This is a guest post from Steve Goldberg. Steve is a consultant to Charity Navigator and the author of Billions of Drops in Millions of Buckets: Why Philanthropy Doesn’t Advance Social Progress.
By Steve Goldberg
I’m struck by the inherent futility of fundraising. Like Sisyphus endlessly rolling that rock up the mountain, a fundraiser’s job is never done. Every day they face the same implicit question: “What have you done for us lately?” Although some organizations have supplementary funding sources, for most nonprofits most of the time, it comes down to fundraising.
For the more than 90% of nonprofits that raise less than $1 million each year, fundraising is essential just to maintain baseline operations. And no matter how great the need or effective the nonprofit, program growth isn’t possible without increased fundraising. As we think about moving the needle of social change, it seems short-sighted to expect fundraising heroics to bear most of the burden.
An insightful article in the MIT journal, Innovations, by Matthew Bishop and Michael Green, authors of Philanthrocapitalism, offers “a fundamental rethinking” about “how to finance the growth of a good idea into a world-changing social innovation.” In “The Capital Curve for a Better World,” Bishop and Green make a persuasive case that “the next frontier in raising the efficiency of social innovation has to be the capital markets for good,” and that “a concerted effort is now needed to design an effective and efficient capital curve for social innovation.”
The authors envision “a productivity miracle in the social/citizen sector,” that could enable effective nonprofits to become more than “islands of excellence,” and break through the limits of “successful, but not successful enough, organizations”:
The non-profit/philanthropic sector has a decent record of funding innovative ideas in the early stages of putting them into practice. However, non-profits have tended to remain small and inefficient …. They often have little choice but to rely overwhelmingly on short-term funding, which tends to be extremely expensive to raise (especially when it is in small amounts from the general public). Large-scale philanthropy has the potential to provide the long-term, high-risk capital that social innovation often needs, but too often is risk-averse and uses short-term project financing rather than providing innovative start-ups with philanthropic equity.
The challenge is (1) “to figure out which forms of money—grants, debt, equity, government funds, for-profit funds, paying customer—are most effective at which stage along the journey from good idea to having massive social impact,” and then (2) “to … put in place [the systems] to ensure that the resources that exist are available to the most promising ventures at different critical junctures.”
This framework suggests an emerging discipline of “moving money” that holds out hope for reducing our over-reliance on fundraising. Fundraising relies on building relationships with prospective donors and telling engaging stories about the nonprofit’s work. It represents the personal connection of philanthropy, one that’s inherently time-consuming and labor-intensive. Moving money is data-driven: it depends on creating new value from market intelligence.
Fundraising is useful for even small donations, but spending time and effort to move money around only makes sense for sizable, usually aggregated funding looking for investment opportunities that individual donors can’t find on their own. If nonprofit capital markets became more adept at moving money, it could reduce the need to repeatedly raise new money in small amounts.
Hewlett Foundation president Paul Brest advanced the idea in 2007 that “information about an organization’s performance can usefully guide investment decisions.” A 2008 Keystone Accountability study explored how online markets “can serve as not just a convenient way of donating money but also a means of encouraging effectiveness by directing money to the highest-achieving organizations.” But a 2009 Hewlett-funded analysis of 55 online platforms concludes that “the limited evaluative analysis that has been developed is not reaching, or failing to influence, a large proportion of donors.”
An ecosystem of money-movers is still evolving, comprising intermediaries (SeaChange Capital Partners, Global Philanthropy Network), analysts (New Philanthropy Capital, Root Cause), rating organizations (Charity Navigator, GreatNonprofits), sector leaders (Alliance for Effective Social Investing, Social Capital Markets), and advisors (Tactical Philanthropy), to name a few.
More than $300 billion in private philanthropy doesn’t raise itself every year, and fundraising doesn’t have unlimited capacity to increase the amount of money to fund nonprofits. As the social sector looks increasingly to “scaling what works,” the state-of-the-art of moving money must keep advancing, too.