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.
6 Comments
Super great post!
I am a direct descendent of Sisyphus. I’ve been rolling the boulder uphill for nearly thirteen years as we’ve developed an “island of excellence” and fundraising heroics have borne most of the burden. As we move through the final stages of getting ready to scale up we long to get the attention of someone or some group who is a believer in the art of moving money so we can rise up from the underworld of fundraising exhaustion.
Please hurry up with the wise recommendations in the post! Our shoulders are weakening as we wait for relief.
When we continue to manage social issues, social issues manage to continue. As the Brothers Heath say in “Switch” TBU – true but useless, unless we move from managing issues to creating solutions. If the plan isn’t to work through the complex issues one step at a time, philanthropists should be looking to move their money somewhere else. But money alone isn’t the path to a solution for persistent, growing social issues (money may actually be contributing to the issue by supporting ill conceived programs and outdated practices). The solution lies in the time consuming, labour intensive relationship building that has been relegated to fund development departments. Maybe if relationship building was every staff member’s, every board member’s, every stakeholder’s responsibility, we would achieve the kind of traction to radically change our approach.
I don’t agree with the statement, or at least the implications of the statement that, “fundraising doesn’t have unlimited capacity to increase the amount of money to fund nonprofits.” The real potential of fundraising remains untapped. Charitable giving has remained pretty constant at about 2% of GDP ever since we’ve been measuring it. If nonprofits had greater freedom to explore and spend resources on major advertising, marketing, and connected fundraising campaigns, I believe we could bump that figure up by a few points, and while that’s not “unlimited,” a few hundred billion dollars in additional fundraising revenues every year could take an awful lot of things to much larger scale.
The social capital markets right now are tiny compared to fundraising potential. Moreover, not every problem lends itself to the kind of semi-predictable financial returns that investors require. Investment in a potential new AIDS therapy lends itself to a traditional investment model. Investment in reducing violence against women does not.
We could use the social capital markets as a trimtab, as Bucky Fuller called it – a rudder on the rudder that makes it easier to move the rudder – on the creation of new fundraising engines. There’s a dearth of risk and growth capital out there for testing new revenue generating ideas, both in retail fundraising and in major gift fundraising. If we could generate large pools of risk and growth capital for experimentation with new fundraising, marketing, and related campaigns designed to increase revenues, we could achieve commensurate increases in those revenues, and encourage a stronger civil society at the same time.
When one looks at the whole mandala of social problems out there, it is a narrow piece that lends itself to capital investment with quantifiable financial return. Philanthropy and the fundraising activities that promote it will be critical to the larger balance.
I find overall that the fundraiser’s perspective is really missing from most of the cutting edge literature and discussion on social entrepreneurship, social capital, etc. We would be very well served by incorporating it and learning from it.
The point we’ve been making at P-CED for 14 years now is that what’s now described as a social capital market offers the means to create new revenue flows and wealth in impoverishied communities where funds donated through philanthropy are typically spent and gone.
Its the accumulation of wealth in the hands of the few where problems begin and applying a small portion of this retrospectively is not going to resolve the fundamental problem if a non-inclusive economic paradigm.
http://en.wikipedia.org/wiki/Inclusive_capitalism#People-Centered_Economic_Development
In practice, with more than 10 years of applying a profit-for-purpose approach to our work in Eastern Europe there has been no connection with the philanthropic world in our experience..
I pointed out here in an earlier comment that while philanthrocapitalism was being discussed at the Davos Ukrainian Lunch 2 years ago, we were active in Ukraine working alongside those fighting to save neglected children from malnutrition.
Social capital markets cannot work while there’s more being invested in in the rhetoric than in supporting the activists and pioneers.
Thank you all for your comments. One point I didn’t make clearly enough is that moving money through nonprofit capital markets is not a one-size-fits-all solution. For example, Ginny’s organization, WINGS, looks perfect for growth capital funding. WINGS has a well-designed and carefully-refined intervention model, it has a strong business case for expansion and it has the management discipline to deploy aggregated funding productively. I suspect that WINGS would be happy to compete for funding based on its demonstrated results.
On the other hand, Bob’s nonprofit, Brown Bagging for Calgary’s Kids, has a strong advocacy component whose business model is all about personal engagement with schools, volunteers, communities, and small donors. WINGS should grow in big steps based on thoughtful analysis, while BB4CK is inherently more personal and incremental. I suspect Ginny’s team diverts too much time from its mission for fundraising, while Bob’s team is advancing its mission when it engages everyone in “relationship building.”
Dan, my post is limited to philanthropic donations, not investments that are looking for financial return. Also, I don’t see where the capacity would come from to raise “a few hundred billion dollars in additional fundraising revenues every year.” More important, though, I don’t see raising money and moving money as competitive or zero-sum. Fundraisers are nothing if not inventive and persistent, so I’m sure they’ll keep finding ways to increase the size of the pie. At the same time, I hope that money-movers find more intelligent way to slice and serve at least some part of it.
Steve, as you may see from my comment for Skoll Social Edge, grassroots activists are not only thinking but more importantly acting more than a decade ahead of the academics in this ‘fundamental rethinking’ of funding social innovation.
http://www.socialedge.org/features/opportunities/archive/2009/04/25/oxford-social-enterprise-forum-oxsef-2009-a-new-form-of-capitalism
If you read the PDF describing the Social Impact Bond referenced in your link, you will find an illustration of removing children from care through social investment This is something that has already been proven in the work I describe.
http://www.socialfinance.org.uk/downloads/SIB_report_web.pdf