Ten Ways Funders of Social Change Are Making Bigger Bets

Ten Ways Funders of Social Change Are Making Bigger Bets
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Since the British import Red Nose Day arrived on American shores with a big media splash in 2015, this campaign to end child poverty has raised over $60 million for a variety of charities. The money trickles in from homegrown fundraisers, like bake sales and walks, that demonstrate the cumulative power of small efforts to tackle big social change. This year’s coast-to-coast “get your nose on” day on May 25 brought a wave of gifts, totaling at least $35 million.

Standing at the opposite end of the charity spectrum are the relatively small number of wealthy individuals and foundations capable of multi-million dollar investments in social change. It’s heartening to know that America’s leading philanthropists—Giving Pledge participants and the Forbes 50 Top Givers—put social change at the top of their lists of philanthropic objectives. They care deeply about such things as better schools, greater access to health care, or ending hunger and homelessness. Nearly 80 percent state that such a goal is one of their top priorities.

Yet, only 20 percent of philanthropic big bets (gifts of $10 million or more) go to social change initiatives. The remaining 80 percent, measured in dollars, flow to institutional giving, such as gifts to universities, hospitals, and museums. This “aspiration gap” is heart-wrenching, given that big bets can have extraordinary social impact. They can radically change the organizations or social movements they support, creating leaps in their recipients’ abilities or long-term ambitions. Don and Doris Fishers’ $15 million investment in KIPP (Knowledge Is Power Program) charter schools during the organization’s formative years is just one example.

The Fishers’ gift illustrates the importance of moving from what to invest in, to how to deploy the money. For philanthropists, the sobering reality is that figuring out the how is much harder than deciding on the what. And it’s a major impediment to more big bets for social change.

To shed light on how philanthropists place big bets—and point the way for others—we looked at 900 social change grants exceeding $10 million made between 2000 and 2013. (The data showed that the biggest bets typically rest on a foundation of four smaller grants, with the big bet coming in at 10 times the size of the previous grant.) Almost all of the 900 grants fell into one of 10 categories, described below in order of their decreasing prevalence.

1. Fund Ongoing Operations

Funding ongoing operations is by far the most common type of big bet on social change, accounting for one-third of the gift dollars in our database. These gifts are typically easier to make and involve less risk than some of the other categories. While donors can be tempted to impose extensive restrictions on how grantees spend the money, attaching too many strings can hamper a nonprofit’s ability to put the funds to their best use. It’s generally preferable to pick an organization you believe in so you can give with minimal restrictions.

2. Purchase a Physical Asset

For some kinds of social change efforts, assets like land or buildings can be important. These gifts (e.g., a health center or a charter school) typically have the advantage of being relatively straightforward to give, with fairly certain and clear results. However, it’s important to consider the potential burden to the recipient. Will the extra operating expenses make the recipient rich in physical assets but poor in financial health?

3. Found an Organization

Sometimes a need is clear, but there isn’t an existing organization with strong potential to address it. Donors have an impressive history of founding new organizations to fill the void, such as British comedian Lenny Henry and screenwriter Richard Curtis starting Comic Relief, the nonprofit behind the original Red Nose Day in 1988. This tends to be a major undertaking—perhaps the most demanding of the 10 types of big bets—making it all the more important to first determine whether any entity that might be “good enough” already exists. Given that fully 14 percent of the big-bet dollars in our database fell in this category, this bet type may very well be one that donors deploy too frequently.

4. Give to an Aggregator

Intermediaries that aggregate and strategically deploy resources are frequent recipients of big bets. New Profit, for example, has made more than $120 million in grants to organizations that help to “break down the barriers that stand between people and opportunity in America.”

Aggregators like New Profit can offer efficiency, scale, learning, and camaraderie, but for some donors this approach may create too much distance between them and the work they are supporting and not deliver the same satisfaction as investing directly.

5. Build a Field

In most areas of social change, no one organization is going to solve a complex problem. Nor is any solution so clear that a single leader or entity can chart the exact path to a full-scale solution. By investing in building a field, a big bettor can focus on a single overarching goal, but encourage and align multiple operators and pathways to achieve that goal. This work typically takes a lot of money and time, and a willingness to stay involved for the mid-course corrections that will almost always be necessary. But the payoff in terms of societal benefit can be huge.

6. Advance Institutional Research

There are some social problems where research to reframe our understanding of the problem or advance thinking on how to solve it can be critical to having impact. But there is a potential downside. It can be hard to affect the focus of complex entities like universities where funding is fungible and purposes broad. History tells us it can be done, however, when donor and researcher objectives are properly aligned.

7. Endow an Organization

Endowing an organization can significantly advance its ability to address a critical, persistent need. Many donors hesitate to go this route out of a concern that the organization will end up doing something they wouldn’t want to support, or a belief that they could invest the funds for a higher rate of return than the organization. But the alternative to an endowment—a series of individual grants—costs a nonprofit the extra time needed to cultivate ongoing grants, and creates the risk that annual gifts will cease, constraining the organization’s ability to plan long-term or be ambitious.

Social policy research organization MDRC offers an ideal illustration of the importance of endowments. While MDRC’s endowment may seem insignificant, covering fewer than 2 percent of its roughly $100 million annual budget, MDRC President Gordon Berlin claims that it is the organization’s highest leverage funding. According to Berlin, the endowment supports the very activities that no one else is willing to pay for, from investing in emerging research methods to developing new program ideas.

8. Wage an Advocacy Campaign

For many of society’s biggest problems, lasting solutions require policy or cultural change. In these cases, waging an advocacy campaign can be the right approach. More than 70 percent of the social movements we studied, from LGBT rights to the Anti-Apartheid movement, received at least one big bet that was critical to success.

When making a big bet on an advocacy campaign, the biggest challenge is the risk of failure. On many societal issues, particularly those that are culturally or politically charged, it can be very hard to move the needle. Early “failures,” however, may be essential to softening the ground for later success.

9. Provide Growth Capital

In the social sector, “growth capital” describes a one-time infusion of money akin to investment dollars in the business world. It’s a way donors can help organizations get to a new, higher plane of impact. Despite growth capital’s great promise, not all nonprofits are suitable candidates. This big bet only works when the nonprofit develops infrastructure and operations that will still generate increased impact after the growth capital is spent.

10. Run a Competition

Many philanthropists feel tremendous urgency to solve pressing societal problems, yet many do not see solutions at hand. Competitions such as Laurene Powell Jobs’ XQ initiative to redesign high schools offer them the chance to galvanize the best thinkers to find solutions or take bold leaps. While competitions unleash creative energy, they can also produce great waste—all the effort put in by the “losers.” This puts a real premium on designing competitions so that even those that don’t win move their organizations or fields forward.

We hope this list helps philanthropists think more clearly about how to make big investments for social change and, ultimately, accelerate the process. No bake sales required.

William Foster is a partner and head of the consulting practice at The Bridgespan Group. Gail Perreault is a partner on Bridgespan’s knowledge team. Elise Tosun is a manager at Bridgespan and Willa Seldon is a partner and co-head of Bridgespan’s Children, Youth and Families practice. This essay was adapted from a co-authored paper in the Stanford Social Innovation Review, “Ten Ways to Make a Big Bet on Social Change.”

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