainforest projects at £100k and have a short-list of concrete proposals within seconds. Only when we have selected the best ideas and checked the accounts of the charity behind the project do we meet with the charity.

My personal story:

As happens at many small foundations, I worked on the Reed Foundation alongside a full-time job within the Reed recruitment company. As the idea for The Big Give developed, I spent more time on the project and went full-time with The Big Give in August 2007. The website launched to charities in October 2008, and we are now looking at how to make The Big Give relevant to all charity donors.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Philanthropy, Social Media, nptech | Comments (3)

Philanthropy & Capitalism

July 10, 2008 – 10:03 am

When debating a phrase like “philanthrocapitalism”, one requirement is that we understand the relationship between capitalism and philanthropy. I believe that capitalism is the best system that humans currently have to distribute goods and services. I believe philanthropy, while intertwined with economics, exists to do much more than simply distribute goods and services. Philanthropy is a higher calling that is driven my the human desire for self-actualization (which I discussed in a post for the Stanford Social Innovation Review).

One of the reasons why I think the philanthrocapitalism debate seems to be discombobulated at times, with the participants talking past each other, is because of a specific belief that many people who agree with Michael Edwards’ anti-philanthrocapitalism views hold. That view is articulated perfectly in a comment left yesterday by Tactical Philanthropy reader Nicole:

Why should nonprofits conform more to the corporate model, when corporations are the main source of the problems non profits were created to solve in the first place?

If you believe that capitalism is the source of the problems that philanthropy seeks to address, it is no wonder that you would reject the concept of philanthrocapitalism. There is no doubt that markets produce plenty of negative outcomes. Even hardcore free market economists agree that there are “externalities” (costs or benefits that accrue to non-market participants and therefore are not reflected by the market. A classic example is smoking where non-users accrue health related costs and so the market produces too many cigarettes). Capitalism is not perfect.

But I reject outright the idea that philanthropy’s main role is to correct the problems produced by our economic system.

To me, viewing philanthropy as primarily a correcting force on capitalism essentially sets philanthropy up as a kind of handmaid to capitalism. A clean up crew for financial markets. Philanthropy is so much more than that. Even in an economic utopia, humans would still have plenty of problems. Mental illness would still exist. Children would still lose their parents. Pain and fear and anger would still persist.

Philanthropy is about humans coming together out of an interest in each others well being. Capitalism is about people coming together to further their own self interest. It is OK to be self interested. With out self interest the human race would die out. Capitalism manages to harness self interest in a way that allows the pursuit of self interest to benefit the community. This tool set should be useful to philanthropy as a way to further our community interests.

To me, if you believe that philanthropy’s main role is to correct the problems of our economic system, than you are truly worshiping at the alter of capitalism. You are elevating the role of economics to the very center of human happiness.

To truly benefit from a positive form of philanthrocapitalism, we must be able to gather the accumulated wisdom of each discipline and integrate them into a more complete whole. This is the challenge and opportunity for philanthropy in the 21st century.

By Sean Stannard-Stockton | Also posted in Philanthrocapitalism, Philanthropy | Comments (5)

Philanthrocapitalism: Michael Edwards vs. Matthew Bishop

July 7, 2008 – 8:12 am

Matthew Bishop of The Economist coined the word Philanthrocapitalism in early 2006. Earlier this year, Michael Edwards of the Ford Foundation published Just Another Emperor: The myths and realities of philanthrocapitalism, which was highly critical of the concept.

Today, the Global Philanthropy Forum hosts an online debate between Bishop and Edwards with comments open to the public. Give the two sides a read and leave your thoughts. I think that the intellectual struggle over the idea of philanthrocapitalism is one of the most important debates going on today. How the world comes to define and understand the phrase (and especially the tools and knowledge frameworks of the concept), may very well define philanthropy in the 21st century.

You will find the debate here.

Update: the debate is churning along and regular readers will recognize a number of Tactical Philanthropy readers in the mix. Come join the conversation!

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Philanthropic Capital Markets, Philanthropy | Comments (10)

Investing in Great Nonprofit Employees

July 3, 2008 – 8:50 am

My recent column in the Financial Times has sparked the biggest response of my year old career as a newspaper columnist. I’ve gotten a ton of email, comments and the Chronicle of Philanthropy featured the column in Philanthropy Today. The response (of people who have contacted me directly) has been overwhelmingly positive. But I hear through the grapevine of at least a couple prominent people who don’t like the column. I’d love to hear any negative feedback that’s floating around our there.

I would like to clarify something in the column that I think deserves further attention (I only get 800 words in the Financial Times, so I have to leave out some points). In the column I say that donors do not understand how social impact is created (they tend to think it is the money they give, so they want to eliminate nonprofit costs, instead of recognizing that it is what the nonprofit does with their money that creates impact). I then state that for-profit investors have a better understanding than donors do of how the input of money (an investment or a donation) is transformed into an output (profit or social impact).

Here’s the important point that I hope is implicit in my column, but that I want to make explicit: for-profit investors and donors are the same people! I’m not suggesting that “for-profit investors” are smarter than philanthropists. I’m saying that when most people put their donor hat on, they also put on some bizarre kind of glasses that make them see the nonprofit world in a completely dysfunctional way. Instead of seeing nonprofits as firms that create value, the way we see for-profit organizations, they see nonprofits as bureaucratic entities that destroy the value of our donation as it travels from us to the “cause” we hope to support. It is only through this Alice in Wonderland looking-glass approach to understanding the social sector that we could possibly justify underpaying nonprofit employees, demanding that nonprofits only spend our donations on their “program”, and worry intensely about “overhead expenses.”

But I am not in the least suggesting that “business people” or “investors” have a better approach. Business people and investors are donors too and they view the nonprofit sector just as bizarrely as other donors. My discussion of how investors understand that for-profits are organizations that produce value is meant as a template for understanding how donors should view nonprofits as organizations that produce value. My additional point is that many of the behaviors that for-profit firms exhibit in their pursuit of maximizing value production (Handsomely rewarding employees in order to attract the best, for instance) are viewed as scandalous in the nonprofit sector.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Grantmaking, Philanthropy | Comments (4)

Invest in the Best to Make an Impact

June 30, 2008 – 7:36 am

This is my most recent column from the Financial Times.

Invest in the best to make an impact
By Sean Stannard-Stockton
Published: June 28, 2008 (link to original FT.com column)

Giving money to charity does not necessarily make the world a better place. Nevertheless, most donors believe that donating qualifies as “doing good”. In fact, the gift of money is only the first step in a chain of events that might achieve the elusive goal of creating social impact.

For-profit investors understand this issue. Making an investment does not guarantee a profit; this comes from what a business does with its capital. A result of the belief that the donation itself produces an impact is the idea that non-profit organizations should spend as little as possible on their infrastructure. We see this belief manifest itself when we hear people complain about charities “wasting money”, when press reports grumble about the high salary of an executive director, or when donors are encouraged to focus on a charity’s overhead expenses as a deciding factor on where to give.

Of course, we have a radically different way of thinking about for-profit entrepreneurs. We celebrate the idea of a few people in a garage, with limited resources, inventing the next big thing. We are enamored of the concept that in dorm rooms at Stanford and Harvard, the next Ebay or Facebook is being developed. Implicit in this ideal is the idea that business profits are a product of brilliant people with creative ideas, figuring out how to be successful.

In both business and non-profit work, the critical factors of success are people, ideas and passion. Everything else is secondary. As a nation of stock market investors, we understand this. We are attracted to investment opportunities because of the people leading the company, the ideas for new products or services, and the way the company seems to throw itself at opportunities and relish the chance to compete.

Google lets its engineers spend a day each week working on whatever project catches their interest, and feeds its employees gourmet food in free cafeterias. Google’s stock is up more than 500 per cent since going public less than four years ago. But can you imagine the outcry if a large non-profit let its employees spend 20 per cent of their time on interesting “side projects” or gave them fancy free meals? Never mind that non-profit employees are shamefully underpaid compared with their for-profit counterparts (certainly no stock options for these “do-gooders”). If a non-profit followed Google’s business practices, donors would flee, the media would write exposés and Congress might even investigate.

What a disgrace.

Americans give more than $300bn a year to charity. It is time we reframe what we expect from the non-profits we fund. Let us ask for more innovation, more creativity, more impact. But as a nation of philanthropists, we can not make this demand without holding up our end of the bargain. We need to expect non-profits to hire the best people, and support our donations being spent on competitive salaries. We need to encourage non-profits to take risks, and understand that risk-takers fail sometimes (even frequently). We need to believe that non-profit leaders know best how to achieve their mission, and just as investors do not tell companies how to spend their investment dollars, make the majority of our donations for general operating support.

Imagine the way we could remake our world if non-profit organizations were backed by investors who encouraged them to hire the best people, to poach employees from Silicon Valley and Wall Street, and to bump shoulders with Fortune 500 recruiters at Ivy League career fairs in the fight for the best talent. Imagine the good we could achieve if landing a job at the United Way or the celebrated Teach for America inspired the same joy that getting a high-tech or investment banking job provokes today.

But that will cost too much! We cannot afford it! How can we possibly pay non-profit employees the same rate as for-profit employees?

Here are the facts. According to the Urban Institute, public charities collected $1,600bn in revenue in 2005 and held $3,400bn in assets. These numbers do not include the more than 800,000 small non-profits that are exempt from reporting.

In reframing our understanding of the non-profit sector, we must recognize that we cannot afford not to hire the best people. Fortunately for us, the non-profit sector is teaming with passionate individuals who are innovative enough to figure out how to do their job in such a backward system. Imagine what could be achieved if we transformed our dysfunctional understanding of charity.

As we face the myriad challenges of the 21st century, we must focus our examination of the social sector on identifying the very best people and organizations. We must champion these leaders and invest heavily in their ability to achieve an impact. Just as businesses turn investment dollars into profit, non-profits turn philanthropic dollars into social impact. It is not enough to simply do good, it is time to start funding the best.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

By Sean Stannard-Stockton | Also posted in Financial Times Column, Philanthropy | Comments (30)

Update on Edna McConnell Clark’s Growth Capital Fund

June 27, 2008 – 1:10 pm

In December of last year I wrote about the growth capital fund being raised by the Edna McConnell Clark Foundation. At the time excerpted a description from a Stephanie Strom article in the New York Times.

A New York foundation that focuses largely on opportunities for low-income youths is creating a fund to help charities become bigger and more efficient.

The institution, the Edna McConnell Clark Foundation, has committed $39 million to the fund and attracted $49 million more from other foundations and individuals, putting it well on its way to achieving its goal of raising $120 million by June…

Yesterday I received an update from Nancy Roob, the CEO of the EMCF (below). I think the key reasons I am excited about this deal is that EMCF believes 1) “we need to explore and test better ways of financing high-performing organizations”, 2) that they are getting co-investors to “fund the same business plan”, 3) that their choice of organizations to fund is based on impact, and 4) that they are committed to “sharing learning”. These are some of the critical themes I have been writing about and that need to be investigated for philanthropic capital markets to come of age.

Bravo to Edna McConnell Clark and their co-investors!

I am extremely pleased to report that, as of June 26, 2008, we and our grantees have succeeded in achieving our goal of raising $120 million for these three organizations.

The grantees and the individual goals they have met are:

1. Nurse-Family Partnership, which has administered for 30 years a scientifically validated home-visitation program that improves the health, development and, eventually, the economic self-sufficiency of children born to first-time, low-income families ($50 million).

2. Youth Villages, which conducts cost-effective, evidence-based interventions, such as multi-systemic therapy, that help youth involved in the juvenile justice and foster care systems stay in or return to their homes ($40 million).

3. Citizen Schools, which improves the academic performance and high-school readiness of low-income, middle-school-age youth by providing rigorous academic support, leadership development, and hands-on learning projects led by volunteer “citizen teachers” and trained staff during after school hours ($30 million).

Of the $120 million total, EMCF trustees committed $39 million. We have been joined by [19 other investors].

Although reaching this goal is significant, it does not represent an end in and of itself. All three organizations will need to continue to raise significant amounts of renewable, reliable private and public funding to execute their growth strategies and achieve long-term sustainability. It is our belief that this initial infusion of $120 million in up-front growth capital will lay the groundwork and pave the way for additional investment and support by others.

We at the Edna McConnell Clark Foundation are most excited about the unprecedented nature and structure of these coordinated co-investments. These are three separately syndicated deals and our partners have joined us in investments of their choosing. What all three agreements have in common is that, in addition to financial support, co-investors have made a commitment to the same set of practices and protocols:

• Funding the same business plan. Grantees developed multi-year business plans with clear performance metrics and a road map showing how an infusion of up-front growth capital from the private sector could lead to longer-term financial sustainability, including new and increased public funding.

• Agreeing to the same terms and conditions for investment. Every investor has agreed to sign a memorandum of understanding that aligns the terms and conditions for each investment. Co-investors will meet as a group quarterly with grantee leadership to review performance. A critical goal here is easing the habitual reporting burden for grantee organizations.

• Adopting a performance-based approach to payout. A common payout schedule is part of the terms of investment and requires that grantees achieve key performance milestones and develop longer-term financing mechanisms at the pace their business plans call for. This should ensure that growth capital is drawn down wisely.

• Ensuring an effective exit. Raising up-front growth capital and spending it down over several years while other reliable and renewable funding streams kick in should ensure that co-investors will be able to exit responsibly and effectively. Although some co-investors may choose at a later date to fund another phase of growth, for now these deals are structured so that all parties involved can exit at their conclusion. Most co-investors, including EMCF, view our commitments as one-time in nature.

• Sharing learning. All co-investors are committed to learning together and being transparent with each other and the public about the pluses and minuses of this syndication model.
The Edna McConnell Clark Foundation’s role in this effort is different from anything we have done before. Although we will not directly manage other funders’ money (all funds flow from individual investors to the grantee), we are responsible for coordinating investor activities, organizing quarterly reports and meetings, and ensuring transparency and information flow between investors and grantees. This role significantly raises the bar for the Foundation in terms of our accountability to our funding partners, our grantees and ourselves.

We launched this pilot initiative because we knew we could no longer “go it alone” if we wanted to finance more effectively over the long run our most promising grantees. We also believe that, on behalf of our philanthropic and other colleagues in the field of youth development who are striving to solve at sufficient scale some of our nation’s most intractable social problems, we need to explore and test better ways of financing high-performing organizations with the potential to change dramatically the life trajectories of greater numbers of economically disadvantaged youth.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Information Sharing, Philanthropic Capital Markets, Philanthropy | Comments (0)

Online Grant Applications

June 25, 2008 – 10:10 am

Flaw #9 from the Project Streamline report:

More than 80 percent of the grantmakers who responded to our survey reported that they have taken steps to make their information gathering practices “more efficient and streamlined for nonprofit applicants.”

…Many streamlining strategies have turned out to be useful to foundations and their grantees. Yet others, notably online applications and common grant applications, have produced mixed results, creating new issues for grantmakers and grantseekers alike.

…Common grantmaking forms for application and reporting (here, generically referred to as CGAs), which provide a single set of application and/or reporting questions that a substantial number of funders in a region (or funding area) will accept, have seemed like a logical time and resource saving tool for philanthropy. Yet our research found surprisingly little support for common grantmaking forms as a strategy for effective streamlining. CGAs are accepted (or, much less frequently, required) by 34 percent of foundations that responded to our survey.

Common grant applications is one of those ideas that make so much sense on the surface. But then I think about how any investment manager would reject the concept of having a standard template of information on which to base their decisions. Every person has at least slightly different criteria for making an investment or grantmaking decision.

But investors do have a very important infrastructure in place that philanthropy lacks. Investors in publicly traded markets know that every company will file their financials with the SEC. Unlike nonprofits’ 990s, SEC filings are not documents focused on compliance and IRS driven issues. SEC documents are designed to inform investors (the recent changes to the 990 did move them in this direction). In addition, companies host quarterly conference calls to discuss their business. While every investor has their own criteria for investing, they have a common set of information they can obtain about any company.

But here’s the critical difference. A common grant application means that there is a standard set of information that nonprofits can send to funders. In the stock market, the common set of information is available for investors to go get. This switch from passive receiving of information to proactively going out to find what you want is one of the core changes that the internet (and especially web 2.0) bring to the world. A common grant application misses the whole value of the internet. Instead of having nonprofits fill out and submit lots of grant applications, why don’t they just post a single set of common information for any funder to download? The 990 could serve this purpose, but why should funders let the IRS dictate what information is important? Why can’t the philanthropic community design their own “impact report” template that every nonprofit could complete and keep updated? (I asked Brian Gallagher, CEO of United Way of American, this question in a recent podcast.)

Personally I think that most funders should do away with even accepting most grant requests. I think it would be boring to be deluged with requests, most of which I wasn’t interested in. Sounds like spam to me. I’m much more interested in proactively identifying and researching the investments (for-profit or nonprofit) that I am interested in. It sure would help if I could pull up good information about nonprofits on Google Finance the same way I can pull up good information on stocks!

Update: I should be more clear when I say foundations should not accept grant applications. What I believe is that the system of philanthropy should switch from a system of where nonprofits ask for money to one where funders proactively seek out grantees. I layed this thesis out in a Financial Times column earlier this year. But within the current context, I realize there are ramifications if a single foundation stops accepting requests.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Fundraising, Grantmaking, Information Sharing, Open Source Philanthropy, Philanthropic Technology, Philanthropy, Social Media, Tactical Philanthropy, nonprofits, nptech | Comments (1)

connec+ipedia

June 23, 2008 – 6:00 am

For some time now I’ve been talking about the need for large foundations to share their knowledge base with the general public. While some people have made this argument from the standpoint of obligations that foundations have to the public, I’ve thought that foundations will find that they are able to more effectively further their own mission by sharing their knowledge base. Since individuals give seven time more money each year than all the foundations in the country combined, it stands to reason that foundations who share their knowledge with the public might influence some of these vast flows of funding to support the mission of the foundations.

Recently the Meyer Memorial Trust, a $700 million+ foundation that has proven innovative in a number of ways, launched an attempt to share their knowledge base with anyone who is interested. The project is called connect+ipedia. Rather than explain the project myself, I asked Amy Sample Ward - Communications and Learning Associate at MMT and author of the foundation’s New Media Blog - to share her thoughts with Tactical Philanthropy.

By Amy Sample Ward

If you are looking for some introductory information about after school programs, for example, and you do a Google search for that term, you would get 40,200,000 results. But, if you use connec+ipedia, you get 111, all of which are cards on the topic or organizations involved in such work. So, what is connec+ipedia?

Let’s start at the beginning: A few years ago, Meyer Memorial Trust (a private, regional foundation based in Portland, OR) recognized the need to explore the world of knowledge management. A full program staff turn over in a short amount of time (with program officers retiring after decades of service) meant an irrevocable loss of institutional knowledge, and the adoption of a knowledge management tool could ensure that such loss did not happen again. Marie Deatherage, Director of Communications & Learning, was tasked with the investigation and discovered that foundations around the country were investing a lot of dollars (millions, even) to develop tools that only the organization could use and that often faced little-to-no staff buy-in.

MMT had shown a commitment to both supporting open source software and to supporting the broader philanthropic and nonprofit sector through grantmaking and other projects, so, when Marie met the two great minds behind Grass Commons who were working on an open source wiki tool that incorporated database functionality, the choice seemed clear. What was also clear to the Trust, was that this wouldn’t be a tool for internal use only, but would be completely open. Other foundations, nonprofit organizations and state agencies were often all working on the same kinds of programatic work, so it would make sense that they should be able to collaborate online, in a way that allowed for sharing of best practices, data, standards, and other information—that these parties should all have access to the same information when working to make informed decisions about work that effected the field.

Wagn is the free, open source software that connec+ipedia runs on, combining the editable functionality of a wiki (like Wikipedia) with ‘tagging’ or referencing functionality of a database. Anyone (with Intern access) can view, search, and read the site. Users (request an invitation!) can edit, create and contribute content, all organized through people, places and things, as well as the intersections between them. Back to the initial example: If you wanted to find out about after school programs, searching Google may be too much information. Searching on connec+ipedia, instead, could mean a more easily digestible avenue to tailored information. Users from across MMT’s service area and beyond, in foundations, nonprofits, state agencies, as well as corporations and public citizens are already making connec+ipedia a resource. The Oregonian has even gotten behind it!

By Sean Stannard-Stockton | Also posted in Foundations, Information Sharing, Open Source Philanthropy, Philanthropic Technology, Philanthropy, Social Media, Transparency, nptech | Comments (2)

Due-Diligence Redundancy

June 19, 2008 – 1:15 pm

Flaw #8 from the Project Streamline report:

Since it is difficult to determine exactly what is needed for due diligence (and since the list regularly changes), grantmakers tend to play it safe at the recommendation of their legal and financial advisors, requiring redundant and often unnecessary documentation from grantseekers. According to one foundation focus group participant, the foundation’s auditors give such confusing and contradictory advice that “we just make everyone go through the same process just in case, even though it seems like a waste of time for some of these grants.”

For example, the Tax Determination Letter—the original letter from the Internal Revenue Service (IRS), establishing an organization’s tax status—does not prove that the organization is still in good standing with the IRS. The only real way for grantmakers to verify an organization’s standing is to research the nonprofit before each payment to be sure that the letter has not been rescinded. The IRS suggests that granting organizations either access the Business Master File (a file that is updated monthly) from the IRS, or rely on a third-party (such as GuideStar’s Charity Check) to verify that the organization remains in good standing. However, most grantmakers, often at the insistence of their legal and/or financial counsel, continue to collect the Tax Determination Letter for each grant request.

“I know that we could stop asking for the IRS letter, and could use a system like GuideStar. However, our auditors ask for the tax letter to be in each file!”
—Grantmaker

I’m an advisor to foundations and other grantmaking entities. I want to help them be as efficient and effective as possible. But more than anything, I want to make sure they do not get into any trouble. Even though my firm is not directly charged with managing their compliance, I do everything I can to help my clients gain access to the tools and services they need to insure they never run afoul of the IRS. So I understand why this “flaw” exists.

It seems to me that one of the solutions to this sort of issue rests in the idea of nonprofit “stock exchanges”. I’m not convinced that there is a viable concept behind the idea of nonprofits “trading” on an exchange. But I do think that an “exchange” could emerge that would essentially make the promise to funders that listed nonprofits had passed a level of due diligence to qualify and were required to submit regular documentation of their ongoing compliance. It would not be the responsibility of the exchange to judge the impact of the nonprofit (that would be the funders job, just like the New York Stock Exchange does not suggest that every company is a good investment). But at least funders could dispatch with all the run of the mill due diligence and the IRS could extend a sort of safe harbor to funders who gave to listed nonprofits.

I wrote more about this idea in the Financial Times column titled The Donor Landscape of 2033 is Bright.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Information Sharing, Philanthropy, Transparency, nonprofits | Comments (1)

Fundraising Gymnastics

June 18, 2008 – 3:46 pm

Flaw # 7 from the Project Streamline report:

The most commonly cited effect of the foundation funding system is that nonprofits continually reinvent their programs—at least on paper—in response to foundations’ preference for the “new and different,” and reluctance to pay core operating support. Application and reporting requirements also cause nonprofits to develop strategies that are the opposite of what foundations intend. For example, nonprofits learn to work around grantmaking staff to ensure that their proposal is considered. They devote time and energy to board mapping, described by one nonprofit representative as “looking for the second cousin twice removed” who can help the nonprofit avoid the standard hoops and get straight to the funder’s board. Grantmaking staff find it troublesome when a nonprofit organization circumvents the normal application and reporting process in this way, but nonprofits continue to do it because they find that it works.

This might be the best example yet of the difference between looking at philanthropic giving through the lens of consumer behavior (donors are “buying” the “good” that nonprofits “sell”) vs. investing (donors are “investing” in the nonprofit organization and the “return on investment” is the “good” the nonprofit does). As I mentioned in prior posts, I tend to use the investing framework. A smart friend of mine disagrees and uses the consumer model. My friend George Overholser, who is one of the best thinkers on this topic, thinks that some donors are “customers” and others are “investors”. George probably has it right. But as he suggests in his paper Building is Not Buying, it is important for funders to recognize if they are builders (investors) or buyers (customers) and act accordingly.

The “flaw” outlined above sets funders up as customers. Investors in a business don’t ask the organization to bend and mold to what the investor wants. Investors compete to invest in organizations that they think are doing a great job already. Warren Buffett is famous for investing in a company and then getting out of the way so they can keep doing what they were doing before he came along.

Customers on the other hand ask organizations to do whatever they want. As a customer, you don’t care what the most cost efficient way for Starbucks to serve you a cup of coffee is. You want the best purchasing experience and best cup of coffee at the best price (and who cares if Starbucks is making or losing money as long as you get what you want). Smart businesses don’t try and serve every customer, they seek out the niche of customers who the business can serve profitably.

So looking at the “flaw” above I’d suggest that if a foundation views themselves as an investor, then the flaw is spot on. It is inconsistent to believe you are a philanthropic investor while at the same time requiring your grantees to perform “fundraising gymnastics”. If on the other hand you are happy being a philanthropic consumer — paying nonprofits to do social good — than I don’t see anything wrong with the fundraising gymnastics routine. As a customer, you have the right to ask the organization you are purchasing from to serve your needs. But smart nonprofits will refuse to serve those “customers” who are not profitable (ie. those customers whose net grants are not worth the trouble).

By Sean Stannard-Stockton | Also posted in Effective Giving, Fundraising, Grantmaking, Philanthropy, nonprofits | Comments (2)

NetSquared and Philanthropy

May 29, 2008 – 9:02 am
I almost didn’t go to the NetSquared conference this year. Big mistake, I’m glad I went.

Two years ago I attended NetSquared (which that year was a learning conference about how nonprofits could use social media tools). I, like most people attending, heard about YouTube and Facebook for the first time. And more importantly, I learned how to launch a blog.

This year, the conference focused on “mashups” for good. At first I thought the conference had become a hardcore tech conference (I like technology, but it is not my profession and I don’t attend tech conferences). But as I looked more at the structure (two days of presentations by 21 projects that had already been culled down by online voting, followed by winners being announced with cash awarded) I realized that what I was really looking at was an early example of the “nonprofit roadshow” concept that I wrote about in my Financial Times column about philanthropy in the year 2033.

TechSoup (the producer of NetSquared) CEO Daniel Ben-Horin confirmed this view of NetSquared in an email to me:

One point I want to make to you is that from where we sit this year’s conference is much *more* about philanthropy than the past conferences. We think we’re working up a model for distributed philanthropy that is, in fact, highly congruent with ‘the next great wave of philanthropy.’ The “distributed” part works three ways–(a) the projects can be anywhere; (b) the people contributing can be anywhere; (c) by ‘contribution’, we mean both cash and what is actually just as if not more valuable–terrific technology talent committed to social change.

In fact, what we’ve 3/4-built, 1/4 wandered into is a new business offering - running N2-like challenges in a variety of formats. So, without really pushing this, we already have 5 clients for this product—including Yahoo and Case Foundation. They all want to hire us because (a) we have the engine; (b) we have the technical community; (c) we have access to philanthropy and investment.

You can check out an overview of the conference and see the winning projects here. Note that Peter Deitz’s project Social Actions was a big winner (Peter was a member of the Tactical Philanthropy Blog Team that covered the Council on Foundations conference.)

By Sean Stannard-Stockton | Also posted in Effective Giving, Fundraising, N2Y3, Philanthropic Capital Markets, Philanthropy, Social Media | Comments (0)

The Amazing Tactical Philanthropy Community

May 17, 2008 – 10:20 pm
Wow! 61 minutes (on a Saturday night!) after I posted a half joking request for someone to tell me what I was quoted as saying in the La Vanguardia article, we get this response from reader Taylor:

Sean– I translated the paragraphs where you’re quoted. Good article!

From page 1:

Sean Stannard-Stockton advises wealthy and generous families. His firm, Ensemble Capital Management, helps those families create foundations or seek out possibilities to pay lower taxes. “That allows them to give more money,” particularly in California. Stannard-Stockton, columnist for the Financial Times and blogger, places the birth of the “second great wave of philanthropy” around the early 90s. The 90s were a decade of explosion of wealth. In 1997, Forbes magazine found 423 billionaires in the whole world. Today there are 1,125.

The technomillionaires of Silicon Valley are one league of Rockefellers. Every day there are more philanthropists with business experience. “Think about those who invest in the stock market. An unsophisticated investor will buy a stock because they like the product. A sophisticated investor will seek out companies that do good business. The available information in the financial market is more advanced than the philanthropic market,” says Stannard-Stockton.

on page 2:

“Sean Stannard-Stockton warns against the tendency to fully apply the methods of the business world: the effects of a donation can’t be measured like those of a business. According to Paul Schervish, who is convinced that new philanthropy is an engine for social change, those methods are only “one tool.” Some, like journalist Richard Morais, predict a “great financial scandal, just like Enron, in the nonprofit sector”

Thanks Taylor!

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

The Second Great Wave of Political Donors

May 12, 2008 – 4:51 pm

I’m not political strategist, but I couldn’t help but notice this USA Today story titled, “Small Donors Increase Impact.” The story explains that while traditionally, political campaigns are fueled by large donors, this election cycle is seeing the growing importance of small donors.

Democrats Barack Obama and Hillary Rodham Clinton are increasingly funding their presidential campaigns through donations of $200 or less, a USA TODAY analysis shows, in a break from previous contests dominated by wealthier contributors.

More than half of the $194 million that Clinton and Obama collected from January through March for their primary fight came from small donations, according to the analysis of data compiled by the non-partisan Campaign Finance Institute. That’s up from about 15% of the $43.5 million collected by both Democrats during the same period last year.

I won’t make a call on political trends, but it sure seems like interesting stats that are relevant to my thesis of a Second Great Wave of Philanthropy.

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

Millennials as Social Citizens

April 29, 2008 – 9:00 am

The Millennials are coming!!

Millennials (or Generation Y), the generation coming of age in the new millennium, have been derided as having “helicopter parents” being “boomerang kids”, having an excessive sense of self-worth and generally being a pain in the butt in the corporate world.

But they are also volunteering like mad.

USA Today reports that they volunteer more than any previous generation and the Wall Street Journal reports today that corporations are finding that one of the best ways to attract them as employees is to offer them paid time off to volunteer.

The Millennials are the children of the Baby Boomers, the generation that I argue is fueling a Second Great Wave of Philanthropy. They don’t have the assets yet to be a force in philanthropy on the donation side (although Resource Generation is already organizing those that do), but the way that they will interact with and view the nonprofit sector is being defined right now.

You can read about this group on the excellent Future Leaders in Philanthropy blog (co-founded by my sister who no longer writes for it). And now you can follow the role of Millennials as “social citizens” at the aptly named Social Citizens blog.

Authored by Kari Dunn of the Case Foundation and Allison Fine, an author and experienced blogger, Social Citizens is a blog discussion focused around the Social Citizens paper that Fine wrote for the Case Foundation. In a recent blog post Fine talks about the blog:

The release of Social Citizens BETA today is very exciting for what it isn’t – and what it is. Late last year, Kari Dunn and Ben Binswanger of The Case Foundation asked me to write a paper for the Foundation about the emergence of Millennials, 15-29 year olds, as activists. They wanted to know more about how these young people are using all of their widgets and gadgets for causes.

And that’s when we talked about what the paper isn’t.

We decided to go beyond a simply litany of the ways that young people are using blogs, social networks, and videos to share information about their favorite causes. We wanted to go a step further and ask harder “so what” questions. What does it mean to Millennials to have the ability to become an advocate for their cause instantly, broadly, inexpensively, and what does their ability to do so mean for the rest of us?

The Foundation provided me with an opportunity to cast a wide net across the real of Millennial activism; from Facebook to the Red Campaign, from the presidential campaign trail to the human devastation in Darfur, from Gossip Girls to Invisible Children, a documentary about the difficult lives of the children of Uganda. I followed the trail of email, blogs, YouTube videos, websites, donations, Tweets, and IMs around the country and even across the globe. I interviewed over thirty people, read many articles, papers, books, and websites, and examined the data on who is doing what for causes. And what I found was astounding for its scope, scale, and idealistic intentions.

Marnie Webb, a key informant in the paper, asked, “What, if anything, does all of the clicking, blogging, and “friending” add up to in the end?” And my answer is, “Far more than I imagined, far greater than I had hoped.”

Millennials are doing more than pinging and poking and sharing information about causes. They are radically altering the very notion of what it means to be an active citizen in the process, and that’s why we’re calling them Social Citizens.

This is definitely going to be a blog to watch.

By Sean Stannard-Stockton | Also posted in Giving Blogs, Philanthropy, Volunteering, Youth | Comments (0)

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)