venture philanthropy

On Dec. 12th, 2008 Holden wrote a piece on The GiveWell Blog about stuff to know before you make your holiday giving.  Holden raises a good point about programs that "just don't work at changing people's lives."

Investing in social capital means that there are inherent risks associated with your donations.  In previous posts I have highlighted some of those basic accountabilities and transparency issues.  What Holden is referring to, is investing in social programs that are stop-gaps or band-aid solutions to major problems.

Where I think that Holden has fallen short is that he is looking for one-off solutions to major problems.  The solutions to major problems require multiple responses from multiple directions.

His first example is education, and how disillusioned he was about the impact that his personal donation had in the school system.  I am not sure what project he invested in, but here is an example of the ripple effect of not investing in extra-curricular programs in our school system.

School Music Program: Alberta government several years ago cut funding for the music programs in elementary and junior high schools.  Our province now has an entire generation growing up that doesn't know, understand or appreciate the need for a local symphony.  Big deal, right? 

 Here's what has since transpired:

 Photo Credit: art4linux.org/node/465 

That means that when this generation ages and is able to make their own financial contributions the symphony will struggle.  Good for the symphony???  It means that it will have reinvent itself.  It also means that it might have refocus its mission to provide music programs where the government has cut the program (once again, the non-profit sector picking up where the government has fallen short).  Okay, so let's assume that the symphony has the resources to provide a rotating music program around the city, does this make for a strong base of musically inclined, and educated students? 

So, now to the next ripple.  We have a group of kids who have had limited or no access to music, the impact so far has been increased expenses on the local symphony (which they have to fundraise for) to provide that education if they can (further drain on human resources and increased mission drift).  We have now created a generation that is void of, or has limited knowledge of music education, which means that other cultural opportunities are lost (musical theatre, creation of new music, loss of cultural memory, etc.). 

How do we know this, because history has repeatedly shown how when cultural assets are diluted from society, the social memory of that cultural disappears (most drastic case in recent memory - the Native Americans and First Nations people).  First the European settlers took away their language which meant that the music of the people was lost.  We are reaping the "rewards" of our own actions.

So, while the symphony might not be changing the lives of people directly like fresh water.  It holds a purpose in society, as part of our collective cultural memory.  If we do not fund the extra-curricular programs in our education system, like music, we run the risk of impacting future generations at a very basic, social level.

This goes back to the very first premise of why I do what I do - find your core values.  If music is at your core, then start asking the organization what the ultimate impact is going to be of your gift.  It ultimately is up to you to shape the direction of where you want your society to be.

You know how you get energy off of being around people who have great ideas.  That is how I am feeling today - energized!  I was at a wonderful luncheon today with some of my dearest friends and colleagues - Jay Baydala, CEO of Christmas Future; Alison Pidskalny, Director of Business Development for CAWST and Shauna Curry Director of International Project also from CAWST.

We got to talking about charitable investment models for individuals.  One of the things that I have been promoting through Dexterity Consulting is this Philanthropic Brokerage model whereby individuals can make charitable investments through a "mutual fund" model.  There has been much discussion from the Rockefeller Foundation and others on what a stock market for the charitable sector would look like.  What we came up with is more of a Cause Marketing approach to philanthropic investments.  We are still putting the pieces together, but in an hour and a half we have identified who we want to to be a part of this process.  If you are interested please share your contact info with me.  This is going to be an exciting ride, a movement of individuals and organizations to collectively change the world.  I AM SO EXCITED!!!

Whew - now that I have that bit of unprofessionalism out of the way...

As I am putting together my book on Strategic Philanthropy, one of the topics that has come out of the interviews is the use of technology.  In my next post I will be sharing with you how technology is empowering every-day people in generating large-scale global impact.

Something else to get excited about!

I have been thinking recently on how the charitable sector mirrors the corporate sector.  This thought process was triggered by an article I read in the NY Times and then by a blog posting on Tactical Philanthropy. 

The NY Times Magazine article, Self-Made Philanthropists shares the story of one couple who approached philanthropy from a Venture Capital perspective.  This article highlights how Venture Capital investors are shaping the way people invest in philanthropic projects.   The Tactical Philanthropy blog was on how foundations are struggling with this new approach to philanthropy because “business matrixes” are being applied to measuring social outcomes.  So even though foundations in North America are larger than some of the GDP’s of whole countries, this new form of philanthropy is shaking the “foundations” of major philanthropic funding bodies. 

I find several things interesting about the new approach to philanthropy -the angst that it is causing traditional foundation models, the response of philanthropic investors seeking transparency and accountabilities from their investees, and the creativity that is being generated by philanthropists and within the charitable sector to report back on the social impact generated by the philanthropic investment. 
The Sandlers who are the focus of the NY Times piece, wanted to support effective investigative journalism so this is what they did, something that few others had done: 

They chose a path… Rather than give money to someone who approached them, they did the approaching. Rather than finance an organization that already existed, they started their own outfit. They found a star to run it. They seemed almost to relish the thought that they risked failure with this new, unproven model of journalism, though if truth be told, they don’t think they’ll fail. And they gave a lot of money — $30 million for the first three years, with the expectation of continuing that commitment, if not more, for years to come. It’s hard for philanthropists to make a big difference if they’re not willing to spend some serious money, the Sandlers say. 

On one level Herb and Marion Sandler are part of the new wave of philanthropists that Matthew Bishop of The Economist calls “Philanthrocapitalists”: wealthy entrepreneurs who are applying to philanthropy the same principles that made them successful businesspeople. They make big bets, demand results, take risks, want some control over how their money is spent and so on. The quintessential philanthrocapitalist, of course, is Gates, but many others are now following his lead, trying to forge a new kind of activist philanthropy. Even among the philanthrocapitalists, though, the Sandlers stand out. Herb, in particular, can sound nearly contemptuous about how other philanthropies go about their business. Mainly, it seems, they don’t do it the way he and Marion do. 

But what makes them so sure their way is better? 

A statistic I read a few years ago, stated that 4 out of every 10 start-ups make it to year three, and then only 2 of those make to year five.  Unfortunately I have not found a statistic that states how many start-up charities there are and of those how many make it beyond years three and five (if someone knows this information please share).  What I do know is that in Canada the average age of a charitable organization is 29 years old and that there are over 500 registered charities to every 100,000 Canadians (see the NSNVO study in the resources section of this website).  These stats are based on a 2003 survey.  If we were to do a very (admittedly) unscientific extrapolation, with 1,000,000 people in Calgary there are just over 2,000 registered charities. In 2002 there were approximately 800,000 people in Calgary.  So in just over 5 years the number of charities has grown by just over 25%.   

Is it better for society to have more selection of charitable services, or is it better for society to have fewer charities that are addressing more needs?  How does supply and demand actually play out in the charitable sector - is it donor driven (revenue stream), is it client driven (end user seeking services), is it government driven (cut backs to various sectors requiring charities to fill the gap), or is it collectively driven (social networking)?

• My guess is, in order to even start answering these questions we need to know a few more facts, such as: how many charities are started because someone wants to change something?
• or becuase the government cut services?
• or because someone created a cause on Facebook?
• or because someone got frustrated with what is currently available? 
• and how many of those are already duplicating services that are out there?   

As a philanthropic investor, do you have the time to research where your charitable dollars are going?  According to the Sandlers, they spent as much time researching one of their recipients as they did in preparing for an S&L acquisition!   

If the Sandlers are a new breed of philanthropists, not only are they changing the face of the charitable sector by creating organizations that address their needs, they are also investing resources in identifying organizations and projects that fulfill their philanthropic objectives.  But most especially, they have identified what those objectives are! 

Depending on your objectives, creating a new charity may help reach your goals, but ultimately will it be better for society?  It is generally understood that resources are finite.  As more and more charities are created to fill niche markets, it seems to me that we will see a wave of mergers and acquisitions simply because a new breed of philanthropic investors are changing the way charities do business.