A whole bunch of organizations have gotten a whole bunch of money of late. Mackenzie Scott is on fire, spending billions on a wave of grants to hundreds of organizations, more than doubling the budgets of a few. Funder collectives like Audacious, Blue Meridian, and Co-Impact are making an increasing number of big bets, doing multi-year grants well into the eight figures. There’s plenty of reason to believe the trend will continue.
It’s great. These people really want to solve problems. But when one of these big grants lands on an organization, other funders often ask, “So, do they still need our money?”
That’s the wrong question. The right question is this: “Can they still create a lot of impact with our money?”
Think about it. If you had a chance to invest in a company with great profits and prospects, would you ask if they need your money? Of course not! You don’t invest in commercial enterprises that need your money; you invest in the ones that will make you money. A need-based investment strategy is a good way to go broke.
Philanthropy’s not that different. The goal in finance is maximum profit. In philanthropy, it’s maximum impact (or at least it should be). Your job is to find and fund the organizations best able to create change, the ones that are best at turning your money into impact. That’s why your investment should be focused on future impact, not on some ill-defined sense of present need. Need-based investment doesn’t work any better in philanthropy than it does in commercial investing (even if, sadly, nobody goes broke for lack of impact).
In the world of finance, money seeks maximum profit based on the risk/reward tastes and calculations of individual investors. When a nonprofit organization has gotten one of these big-bet grants, an analogous impact-based approach—“can they create a lot of impact with our money?”—will help you make an optimal decision. It’s useful to look at some scenarios based on three stages:
- R&D: development and iteration of the idea, and initial evidence of impact
- Replication: rigorous proof and steady, linear growth of impact
- Scaling: steeper—sustained non-linear—growth of impact, often accomplished by the recruitment of other, bigger doers
(Note that I didn’t put time estimates in the description of stages: Sometimes it is necessary—optimal, even—to spend a long time in R&D, and some organizations never get beyond linear growth and remain mid-stage indefinitely.)
In the context of those three stages, how might you think about the value your additional funding might achieve going to these seemingly flush organizations? Mulago typically starts funding early and we keep funding as long as we see persuasive progress through the stages, so we’ve had to think about our own approach to post-big-bet funding. Scenarios like these helped us think through our own approach:
- An early-stage organization that has done smart R&D, has a high-potential solution, and a promising strategy that, despite the big grant, is not fully funded: As with all early-stage organizations, it’s a risky investment, but it could result in a huge impact pay-off. In effect, you’re leveraging that big grant.
- An early-stage organization that has done a good job of R&D, but isn’t yet thinking very big, and now has enough money to carry out its near-to-medium term strategy: You might want to wait a bit to see how things shake out.
- A mid-stage organization with proven impact, a strong track record, and a very ambitious, but smart and credible, scaling strategy that is not yet fully funded: This is less risky than an early-stage organization, and could still provide a great impact return on your money.
- A mid-stage organization with a strong track record and steady growth that doesn’t have an inspiring, credible scaling strategy: It’s hard to see how additional money right now is going to generate a lot of additional impact.
- A late-stage organization with a strong track record that has achieved a sustained surge in impact, and has an ambitious, smart, and credible strategy that is not yet fully funded: This is the jackpot for those who don’t want much risk but are looking for a solid impact return.
The questions that drive good decisions are not easy. Is that really a smart and credible strategy? Is there solid evidence of impact? Is the model really scalable? Do they have the chops to execute on their plans? You may or may not feel that you have the expertise to make those calls. The safest bet, especially if you don’t have a professional staff, is to invest in later-stage organizations with proven impact and a solid track record. Otherwise, find other impact-focused funders whose track records you admire and draft off their choices.
And speaking of drafting: All the big grants I’m familiar with (and there’s a lot of them) came in the wake of high-quality due diligence. These funders think there is a big impact upside to be had, and they are putting major skin in the game. They are endorsing the organization’s strategy and plan. If that plan is not fully funded, well, there’s your opportunity.
I’d be remiss if I didn’t point out that organizations that don’t seem to need your money ... probably do need your money. That’s especially true if it’s smart money: unrestricted, multiyear, and minimal hassle. Philanthropy is only beginning to emerge from the Dark Ages of tight funder control, and even the biggest organizations struggle to get vital unrestricted money. Moreover, the big-bet money will eventually run out and organizations will still need a diverse donor base they can count on. For a high-impact organization, smart money is always additive.
And finally, this: If you still need to ask, “do they need our money?” then think of “they” as the people the organization has set out to serve. If it’s a high-impact organization, the answer is always, “Yeah, they still do.”
This article was originally published by Stanford Social Innovation Review on April 10th, 2015 with the headline: Do They Still Need Our Money?