Social Venture Partners

Topic #2 – “It is clear this non-profit needs my support more than the other.  This non-profit might not survive without my contribution and that other non-profit has plenty of money.”

There are certainly times where urgent financial need is the right criteria for making a grant decision. But just as often it is not. When presented with this scenario by a potential grantee, consider some questions – why are they in such dire need? Why are they so low on cash? Should I fund organizations based on financial urgency or on positive impact?

It is possible (certainly not always the case) that a non-profit might be in that circumstance because of poor cash planning, questionable program effectiveness, or ineffective fund development. The point is not to categorically reject giving to an organization in need, but to take a little time to understand why that is the case.

On the flip side, philanthropists will sometimes shy away from funding successful non-profits with a strong financial position because they don’t “need” it as much. But why would we punish successful organizations?  Isn’t that what we want?  Organizations doing great work, with effective programs, and that have the ability to sustain and maintain funding over time.

Lastly, there can be a tendency for philanthropists to fund need instead of impact because one organization’s mission is more compelling than another’s. We all want to give to what we care deeply about and there is nothing wrong about that. What we suggest is this … While difficult to measure, at the end of the day the reason to contribute to a non-profit is to get the greatest possible “return on your investment.” In this case return means improved academic outcomes, fewer teen pregnancies, a cleaner environment, and other positive changes in our world.

Important Note – This is written in the spirit of sharing knowledge and helping philanthropists be more effective. Every mistake articulated here has been made by all of us. The intent is not to preach a one-size-fits-all formula nor to be arrogant in our viewpoints. Our sincere hope is that it will encourage reflection and stimulate lots of feedback, criticism, and conversation. Thank you

Item #1 – “I want all of my contribution to go directly to the program and the kids being served and not have any wasted on overhead or administration” (comment frequently overheard from philanthropists) ---

This desire is well-intentioned, but the consequences can oftentimes be detrimental. How so? First of all, what is “overhead and administration?” e.g. are staff overhead?? Non-profit organizations are businesses just like any for-profit entity, but with a social mission. They have to invest not only in the “product,” but also in the systems, infrastructure and operations to support the end product.

Let’s use an analogy here from the private sector – What if an investor in Intel was to buy shares, but then instruct Intel Co. that they could only spend that money on engineers and chips? Who knows better how to ultimately, collectively invest its capital – an investor or the employees & leadership of that organization? Can you be a successful company without sales, marketing, finance, etc. infrastructure to support the products? A non-profit has to build a successful, holistic enterprise just like any other business.

This kind of “micro-targeting” of some philanthropic dollars can have other consequences – it can lead to under-funded organizational structure with a demoralized staff and reduced internal capacity. It can force the non-profit to play a “shell game” with donors where it rearranges its numbers to create the appearance of 100% program spending. It can definitely lead to a non-profit executive having to make suboptimal, even irrational, spending tradeoffs.

This is absolutely not to suggest that a donor should not care about where their money goes and what the ultimate social benefit is. That is, in fact, a responsibility of the non-profit in its communications back to its donors. But the practice of over-controlling and –directing a donation to a non-profit is like asking a non-profit to put together a 100-piece puzzle, but having duplicates of some pieces (program funds) and none of others (infrastructure funds). The puzzle will never be put together right.