Which Nonprofits Have Room For More Funding?

This is a guest post by Holden Karnofsky, the co-Executive Director of GiveWell. GiveWell finds outstanding charities to help donors decide where to give.

By Holden Karnofsky

holden headshotImagine that, as a donor, you’re considering the following pitch:

“For 12 years our campaign has delivered a proven preventive health measure. For the $23 million we’ve spent cumulatively, we’ve directly and demonstrably saved several million lives.”

If those claims checked out, and you found these accomplishments to resonate strongly with your values, would there be any reasons not to support this campaign with your donation? If you got this pitch today, there would be a big reason not to support it: the above describes the smallpox eradication campaign, which ended in 1979 as it became clear that it had achieved total success, with no smallpox cases left to prevent.

Donating today to smallpox eradication would clearly be silly, but it’s just an extreme version of what we believe many donors are doing: giving to causes and programs they believe in, without checking whether those programs need – and can use – more money.

In trying to find the best charities to recommend to donors, we’ve found that this question of how (and whether) a charity is going to use additional revenue (as opposed to the funds it’s already spent or budgeted) is one of the hardest questions to answer.

We call it the problem of room for more funding.

When money isn’t the bottleneck

There are several reasons that a charity may not use additional funds the same way it used past funds, or the same way as the donor hopes.

  • A successful program can rely on many factors besides money, such as skilled labor, political support, and (as in the case of smallpox) appropriate target populations whose problems are suited to the solutions being offered. For example, we have argued that the surgery charity Smile Train appears to have a shortage of skilled surgeons, not a shortage of funds, for its core program.
  • The programs donors want to fund don’t necessarily match the programs charities want to carry out. Thus, a charity may focus on one program in solicitations, when its intent is to use donations for another program or simply add them to reserves. We have seen charity representatives make explicit statements to this effect.
  • Charities may be able to execute different activities with an additional $20 million vs. an additional $1,000 – the total amount of additional funding they’re getting matters. For example, see our review of the Schistosomiasis Control Initiative (SCI).
Dealing with "room for more funding" as an individual donor

Understanding how your $100, or $10,000, affects a charity with a multimillion dollar budget is a challenge we’ve been struggling with for years. One answer we don’t think works is restricting/earmarking your donation. A charity can formally honor an earmark while effectively using your donation to fund other activities.

However, it does seem possible to answer this question using a very different method: requesting scenario analysis that asks how a charity’s activities would change at different levels of total unrestricted funding. This approach allows us to check back later and see the extent to which actual activities were in line with actual funding (and, if there is a discrepancy, to have a conversation about it).

Applying this approach has led us to much more concrete, and sometimes surprising, picture of charities’ room for more funding. For example, earlier this year we found that KIPP, a celebrated and GiveWell-recommended charity, has no short-term funding needs at the national level – but KIPP Houston has urgent needs.

We believe that this sort of scenario analysis can be practically, and relatively cheaply, produced by just about any charity. However, in practice we have found it very hard to get this sort of information because there doesn’t seem to be anyone else asking for it. We think that one of the most constructive things a broad-based charity accreditation service could do would be to push large numbers of charities to generate and share "room for more funding" analysis. For our part, we do this analysis for any charity that is a contender to become one of GiveWell’s top charities.

Dealing with "room for more funding" as a major grantmaker
One of the reasons that "room for more funding" is a relatively neglected topic is because it doesn’t seem to be as much of an issue for major funders. It may be difficult for an individual to understand the impact of their $100 or $10,000 – but a foundation able to commit $1 million up front can design and fund a project all on its own. However, we’ve lately been exploring (via GiveWell Labs) a giving style more similar to major grantmakers’, and at this early stage, we’re still finding the problem of "room for more funding" to be relevant. In brief,

  • We prefer to fund projects that are primarily designed and proposed by charities, rather than imposing our own strategy.
  • But with some of the stronger potential projects, we find ourselves wondering whether another funder would step in if we didn’t. By funding a strong project, are we causing it to happen, or merely saving another funder money that they’ll spend on other projects following their own priorities?

We have a lot of work to do in terms of understanding this issue, but it seems to us that "trying to fund what other funders won’t" can lead to some strange situations (for example, imagine two funders who each suspect the other of being interested in a project, and thus both hold out trying to see whether the other will fund it). Arguably the best philanthropist is not the one who funds the best projects – it’s the one who funds the best projects that wouldn’t get funded otherwise, and who therefore looks to a naïve outsider like a merely mediocre philanthropist.

An under-discussed issue

We feel that the issue of room for more funding is severely under-discussed and under-appreciated. If and when we can raise the issue’s profile, we expect to see a lot of progress on solutions for gaining clarity into a group’s room for more funding: helping people find the best next thing (instead of the best past thing) to fund.

5 Comments

  1. Wings of Giving is a L3C company which has been developed to award $100M to 100 NFP’s to extend their cause work. We will be addressing the “room for funding” and “how will the NP use their $1M win for change”. We welcome the opportunity to share questions/answers and more with your team. Learn more at the website above.

    Kelly

  2. Geri Stengel says:

    Thorny issues! I’m glad you raised them and that you are devoting so much time and intelligence to working out the answers. The nonprofit sector must be willing to be transparent and accountable. Your work is a big step on that journey.

  3. Thanks Holden, an interesting an not often spoken about issue. I do wonder however about one of your closing statements:
    “Arguably the best philanthropist is not the one who funds the best projects – it’s the one who funds the best projects that wouldn’t get funded otherwise”
    I think it can be counter-productive to act with a belief that the only programs worth supporting are the one’s only you as a Foundation are willing to back. Sometimes the best programs are the ones where there are a lot of backers because the work needs to scale. Here in Australia, the philanthropic sector talks a lot about going where governments won’t. While I understand the sentiment it has created a scenario where funders fail to support good projects and programs simply because government is in the space. This has particularly impacted on schools and education.

  4. Holden, one of the reasons I was interested in your writing this piece is because of the similarities between your argument and the idea in the stock market that successful investing isn’t just about finding the best companies, but finding the best companies that other investors are ignoring on a relative basis.

    The analogy isn’t perfect for a number of reasons I won’t go into. But I think that in a general sense the connection is correct. Most investors want to buy either 1) great companies or 2) exciting companies doing new things. This is how most grantmakers behave as well. But most great investors focus on #1, not #2, and they temper their interest in great companies by examining, on a relative basis, which ones are attracting the least amount of investor dollars.

    It seems to me that with the Room for More funding premise, you’re positing a kind of “value philanthropy” approach similar to the historical successful “value” approach to investing.

  5. Ramachandra says:

    This article discusses lot of pertinent issues related to interface between donor space and the Not for profits. One approach we have introduced at our organization, is what we call ‘Post Pay Philanthropy’. Note about our model is furnished below.

    UC brings a post-pay and result-based approach to development finance in the areas of Education, Health and Energy & Environmental services for the poor. It first applies its own funds to provide services to beneficiaries. Results which are measured and visible from such investments are then made available as “Certificates”, which donors and financers can buy “off the shelf”. Thus development funding becomes the purchase of a completed project or project phase. This is termed as Post-pay donation, as donation is made against achieved results rather than expected outcomes.

    Hope this model gives donors adequate choice to enable informed giving.