The Future of Foundations

This post is my entry to the January edition of the Giving Carnival hosted by Trista Harris at New Voices in Philanthropy. The carnival asks, “What will foundations look like in 25 years?”:

For most foundations, the year 2032 doesn’t look a whole lot different than 2008, or 1950 for that matter. Most foundations hold less than $1 million in assets and devote the bulk of their giving to nonprofit organizations in their community. While these nonprofits have responded to competitive pressures and can now clearly discuss their impact objectives and actual results, donors typical provide funding in response to a personal connection from within their community.

But for some foundations, the landscape is radically different. The “social stock exchanges” that became popular between 2011 and 2019 now include all but a few large nonprofits and many small but ambitious startups. These exchanges compete for nonprofit listings, arguing that they provide the most visibility to potential funders. Exchanges include large national networks that include some international organizations, down to small local exchanges that cater to specific metro areas and some large rural areas.

The business of giving money away has changed radically for large private foundations and smaller “impact oriented” foundations. Instead of being solicited for grants, these foundations’ “impact committees” and “program analysts” spend their days looking for and researching potential grantees. Given the significant 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 nonprofits and these reports are a valuable input for the foundations.

While the cost to nonprofits of conforming to the exchanges’ information disclosure requirements is steep, once a nonprofit is listed they find that grant dollars come looking for them rather than the other way around. Exchange listed nonprofits tend to have very small fundraising groups who focus on “donor relations” and marketing the nonprofit during the regular “road shows” they attend where they have the opportunity to make their case in front of large audiences of funders.

In the early days of the social stock exchanges, many funders and nonprofits worried that the passion and joy of giving would be swept away given the exchanges resemblance to financial markets. But the truth was something else entirely. As funders became comfortable with the idea that social impact was generated from the distribution of relevant information rather than through its protection, a sense of community and comradery developed that set the social exchanges apart from the traditional financial markets. Nonprofit presentations at the regular “road shows” were frequently interrupted by spontaneous conversations in the audience as funders debated the potential of the nonprofit with each other. Working together, funders often organized large public funds that they would then direct at specific social problems. The nonprofit competition for these funds were fierce, but at the end of the day, even the ones that were not funded generally felt that the competition had helped them improve.

Now in 2032, more and more individuals of moderate incomes are becoming interested in the social markets. Most Americans now have a donor advised fund since all major banks offer a zero minimum, no fee account that can be linked to your checking. A quick search on Google Finance gives individuals access to multiple third party evaluations of exchange listed nonprofits. International giving is even coming into vogue for the small donor now that so many “donor funds” managed by the largest foundations offer low cost access to a basket of top rated nonprofits within specific causes.

The early 30’s is a good time for both funders and grantees in America. Many funding innovations have come to pass and for-profit firms are constantly working to develop new products and services for the philanthropic capital markets. But recently there has been some consolidation among the exchanges and some local nonprofits fear that funding will dry up for organizations without national scope. The default on a $1 billion bond issued by a nonprofit offering vaccines in Africa has sent shockwaves through the markets and other nonprofits have seen the availability of credit dry up. There are challenges in 2032 just as there are challenges that face every generation. But it is an exciting time to be a philanthropist.