by Martina Castro

It used to be easier. You would come home, open the mailbox and find an anonymous looking envelope. Inside, you would find a card with despondent children, or cute tiger cubs, and a prefilled check. Alternatively, you could always count on your sister’s crochet friend to ask you for money for the local group distributing meals to the homeless. And finally, you would leave a bequest in your will to a couple of charities, usually an animal shelter or some organization you had heard about throughout your life but had never had the chance to really investigate. For many, philanthropy would be just that. Although it would be wrong to suggest this sort of giving is pointless, it does end up being relatively ineffective in achieving transformative impact.

But times are changing in the world of private philanthropy. Over the last few years, there has been much talk of ‘philanthropy 2.0’, and buzzwords like ‘venture philanthropy’, ‘strategic philanthropy’, ‘Silicon Valley philanthropy’ and ‘philanthro-capitalism’ are becoming ever more common. Despite certain nuances, all refer to the same widespread phenomenon: even if you are not planning to give millions, philanthropy has become a considerably more thorough, professional and transparent process, which does not end with having your name carved on a brass plate in a hallowed university courtyard, or on the hand-painted sign of a rural hospital in Ethiopia.

We are moving away from responsive, opportunistic charity, and increasingly towards a thought-out, engaged and proactive form of giving, which is aimed at accelerating the pace of social change. Donors tend to give at a younger age, to be personally involved in the causes they support, and often in conjunction with friends and family. They wish to understand, to learn and to see the results of their giving. Finally, they are ready to experiment, to try out new approaches and to bring more than just their money to the table.

Because of this shift, there are a number of changes that are starting to appear in the philanthropic ecosystem – all of which will become vital in the years ahead.

The first trend, which has been slowly taking off in the last decade or so, is a growing pressure on those at the receiving end of donor funds to become more professional, accountable, transparent, and ultimately, more efficient. Donors want to know how their money is being spent, and what impact it is having. Of course, there are certain downsides. Beneficiary organizations often complain about devoting too much time – and too many resources – to writing proposals, filing reports and auditing accounts. While it is true that answering the growing demands of donors means an additional investment, in a world of shrinking philanthropic capital, the adapt or die rule applies. This may be a hurtful process, but it is also an inevitable evolution, which is ultimately more positive than negative. Sadly, however, standards of reporting remain too low – a fact just as true of larger, more established organizations as for smaller, volunteer-based groups.

As always, there is a balance to be struck: if you are giving $200,000 to an organization, the sophistication of reporting you should expect as a donor is correspondingly greater than for a one-off contribution of $200. In either case, however, the donor is entitled to know how the money was used, and what the grant helped to achieve. On the other hand, donors – even enlightened ones – still fail to grasp the importance of funding the operational costs of their beneficiaries. Clearly, this conflicts with demands for professional standards of administration and governance.

Slowly but surely, donors will have to understand that in order for an organization to blossom, grow, professionalize and achieve its full potential, it will have to invest in qualified and talented staff, as well as smart fundraising, marketing and capacity building. On average, organizations dedicate approximately 15 percent of their resources to such operational expenses. While this means a portion of donor funds do not always flow directly to a specific project, it ultimately helps to enhance the overall efficiency of the organization, thus allowing for even greater impact.

The second trend is an expansion of the methods through which donors can aim to foster change. As already emphasized, long gone are the days where writing a check to a charity was the only means to engage with a social issue. Donors today have a palette of options to choose from, and while simple grants do remain the most typical approach, more sophisticated philanthropists are now shyly dipping their toes in an alternative and fascinating realm of strategic giving. We are moving away from an era of rigid juxtapositions – where giving was seen in opposition to investment, charities in opposition to companies, and social impact in opposition to financial return.

Donors, as well as investors, are beginning to explore the spectrum of possibilities that exists between these worlds, and are finding innovative ways to build bridges between the corporate and non-profit sectors. Today, for instance, a foundation that supports medical research through grants can also engage in mission-related investment, by putting to work its capital in companies that are active in the same field. The impact of their investment, therefore, is aligned with that of their grants. Similarly, a donor interested in poverty alleviation in India can invest in a private-equity impact investment fund supporting social entrepreneurs who use market-based solutions to address issues like education, housing or water and sanitation.

The development of impact investment is still in a nascent phase, although early pioneers emerged in the 1970s and 80s in the sphere of microcredit. The sector has picked up markedly since – especially in the United States – championed by dot.com era entrepreneurs like Mitch Kapoor and Pierre Omidar, as well as by established philanthropic actors such as the Rockefeller Foundation. Impact investment is estimated to represent $50 billion worth of investment capital worldwide, of which approximately $40 billion is held in microfinance funds. The sector is growing, however, and new investments doubled between 2010 and 2011, with an overall market potential forecast to reach $500 billion within the next five to ten years.

Boundaries are also blurring in the field. Public-private partnerships that see NGOs, public authorities and corporates working together are a much-welcomed trend. While cooperation between such different entities cannot be taken for granted, the complementarity of skillsets and resources these actors bring to the table can have tremendous repercussions in terms of impact. A good example is the ‘Medicines for Malaria Venture,’ a not-for-profit public-private partnership launched with modest seed funding of $4 million from the Swiss, United Kingdom and Dutch governments, the World Bank and the Rockefeller Foundation. The venture is focused on providing commercial incentives to spur pharmaceutical companies to undertake research and development on neglected diseases, which the corporate sector would otherwise be unable or unwilling to pursue.

Lastly, there is a key feature of the philanthropic landscape that private donors and foundations must keep in mind. One of the largest private grant-making structures in the world today is the Bill & Melinda Gates Foundation, which controls total assets of over $30 billion. This is only a drop in the ocean, however, compared to the size of equivalent public spending. Looking only at the overseas development assistance budgets of the 23 largest economies in a single year (2009), the cumulative global spend was estimated at some $120 billion. One should similarly consider, in turn, all the public money that goes into arts and culture, education, social support, and scientific and medical research.

Does that mean private giving is inconsequential? The answer: definitely not. Indeed, because resources are relatively modest in comparison to public budgets, this makes it even more important that the ‘little money’ available is used wisely. And by wisely, read anything other than conservatively. It is about finding a niche where an individual’s money could have effects much larger than its nominal value, where it could help leverage even greater funding, or help launch a risky – but potentially revolutionary – idea. In short, where it could assist in the development of technologies, approaches and ways of thinking that could significantly change the world for the better.

Certain donors – who today define themselves as venture philanthropists – have also realized that money is not always the most valuable asset they can give. In fact, in many cases these individuals can help organizations and projects grow by acting as a spearhead, by facilitating access, and by placing their time and skills, rather than dollars, at the disposal of their beneficiaries. A good example is the Shell Foundation, which in many ways acts like an angel investor towards its partners, helping them grow and improve with the ultimate aim of ensuring they become financially stable, if not self-sustainable.

Private donors enjoy the great luxury of not having to respond to shareholders or voters when it comes to using their money. This does not mean they are unaccountable; but it does mean they can take risks and action in fields where governments or corporations cannot, or have no interest in.

Much innovation is being driven not only by American and – to a certain extent – European donors, but also by actors in previously ‘unconventional’ regions like Asia. Although proxies for measurement are scarce, it is interesting to note that within one year of its launch the Asian Venture Philanthropy network – based on the model of a similar European setup – already has over 110 members from 18 countries. Part of this change is due to the fact that the majority of contemporary donors, especially in emerging countries, have an entrepreneurial background rather than inheriting their wealth via ‘old money’. Arguably, this contributes to their taste for more out-of-the-box and strategic philanthropy, as well as a desire to be cast as ‘change makers’ rather than ‘do-gooders’.

All things considered, this is an extremely interesting era in which to be involved in philanthropy. The sector is at a crossroads, and while many have already pioneered a new path, the great majority of donors are still to take the leap out of their comfort zones required to really begin questioning whether what they do is more than just good.

 

credit: UN Photo/Albert Gonzalez Farran
A Darfuri child pushes a Hippo Water Roller that has the same capacity as the jerry cans carried by her companion – an innovation made possible via targeted philanthropic investment

Originally published by the Global Journal – all rights reserved