“The Rise of Spend-Down Philanthropy”

In this article posted on WSJ.com on the growing trend of what is becoming of charities after the founders pass away the Bill and Malinda Gates Foundation is used to examine how more founders are opting to close the doors of their charities by their last days rather than finding an heir.  Like the Gate’s, others are creating support for today’s causes, and instead of assuming that their charity will be around forever, are looking for others to come behind them and address the issues for future generations. This also means that these “spend-down foundations” are giving away all of the assets of the charity by the founder’s expiration date. Because this trend has grown from 5% to 24% in the last 50 years, many strategies have been developed for charity founders who desire to support a cause, but either expect that their cause’s needs will be met completely within their lifetime, or that interest in that cause will be short lived. GiveWell has created resources for how the now hundreds of charities who not only expect, but have planned on “spending-down[to nothing]” within their lifetime should plan on their exit strategy.

What does this mean for 1. the donor 2. the causes and 3. the people and organizations that partner with these foundations? First, it must be understood that in many cases, the exchange of value between nonprofit charities and their corporate sponsors and partners is as valuable to both participants as it is for a “for-profit” campaign. Chick-fil-A is well known for sponsoring community events by providing food, funding, and fun(cow costumes) and in return they have engaged what is know as “emotional marketing” by attaching themselves to causes people and communities are passionate about.  This is shown to create the most loyal customers, compared to any other form of marketing.

The donor now gains the benefit of a vast ocean of niche organizations that are concentrated around specific causes like specific cancers, local and regional charities, and temporary or event based/crisis/disaster related philanthropy. This means that it is much more likely than ever that there is a charity supporting whatever it is you are passionate about, or may have been impacted by.  It also means more funding for more causes. One way to look at this is that there are more opportunities than ever to attach your personal brand behind a cause and create loyal customers based on interest, location, gender, and other segments. This creates many opportunities to use different charities research to locate and engage your target audience, and do something positive in your community at the same time; or at least look like it. More causes, events, and partnerships to be made means that the reach of these charities is growing and constantly evolving.  When the doors to the Gate’s Foundation close 50 years after the death of the last founding member, new opportunities will arise for others to take the place and fill those needs. The vast majority of foundations don’t have nearly as much as the Gate’s Foundation has generated and consequently won’t last 50 years after they are deceased. Though there are several that expire five to twenty years past their founders, most will leave immediate needs unmet primarily because no one connected to that charity is in place to carry it on, or because the cause has become obsolete and changed in significant ways. Changing needs means that organizations that can’t adapt to the needs of their cause are replaced with newer, fresher nonprofits that can. We see a vulnerable and intimate side of society when we watch the charities coming up behind the old and outdated ones. What are people struggling with? Where is their volunteer time, money, and support going? What are people reaching out for help with, and how can we engage them to create a better community while promoting our personal brand in a healthy way? Watch these spend-downs and who follows behind to carry on the cause when they are gone; many opportunities to develop profitable partnerships will emerge.

 

GiveWell Case Study

Ideation GiveWell started off in a very simple way. A group of about 8 friends were hanging out and they were searching for a charity to give too. And the big question came up, where should I donate? They were all financial business people so in there spare would research good charities to donate too. They soon realized that this was a very time consuming process. They were not very pleased when they would ask different charities how the donations were being spent or what the charities stood for. They believed that this information should be made available to the public. This is want really prompted Holden Karnofsky and Elie Massenfeld to leave their jobs in 2007 and begin Give-Well as their full time jobs. They raised $300,000 from friends and co-workers to start this company. They wanted to create a place for people to donate but feel good about where and to whom they were donating too. Strategies GiveWell’s initial business  plan was based on the problem that “no resource exists for publicly evaluating the actual effectiveness of charities.” This is taken from the initial business plan penned in 2007. This group of friends saw an opportunity for changing the flow of donations and how charities compete. Their approach to seizing this opportunity was to create a “Clear Fund” that charities could compete for by being efficient and transparent in how they used their funding. They sought initial startup funding and then after there first year was funded they focused on the publication of their research and soliciting donations to continue their work. They offered the opportunity to become involved in their company by “…providing (a) thoughts and feedback; (b) donations; and (c) contacts who might be able to provide these.” The Goals of GiveWell have remained largely unchanged since 2007. The goal of creating a public evaluation resource had remained the goal of tho organization. They promote the flow of information from these nonprofits to them by issuing grants, “adopting this strategy means that the bulk of our budget will not simply be facilitating our project: it will literally fund the activities of the charities that we select as the best. A donation to the Clear Fund will therefore both fund the best charities the Clear Fund can find.” This strategy ties the growth and success of charities to GiveWell, as well as rewards the cooperation of charities that provide information freely to GiveWell by accepting donations directly from investors (who will feel that they are more donor than investor) to GiveWell, who seems one-in-the-same as the charities it studies. Launch: GiveWell officially launched in 2007. GiveWell was intended for all markets when it first launched. Their main focus was on identifying outstanding charities. They wanted to focus on donating to a few charities that excelled. As they matured and developed they then began to place the burden of proof of validity on the charities. If they charities do not show proof themselves that they are having a positive impact GiveWell will just automatically assume that is the case. This safe time and efforts on GiveWell staff and puts more accountability on the charities themselves. They must provide their own data that is accurate. They also began to focus on developing world charities and expanding their horizons beyond U.S. borders. The Millennial generation volunteers more than any other generation and international charities are profiting more than ever. Once GiveWell became a reputable and known charity evaluator they began investigation charities more thoroughly. In 2011 GiveWell announced GiveWell Labs. GiveWell Labs is described as “an arm of our research process that will be open to any giving opportunity, no matter what form and what sector.”. This new entity of GiveWell aims to give charities more access to large grants. GiveWell is now successfully serving charities and donors internationally. Revenue GiveWell’s revenue streams are mostly propelled by donations and grants. While the vast majority of money is earned through donations, it also makes a small amount its profit through investments according to tax forms.  It is a non-profit organization, so the focus is not about making money. That being said, it does bring in a small profit. In 2012, GiveWell brought in about $2.5 million in revenue, but it only made a profit of about 200,000. GiveWell reported it first positive profit in 2007 (its first year). It continually makes six-figure profits with the highest being $582,461. Interestingly, GiveWell has been successful all but one of their years of operation. It reported a negative profit of about $250,000 for 2010. While I have yet to find a concrete reason for the negative profit, GiveWell reported that it gave $300,000 to other charities. Bottom Line We can learn quite a bit from GiveWell. First of all we see the importance of an entrepreneurial mindset and passion. Holden Karnofsky and Elie Manssenfeld saw an open market in which they had passion and quickly moved on it. The paring of these two qualities is a strong factor in the success of GiveWell. We also see the importance of networking. Holden and Elie were able to build GiveWell based upon donations from friends and co-workers. They continue to show their networking skill through the consistent streams of donations funneling into their organization. I have no doubt in GiveWell’s future success. It has continually shown an increase in donations. As long as GiveWell stays transparent in its communication, then I see no reason for a decline in donations. These factors paired with the founder’s entrepreneurial mindset, passion, and networking will allow the company to grow and flourish.  SlideShare PowerPoint

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Social Media Inspired Giving

The Zuckerberg’s were recently revealed to be the most generous philanthropists in 2013. “The largest donation of 2013 came from Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, who announced in December that they had given 18 million shares of Facebook stock to the Silicon Valley Community Foundation. The gift was valued at more than $990 million. This was the first time donors under the age of 30 have made the nation’s largest philanthropic gift, according to the report.” How does this impact Facebook, social media, and how does this change how charities raise funds? Should we expect this philanthropy to bleed into Mark Zuckerber’s professional decision making at Facebook? What have we seen that might stem from the philanthropic focus of the founder of Facebook?

Non-profits have generally kept pace with the growing social media platforms in recent years, but one thing many experts see as potentially lacking are the resources given to charitable organizations from such platforms as Facebook to use for fundraising. What else has social media spawned in the world of philanthropy? One example was the recipient of the largest portion of the Zuckerberg’s nearly $1 Billion giving in 2013, The Silicon Valley Community Foundation. The Silicon Valley Community Fund became the nation’s wealthiest philanthropic organization by using social media, as well as by their intimate understanding of the entrepreneurs in their community, and how they give. The SVCF partners with “the most effective organizations to create change”. This is the second bullet in their “What We Do” info on their website, the first; “We simplify giving so donors can focus on  their charitable passions.” Social media has provided a simplicity to charitable giving in way that has sparked record giving, not only by the nation’s “1%”, but also by everyone else on the networks. Charitable giving rose 4.9% in 2013 and many experts attribute this growth to new social media tools used to collect donations. Like the SVCF, non-profits are realizing simplicity in collecting achieves great results.

What are some other ways non-profits could simplify the collection of donations? Have you given to a charity in the past year, did you use social media or were you inspired to give because of social media? Do you think, like as with vacation trends, that this growth in giving related to social media is caused by greater awareness by way of personal testimony or word of mouth, or have non-profs done well to implement social media campaigns that create support for their cause?