The antiquated world of Foundations
I got an email this week from a friend who has built two
incredible non-profit organizations. One
of them is a household name. She is on
her third. She is brilliant, has serious
tenacity and has changed more lives than I can count. I love her spirit.
She wanted 30 minutes of my time for some advice. She was frustrated with the world of
foundations. She is building a
non-profit that will help teens at risk but really doesn’t have any concrete
numbers that the foundation is looking for.
The site has launched and there is no doubt she is getting traction but
what the foundation needs is information that she just doesn’t have yet. If she was building a profit organization
based on what she has done, she would get angel investing or VC funding in a
She wanted to knowif should she just suck it up and figure out
how to get the foundations something or try to change the insanity of how the
foundations work. There is a huge
disconnect between how foundations fund and what non-profits need. I told her to suck it up and figure out how
to change that world at another time.
The system is seriously broken. I am sure that the majority of large
foundations that were set-up by some very entrepreneurial families would be
rolling over in their graves if they knew how decisions were being made and the
layers of red tape (aka money being spent) to make a decision.
Once a foundation makes a decision, you generally do not
hear from them again. That would not
happen in a profit world. You want
experts involved. I’d like to see one
of the big foundations such as Ford, Rockefeller, Knight to change the way
decision making is done, follow-up is being done, involvement and everything
starting from the top. These
organizations have the financial means to get behind something and make a
difference. Many non-profits need to
figure out how to be sustainable and they could help.
People like my friend are making a serious difference in the
world. She shouldn’t be frustrated. It is her calling. If she has chosen the profit world then she
would not be in this position and she might not have made the impact in our
world that she has made. I am done with
the word disruption but this is an industry that really needs to be
i’ve looked at this as well. its why the current generation of mega-philanthropists talk about spending all their wealth during their lifetimes.. the idea of perpetual giving ends up as red tape and internal politics.the problem is that giving is complex.. your average major donor, while having been very smart in business suddenly has to navigate a new world they know nothing about and they’re back to square one.. their business skills may help, but they have to learn a lot.this page helps orient a new philanthropist and gives some interesting insights: http://www.givesmart.org/Do…
if you want to change the world, make a ycombinator for nonprofits.we need one for scientific research as well, there’s a huge gap between what agencies like the NIH will fund and the kind of testing possible today
I am not so sure you need an incubator for non-profits. I think most of the problems lie with the foundations they get cash from.
non profits share the same problem as internet startups – the path to obviousness.for startups obviousness is easy since the profit motive helps separate the good from the bad and due to the profit potential, others are motivated to support them. great ones can self fund the entire process. others can go through an incubator, then series a, b and c. when their level of obviousness is ready to face the public, they can do an IPO.along the same path to obviousness, non profits have a series c (old, out of touch foundations) and IPO (public support and branding, eg red cross and donors choose). and while there are tons of half-baked new non profit ideas floating around, there is a big gap between the startup phase and the non profit version of a “series c”.this is where a ycombinator model could help a lot. obviousness isn’t all about funding for these guys, its relationships, quality, stability, etc.i suspect it will be hard to fix the old foundations unless we successfully resurrect people like carnegie and rockefeller to come back and give their leadership teams a good beating! 🙂
I’ve thought about this as well. I think a good place for these best practices to spread from is via their investment teams. Given the VCs, etc they are LPs to, the foundations have a lot of experience to draw from. And hopefully the advent of program related investments means that a number of them are taking the time to rethink how they give grants.
Please stay with posts on insights on nonprofits & philanthropy…I have just started looking into the world of nonprofits as service provider/management (veteran lawyer) in suburban NYC, found that some community foundations have large % of donor advised funds which donors direct donations to alma maters, and to out of town arts groups (Film Forum NYC, for ex) rather than local groups…and interested your take on the Social Venture Partner model started long ago in Seattle as well as family foundations set up by ‘new money’ entrepreneurs who take active interest in ‘impact investing’…
I am a huge fan of social entrepreneurs. Run a profitable business while doing good in the world. Kind of can’t beat that. Also, many of the times that returns might not be as high (but their are returns) but everyone involved is ok with that.As someone that gives, I never give money and direct it to something. I know how hard it is to raise money and then to have a donor tell you what you need to do with it sometimes is not what you need right now.
Could they crowd fund this foundation a starting point.Eg SeedInvest or Microventures?
There is no money to ever be made back. There are some organizations that are saving the world, one person at a time, and there are zero rewards for the investor. It is the foundations that support these type of organizations and it would be nice to see foundations move in to the 21st century in how they support and stay supporting non-profit organizations.
Great points. I also wonder about how well funds are being spent when I see a Park Avenue office address.
Your complaint reminds me a lot of the origin story of (wait for it)… bond rating agencies. I suspect this connection will seem farfetched but bear with me if you can. (Siebar: none of what follows defends the existing agencies as businesses, this is a discussion of their industry and business model, not their recent conduct and results.)Once upon a time, every investor had to make their own decisions about whether a given bond issuer was investment-grade or not. Just like nonprofits as you describe them, that’s dozens or hundreds of institutions doing the same evaluation, over and over, of the same choices. They had to (“due diligence”), and yet they had no idea of best practices, and so they followed odd shibboleths and arbitrary, data-intensive, ill-conceived heuristics.Moreover, many owners of capital were unwilling to entrust their assets to third parties to manage, because the owner had no confidence in the incentives of those third-party managers. After all, if the manager lost all their money on wild speculation, the worst the owner could do was fire them — the mistake was made by the third-party manager, but the pain was felt by the owner. The classic “principal-agent conflict.” And as long as that conflict lay unresolved, a lot of potentially productive capital stayed dormant in deposit accounts. It was too much work to invest it yourself, and you couldn’t trust it to someone else.The bond rating agencies were invented to mediate this conflict and capture this economy of scale. The incentives themselves are hard to change, but the owners and the third-party agents could agree on general risk levels, as in “I can’t afford to lose this money, so earn from it what you can but make sure I at least get my capital back.” That translates to “AAA.” At the other end is “I really want a superior return and recognize that there is a risk I might lose some capital.” That translates to single-B and below ratings.Bond rating agencies, even now 100+ years later, still basically answer that one question — “will I get my money back?” The ratings are more finely graded now (AAA, AA, A…) but the fundamental issue is still about getting your original money back.Ratings for non-profits would work along the same lines: but instead of “will I get my money back?” the rating should speak to “will I get my money’s worth in solving the problem I care about?” Charity Navigator takes a first stab at this, by measuring (among many other things) how much of a nonprofit’s income goes out in fees to their fund-raisers (here’s the ten charities that spend the highest proportion of their income on fundraising, a very scary list: http://www.charitynavigator…. But Charity Navigator is a data service, not a judgment service — they can’t say whether the money is well spent, or spent on the stated mission of the charity.Bottom line — if you want to disrupt the nonprofit world, resolve the principal-agent conflict and capture the economies of scale inherent in separating the role of asset-gathering and asset-management from the role of making the world a better place. To do this, disclosure and data aggregation are necessary but not sufficient — what’s needed is a new layer in the industry, one that consumes the data and outputs relative judgments of “money’s worth” estimates.
People like you friend may not always be acknowledged but she’s one of the lucky few who truly feel the joy of helping other people. For what it’s worth, it’s not how big your name gets in the philantropic society but how genuine you really wanted to help, isn’t it? Good luck to friend!
Just seeing this post now. Feels eerily familiar. Your friend is lucky to know you, Joanne.