Charitable Bankers, Total Strategists, Britney Spears & Kevin Smith

During the Center for Effective Philanthropy presentation that I wrote about yesterday, Phil Buchanan and Kevin Bolduc admitted their preference for a Total Strategist approach to philanthropy. Certainly, the approach that Total Strategists use in their philanthropy fits the views that I’ve expressed myself. But I wonder if the Charitable Bankers are getting shortchanged.

If you examine the description of the four types of givers (visit the excellent website set up to explain the study), you’ll see the four groups can also be broken into two groups. Charitable Bankers exhibit no strategic approach to their giving, while Perpetual Adjusters, Partial Strategists and Total Strategists all use some degree of strategy. Rather than a single spectrum running from Charitable Banker to Total Strategist, I think another way to understand donors is to see a spectrum running from Perpetual Adjusters to Total Strategists with Charitable Bankers existing as a separate giving model.

Bankers and investors use different business models. Both are needed. Investors provide risk capital to companies that the investors judge have enough potential to justify the risk. Bankers are risk adverse. They provide capital to companies who can prove they are not very risky and take no steps to examine the company’s future potential.

The bank’s job is to make as few mistakes as possible. The investor’s job is to make as many smart judgments as possible. Banks tend to fund “sure things” (companies whose prospects are so secure that they can borrow at will and do not need to convince investors to provide them capital) and “long shots” (startups whose prospects are so unclear or downright awful that no investor will finance them). The thing is we need Sure Things and Long Shots. In the nonprofit world, Sure Things like the Red Cross might not get philanthropic investors’ hearts racing, but they are critical players in the nonprofit ecosystem. Long Shots are also important, because some of the best ideas come out of nowhere.

In the entertainment world, Disney is an investor. During the 1990’s they launched the Mickey Mouse Club to cultivate talented stars. Disney proved to be a smart investor (a Total Strategist you might argue) and managed to discover Britney Spears, Christina Aguilera, Justin Timberlake and a number of other stars (Matt Damon and Jessica Simpson were both finalists, but didn’t make the cut). However, Disney and every other “investor” turned their nose up at Kevin Smith, the eventual director of many highly successful movies. So how did Smith get the capital he needed to create his first film (Clerks)? According to Wikipedia:

The film is in black-and-white and roughly edited due to a very modest budget of US$27,575. To acquire the funds for the film, Smith sold a large amount of his extensive comic book collection in 1993, maxed out eight to ten credit cards with $2000 limits, dipped into a portion of funds set aside for his college education and spent insurance money awarded for a car he and Jason Mewes lost in a flood.

Smith was an unknown working at a Quick Stop convenience store when he made the film. Neither Disney nor any smart investor would fund him. So, via his credit cards, he accessed the majority of the cash he needed from the banking system. The banks didn’t want to hear about Smith’s movie aspirations, they didn’t care. They just wanted to be paid back.

I think we need Charitable Bankers. I’m willing to bet that while many game changing nonprofits with obvious potential would benefit greatly from a robust network of philanthropic investors, we will always need a charitable banking system to provide capital to startups that appear to have no potential to outside investors.

All that being said, philanthropy suffers from far too many charitable bankers and far too few philanthropic investors. Banking plays a critical role in finance, but the Second Great Wave of Philanthropy needs a capital markets system of philanthropic investors to provide risk capital.