The New Philanthropy

 A post by James V. Toscano

Headlines scream, “Philanthropy is Dead!!!” while other headlines retort, “Philanthropy is Alive and Well!!!” What’s up?

The reality is that traditional philanthropy is suffering under a barrage of criticism (see the Charitable-Industrial Complex post), that there is a new philanthropy based on very different assumptions, and that there is an emerging brand of philanthropy that will not accept anything except solutions and cures.

Philanthropy is iterating and that’s good. Generational differences, conceptual and methodological developments, vastly different expectations  and many other factors are motivating change in the way we give money, time and other resources away.

We see innovations coming from many quarters. Working Hard & Working Well, David E.K. Hunter’s seminal guide to Performance Management has influenced some of that second group of philanthropists and foundations to invest in those organizations managing to outcomes.

Hunter’s fellow traveler, Mario Morino, has popularized and spread the word on performance management through much of his evangelizing summed up is his Leap of Reason, Managing to Outcomes. It is a wonderful read and constitutes a major new way of investing philanthropic funds.

The Emerging Next Wave

Bridging this iteration, this emerging wave may be led by the Robin Hood Foundation, which has developed sophisticated metrics and experienced staff in the monetization of outcomes. The methodology allows comparative evaluation and a system of counterfactuals gives credibility to  the discipline used. Still firmly entrenched in the second iteration, Robin Hood has the potential to move on, to help create the third.

This newest attempt crosses, really obliterates boundaries between for profit and nonprofit organizations, utilizing the strengths of both.

Entrepreneurial in spirit, bottom line and success oriented in methodology, disciplined in its choices yet value-oriented in its mission, this new impact philanthropy seeks to solve problems, not merely to reduce or ameliorate them.

Almost there in many ways is the Gates Foundation, which is attempting to eliminate, to cure a number of devastating illnesses, mostly in the underdeveloped world. Once rid of these debilitating diseases, these societies will be ready for economic growth, setting the stage for the Gates Foundation to then help create wealth in this part of the world in the same way Bill Gates did.

The Inequality of Income

The greatest of all challenges nationally and internationally is the growing inequality of income, of total resources available to individuals. The new impact group is right on this problem, with a solution that principally focuses on the creation of wealth among all elements of society.

Previous ways to handle this have been piecemeal, with a number of dislocations when human beings are parsed into a variety of nonprofit and government services, assistances and subsidies. Some progress has been made, although the number of poor here and abroad has increased over the last decades.

Attempts at government intervention through aggressive taxation have failed, as have the inflating power of printing more money.

These government measures may have helped stop temporary dysfunctions but have not brought longer-term relief or, more important, solved problems, leaving a number of unanticipated consequences we face every day.

The New Impact Philanthropy

The new impact philanthropists reject partial solutions and envision funding through grants, loans and investments to nonprofits, for profits and any combination for solutions, for cures. They use rigorous metrics, leverage of all types and intensive due diligence to find their philanthropic investment targets.

These targets have high promise to create wealth not only for an individual but for a community, the groups that produce high-paying, long-term jobs for many in the new economy. For example, a start-up that raises fish and uses the fish water to grow hydroponic vegetables and herbs,  providing communities with both nutritious food and jobs, are where the bets will be placed.

More of the focus will be on emerging societal trends: the digital, the green, and the quality movements all around us. However, two commanding conventional areas needing vast new resources, the rebuilding of infrastructure and the capacity problems of health care, will need the same innovative solutions as the new and emerging areas of economic growth.

Same-old, same-old philanthropy will not be able to handle what is happening in contemporary society. If we are to continue the quality of life and spread it to the entirety of our populations, invention, venturous innovations and imaginative investment are essential. Impact philanthropy will be part of these solutions.

Opportunity Abounds

Opportunity abounds and the potential for wealth creation are enormous. Just think of an idea in a Harvard dorm, develop a concept, go through rigorous due diligence, receive impact funding and a new Facebook may be born. Or an idea growing out of a public housing project that develops into a healthy food service at the new sports stadium, employing inner city residents, is born.

How many more innovations and start-ups are created through this impact funding depends on how the ideas catch on. This clearly will not replace existing philanthropy, but will be an ever-expanding component of the overall philanthropic effort, hopefully doubling from 2% to 4% the percentage of GNP spent in this area.

Yes, we need much more philanthropic investment if any of our ambitions to reduce inequality or to solve a myriad of other problems are to happen.

Where Will All of This Come From?

Where will this come from? First remember that we are talking about grants, loans and investments. If we create wealth, those beneficiaries may repay earlier grant funds to the source, or repay a loan with reasonable interest,  declare dividends on investments, or return high yields on original investment equity.

Yes, there are socially and environmentally focused investment funds from scores of mutual funds and other investment houses, but none resemble what the philanthropic impact fund can do. They do not touch nonprofits. But why should they not invest in for profits subsidiaries of nonprofits?

Through impact fund grants and loans, the fund can leverage bank loans, buy down mortgage points, capitalize initial efforts, and generally supply the start-up funds for a new innovation, a solution to a long-standing problem, or a cure for societal dysfunctions.

Starting the Fund

The impact fund will start with individuals of high net worth and foundations capitalizing the initial effort. However, anyone can contribute, loan money or invest in this effort. For example, individuals with donor-designated funds can make grants to the fund, allow program related loans and invest a small percentage, say 5%, in the fund.

So anyone with an investment can place a percentage of their corpus in new impact philanthropy funds- funds that seek not only entrepreneurial reward but also overall societal benefit.

Just think of a percentage of the endowment funds in foundations that might find their way into reasonable and responsible investments in these impact funds, given the foundations’ missions. Why just use the earnings of the endowment? Use the endowments themselves.

Is there risk? Not risk, risks. Many. And rewards. More than can ever be achieved without this new approach—the very real creation of wealth across a spectrum of diverse ideas, industries, communities and individuals.

We need new blood in the philanthropic system. We need more funds. We need new ideas. We need new ways of philanthropic investing. We need new metrics. We need new impact funds in philanthropy.

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