Engaged philanthropy – a lot more than just grants
Engaged philanthropy – a lot more than just grants
Philanthropists are usually people of success, businessmen, professionals in their respective fields, experienced investors, and entrepreneurs. Besides financial resources, they have a network of connections, skills and experience, which can bring huge benefits to non-profit organizations under their support. More and more donors that are seeking opportunities to engage in charitable activities are offering their support to selected organizations through financial, intellectual, and social capital. Though the idea isn’t new, only recently has it turned from theory to practice, thanks to which donors realized its measurable results.
Engaged philanthropy (or “venture philanthropy”) proposes a hybrid approach to charity. It combines the principles used in the non-profit sector, of business financing via grants, with those typically used in the for-profit sector, meaning investment and “venture capital.” The distinguishing factor of this model of philanthropy is the level of involvement of the donor; it can be likened to the difference between the involvement of an investor (“venture capital”) and the bank as a lender.
The increasing interest in engaged philanthropy is a result of the mutual benefits that flow from a sustainable relationship between the non-profit organization and the donor. The donor has a direct impact on the results of the organization, while sharing the risk and responsibility of the organization’s actions gives its leader a sense of greater support. An engaged philanthropist expects a return on his investment, however in this case it’s more about a “social return,” and not a financial one. To social entrepreneurs, engaged philanthropy can provide, in addition to significant funding, business skills, which will help in building a sustainable and stable social enterprise.
How does it work?
Based on: Pillars of an Engaged Philanthropy Strategy [w:] All in the Same Boat: An Introduction to Engaged Philanthropy, NESsT 2005, s.6
Firstly, the investor looks for a non-profit organization, which he will add to his portfolio, through a competition or by visiting organizations that fit the desired business profile; allthewhile identifying potential beneficiaries of assistance from friends and collegues or other donors. Like many investors focus their investments within a particular industry or geografical location, an engaged philanthropist can focus on a chosen area of the non-profit sector depending on his/her professional expertiece, such as education, art, health, environment, etc. Engaged philanthropists can lead a rigorous selection process, requiring for example, accounting records and numerous meetings with management and benefitiaries of the organization, as well as other donors. Sometimes, they offer short-term support as a “trial run” before they commit to a long-term agreement. After deciding on the organisation, both sides come to an agreement on the size and length (usually 3-5 years) of the financial support, mutual expectations, and the obligations of both parties. The agreement also includes agreedupon “success indicators” for the periodic assessment of the organizations progress in the pursuit of their objectives. Thanks to the aquaintances brought to the organization, engaged philanthropists raise additional capital because the organization has the opportunity to present their work to a larger group of potential investors and donors. They may also serve on a voluntary basis and provide non-financial support in areas such as accounting, legal issues, management, marketing, PR, new technologies, etc., by declaring the amount of time they want to devote to the organization per month. The value of such professional services pro bono (ie. Logo design, website design, advertising) could be even more than the grant itself. Furthermore, organizations that form a philantrhopists portfolio can work together and exchange experiences, as well as organize joint training in fundraising, marketing or strategic planning, allwhile educating experts which will benefit the entire non-profit sector. At the beginning, engaged philanthropists outline an exit strategy, which can be due to the achievement of the setforth goals or a consecuence of not achieving the agreed upon indicators. If the philanthropist determines that his support is still helpful and useful for the organization, he/she can renew the agreement after it expires and, with the help of the organization, setforth new targets and goals.
The difference between engaged philanthropy and the traditional
- Engaged philanthropists help in three ways. In addition to financial support, they engage in an organizations activities voluntarily, by sharing their knowledge, meaning intelectual capital, through coaching and mentoring as well as facilitating the establishment of contacts. Sometimes they play a role of management in order to work together on a regular basis on issues of fundraising, marketing, strategy, fanancial management, etc.
- Engaged philanthropists emerse themselves in an organization’s activities for a long period of time. They prefer to give meaningful long-term financial support to a select number of non-profits rather than giving small grants to many organizations.
- In contrast to the traditioal final evaluation at the end of the funding cycle, management will require the regular submission of detailed reports.
- Long-term financial support doesn’t only include grants, but also other financial instruments such as low-interest loans and reimbursable grants, as well as quasi-capital instruments such as equity financing and debt financing. The diversification of funding is designed to develop an organization’s financial discipline and, on occasion, allow the re-use of the donor’s resources.
- Engaged philanthopry focuses on the overall development of the organizations rather than on the financing of particular projects. Donors that give money to fund a certain project tend to emphesize the reduction of admistrative costs. Engaged philanthropy recognizes the need to invest in the infrastructure and the value of building organizational capacity, which in the long-run promotes efficiance and the ability to take action on a larger scale.
- Engage philanthropy plays a major role in the process of scaling operations. While the private sector has access to a wide range or resources to allow the increase in mezzanine financing, engage pihlanthropists can provide analagous forms of financing in the non-profit sector while supporting organizations with their business knowledge and network access.
Chance and risk
It’s important to note that engaged philanthropy is supposed to act as a complement to philanthropy in the traditional sense and not supposed to replace or discredit it as inferior or less effective. Through the use of a variety of financing tools, new resources and a little business approach, engaged philanthropy betters the knowledge base of the entire non-profit sector. Some engaged philanthropists have a difficult time understanding the unique character, needs, culture and values of the third sector and thus can have unrealistic demands and false ideas of transfereing a 1:1 business model into the non-profit sector. However, there is a large unmet market of social enterprises that could benefit greatly from the financial and technical support offered by engaged philanthropists if they’re implemented in the right way.
Engaged philanthropy presents an interesting approach to charitable activites by linking the best practices of investment business with the values of the non-profit sector in order to achieve a greater social impact. Just like all investments, it has its own beneftits but not without risk. This type of philanthropy entails the commitment of funds, time, reputation, and personal and professional contacts; however, at the same time it gives the opportunity to achieve a great impact on major social problems.
Based on: All in the Same Boat: An Introduction to Engaged Philanthropy, NESsT 2005.