"Revolutionizing Philanthropy."

After nearly two decades in the social sector, I can’t tell you how often I’ve seen versions of this mantra plastered across websites, investor decks, blog articles, and the like. It seems to be the go-to phrase for every new (especially fundraising) startup entering the space. I’ve used it myself more times than I care to admit.

Make no mistake, philanthropy as we know it is transforming, but the revolution didn’t come from one platform or ideology, but from a convergence of forces - radical technological advancements, cultural shifts, and paradigm-shattering global events.

To say that philanthropy has been in flux over the past 20 years is an understatement. Seemingly countless cultural and technological advancements have converged to dramatically transform how philanthropic dollars are exchanged and allocated.

People may disagree on what things will look like once the dust settles, but one thing is certain - funders, nonprofits, and other social impact organizations that don’t adapt will quickly fade into obsolescence. While nobody can say with absolute certainty what the future will look like, here’s a quick rundown of some of the key factors at play, and what we think has to come next.

Unprecedented Urgency Around Social Issues

Unless you just plugged yourself into an Oculus back in 2009 and never came out, you’re keenly aware of the urgency, complexity, and scope of the social and environmental challenges facing our world, and it probably seems daunting.

The comprehensive IPCC reports, paired with the observably increasing strength and frequency of storms and the annual heat records being constantly set and broken, keep the need to address our snowballing (forgive the pun) climate crisis top of mind.

Social injustice and inequality have entered the zeitgeist like never before — from the killing of George Floyd in 2020, to highly-politicized migration events, to healthcare inequities exposed by the COVID-19 pandemic, to the epidemic of school shootings… I could go on, but you get the point.

These issues are now top of mind for all well-meaning people in the world, and it can be challenging for those working to drive meaningful change to know where to start due to the daily torrent of information we receive.

One can hardly blame the Oculus folks for burying their heads in the metaverse for a while — or setting up and forgetting about Donor Advised Funds (DAFs) — until things get a little easier to digest and the path to impact becomes clear.

Overhead Enters the Conversation

Researchers have always used overhead as a primary criterion for an organization’s quality and worthiness for support, but it’s typically evaluated in ways disconnected from impact.

Due largely to Dan Pallotta’s 2015 TED Talk, people are now open and honest about the obvious: judging an organization by how little it spends limits its impact, and you can’t hire or retain top talent if you don’t pay people well. You can’t build or implement high-impact programs without great people and strong organizational cultures.

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The legacy nonprofit watchdog groups, Guidestar (now Candid), Charity Navigator, and the Better Business Bureau, even got together in 2013 to draft an open letter about embracing new, impact-centric ways of looking at charity.

However, those groups and others like them have done painfully little to promote tangible change in the years since. Ask the average person how they evaluate a good nonprofit, and their answer is inevitably some version of low overhead despite the overwhelming need to focus on other aspects of an organization.

The Rise of Grassroots Philanthropy

Large Donor Philanthropy was historically seen as the only meaningful form of giving (and still is by many legacy nonprofits). That all changed in the late 2000s with the rise of online donation platforms like FirstGiving, Classy (which I’m grateful to have been a part of), Funraise, GiveButter, and FundraiseUp. People suddenly had new and compelling ways to drive grassroots funding and support from new and untapped (especially younger) supporters.

These typically small (~$100 on average) donations are less meaningful individually, but they can move mountains with their combined forces.

Grassroots funding platforms represent a crucial new source of revenue for modern nonprofits and extremely efficient methods for new donor acquisition. The human capital unlocked by robust donor engagement and mobilization strategies also provides unprecedented access to volunteers and advocates — many of whom will become the major philanthropists of the future as their maturity and access to wealth increases.

The Billionaires’ Giving Pledge

Faced with staggering levels of wealth inequality, The Bill and Melinda Gates Foundation established The Giving Pledge in 2009. It’s a “movement of philanthropists who commit to give the majority of their wealth to charitable causes, either during their lifetimes or in their wills” that continues today.

As I write this, there are currently 242 pledgers from 29 countries worldwide. This movement inspired massive pledges (at least in part) from folks like MacKenzie Scott, Mark Zuckerberg, Jeff Skoll, Pierre and Pam Omidyar, and many others.

It’s a noble effort to be sure, but there are significant issues with the implementation. By nature, the pledge is non-binding. Gifts may take years or even decades to fully realize, and there’s no requirement that those funds go to programs and organizations where it can do the most good.

Not surprisingly, some members have not followed through on their commitments. Those who do, send much of their philanthropy to intermediary foundations with no real mandate to be deployed in the field. Those Pledgers who are funding nonprofits may be hurting the organizations they’re ostensibly looking to support - they often put unnecessary requirements or restrictions on the use of their funds or create pet projects that distract from the missions of the organizations they seek to support.  

And because there’s historically been such a lack of focus on impact analysis, Pledgers without rigorous vetting programs risk funding organizations that aren’t creating much measurable impact, and in some cases, may be doing more harm than good.

If you’d like to dive deeper into the problems associated with billionaire philanthropy, you can read more about it in a recent article by The New Republic, and in a new report from the Institute for Policy Studies.

Strategic Philanthropy

Around the time when grassroots platforms and The Giving Pledge arrived on the scene, there was a parallel effort to drive nonprofit organizations to operate like for-profit businesses. This idea was referred to as Strategic Philanthropy.

This approach had many positives — sound business practices like financial sustainability, performance incentives, and investment in growth and innovation are crucial. But, if the impact programs run by nonprofit organizations were commercially viable, and could therefore operate completely like a business, they wouldn’t need to ask people to donate.

Strategic Philanthropy teaches us some great lessons, but many aspects of running a successful nonprofit organization transcend traditional business operations. Managing a nonprofit is more complex and challenging in many ways, and those differences should be celebrated rather than criticized.

Trust-Based Philanthropy (TBP)

As a welcome response to Strategic Philanthropy and the obsession with overhead that’s haunted the sector for generations, Trust-Based Philanthropy (TBP) hit the mainstream when MacKenzie Scott announced her bold new approach to giving.

To date, Scott has granted over $15 Billion in unrestricted funding to nearly 2,000 different organizations, and she isn’t finished. Her approach to philanthropy is team-based, identifying and funding the people and teams she feels are doing the best work in the cause areas she cares about most.

TBP revolves around organizational culture and encourages funders to follow six core practices:

• Give multi-year, unrestricted funding
• Do their own homework
• Simplify and streamline paperwork
• Be transparent and responsive
• Solicit and act on feedback
• Offer support beyond the monetary

On the whole, TBP represents a big step forward for philanthropy, and one can certainly see why it would appeal to grantees. It started a meaningful conversation among organizations that were not previously open to such practices, and accelerated a positive cultural shift in the impact space, in much the same way B Lab has for for-profits.

That said, we see Trust-Based Philanthropy as “table stakes.” It provides a solid cultural touchstone for funders and grantees and we agree wholeheartedly with the underlying principles. But it’s really just a starting point.

If funders are going to accelerate social progress or address impact challenges in meaningful ways, they must go farther. They must ensure that the organizations are not just trustworthy entities, but that they have enough mission-specific expertise to be trusted to implement effective programs. Organizations need to have rigorous measurement and evaluation practices in place to verify their impact and build a culture of continuous learning and improvement.

At Altruous, we believe it’s only through combining strong cultural and operational practices with real, measurable impact, that deep and lasting trust between funder and grantee can truly be formed. Neither Trust Based Philanthropy, nor rigorous measurement and evaluation, are sufficient as standalone practices. They must work together harmoniously to produce a deep and lasting impact.

Commodification of Impact

William MacAskill’s great work pioneering Effective Altruism (EA) was groundbreaking, and if you haven’t picked up his book Doing Good Better, you should absolutely do so. Don’t be fooled by the controversy around FTX. This was a distraction caused by embracing the wrong philanthropists, and should not be construed as an indictment of the philosophy of Effective Altruism.

In addition to a highly analytical approach to impact measurement, Effective Altruism embraces the concept of Expected Value — something that is sadly absent in the impact sector’s traditional thinking. It demands a higher level of research and analysis - one that includes the context around the programs, looks for unintended consequences and unexpected benefits, and biases organizations in a position to operationalize funding, rather than add to an endowment.

Unfortunately, the implementation of Effective Altruism, pioneered by groups like GiveWell, The Impact Genome Project, Open Philanthropy Project, and others, is driving a new “race to the bottom” for cost-per-outcome.

EA practitioners now look at cost-per-outcome as a decisive data point, prioritizing the highest quantifiable impact for the lowest price rather than looking for what the quality, durability, and depth of the impact really is. For many practitioners of Effective Altruism, this results in little more than an unwitting perpetuation of the overhead myth. For many, it just ends up being the overhead myth dressed up in fancier clothing.

Without taking great pains to ensure these cost-per-impact calculations account for all related expenses and consequences, funders focused on Effective Altruism risk failing to transcend vanity metrics. The ultimate strategy may ignore the depth and quality of impact as well as potentially harmful consequences.

We’ll expand on this in future articles, but suffice it to say that treating impact as a commodity and seeking the lowest prices for desired outcomes can be extremely harmful.  

DAF Democratization

Donor Advised Funds (DAFs), once the purview of the ultra-wealthy, are now available to even the most minor retail donors through platforms like the Tides Foundation and Groundswell.

Put simply, DAFs allow donors to contribute to a fund housed at a major financial institution and enable them to earmark funds for a charity or charities of their choice later on. They also claim tax immediately, with no obligation to ensure their donations reach actual nonprofit organizations before a 5-year term expires.

As you can imagine, the existence of these funds can lead to a lack of urgency - disincentivizing active research - and enforcement around ensuring gifts occur within the 5-year window is notoriously lax.

DAFs can be a powerful tool for well-intentioned donors, and we’re all for democratization in general, but they create opportunities for inefficiency and fraud. Right now, there is currently more than $300 billion locked up in DAFs that could immediately fund important high-impact programs worldwide.

The Age of Artificial Intelligence

We have easier access to more information and analytical tools than ever before. With the rise of commonly available Artificial Intelligence tools, each of us has the ability, and in fact the responsibility, to research the programs and organizations we support carefully.

That’s not to say it’s easy. Between the deluge of social media, blogs, emails, television, ads, and other marketing content, it’s nearly impossible for most of us to know where to begin with such staggeringly large problems and so many proposed solutions.

Influential philanthropists need to grow their expertise in filtering out unnecessary or unwanted information as well as learn from the good stuff. In short, they must find their signal through the noise, and most will need help in doing so.

The Way Forward: High Integrity Philanthropy

So, what will the next wave of philanthropy bring us? Here at Altruous, we believe in what we’re calling High Integrity Philanthropy. The next wave of philanthropists must learn from the past and reframe how we view giving.

We must:

• Draw from the best principles of Effective Altruism and Trust-Based Philanthropy by requiring sound business practices and strong, inclusive cultures, as rigorous and thoughtful impact evaluation.
• Take an analytical approach to evaluation that includes short- and long-term impacts.
• Understand and incorporate unintended consequences and potential harms.
• Move impact analysis beyond simple cost-per-outcome methodology, to one that focuses on depth, duration, and quality of impact.
• Contextualize the impact within the scope of the problems and the unique concerns of impacted people and regions.
• Require that programs create and implement collaboration with the people they’re seeking to serve.
• Embrace innovation, allow for the possibility of failure, and invest heavily in proven ideas ready to scale.
• Be open-minded, curious, and transparent about our methodologies, successes, and failures.
• Restore common sense in philanthropy, and move away from “lowest common denominator” thinking that fears controversy, embraces dogma, and is quick to cast blame.

Most importantly, we must set and maintain our own high standards of excellence, even if it flies in the face of traditional philanthropic thinking. Integrity is about following a set of values, and proactively holding ourselves accountable, building cultures of learning. We must go beyond the surface, and keep working, until we know beyond a doubt that we did our best to deliver on the promises we make to our stakeholders.

Want to do more with your funding? Contact us at Altruous to start funding programs that make an impact.