5 innovative approaches to funding in philanthropy

The philanthropy world has come a long way since the days of its pioneers, such as 20th-century American industrialists Andrew Carnegie and Henry Ford. While they and other wealthy philanthropists left their marks by creating foundations and etching their names onto libraries and universities across the United States, donors entering philanthropy these days seem less interested in those traditional ways of giving. Recent decades have seen the emergence of newer approaches that often prioritize global causes and impact. Many of these approaches encourage funders to loosen their grip on the purse strings and give bigger gifts to local nonprofits and local communities. Here are some of the innovative philanthropy models we’ve been following. 1. Big bet philanthropy Donors practicing this approach provide multimillion-dollar grants to organizations or initiatives with the intention of catalyzing meaningful social change through poverty reduction, global development, and climate change. Gifting such large amounts — rather than the typically smaller donations — allows grantees to have more control over the direction of their work. It also helps keep them out of the cycle of constant fundraising. The Bridgespan Group, a U.S.-based philanthropic advisory firm that coined the term “big bet,” has varying definitions for what qualifies. For U.S.-based donors, it is a donation of $10 million or more. For African philanthropists, it’s $1 million and above. Donors who fall into this category can be either individuals or foundations, but not corporate foundations that tend to have vastly more wealth at their disposal, according to Bridgespan, whose clients include the Bill & Melinda Gates Foundation and megadonor MacKenize Scott. Research has shown that Scott’s sizable grants have put many nonprofits on solid financial ground, often for the first time in their histories. Multimillion-dollar gifts give nonprofits control over their resources in a way that allows them to “take ownership over what happens with those resources,” said Alison Powell, a partner at Bridgespan and co-lead of the philanthropy practice at its San Francisco office. “Our belief and our sense in working with a lot of nonprofits and a lot of donors is that, that shift of control really allows nonprofit leaders to plan and think differently around the work that they want to do rather than with commitments in more restricted increments,” she said. The Chicago-based MacArthur Foundation is among major foundations taking a big bet approach. It uses some of its $7 billion endowment to make big bets on four causes: preventing climate change, addressing over-incarceration and racial and ethnic disparities in the United States, reducing nuclear threats, and reducing corruption in Nigeria. Part of MacArthur’s criteria for deciding where to make big bets is considering whether its gift will “leverage others’ actions or resources.” The MacArthur Foundation also created the annual 100&Change competition, which provides a $100 million grant for “a single proposal that promises real and measurable progress in solving a critical problem of our time.” That competition resulted in the creation of Lever for Change, an organization that helps funders vet high-impact philanthropic opportunities. One issue with this approach, however, is that it often doesn’t leave the door open for nonprofits to form ongoing relationships with donors because big bet gifts tend to be onetime commitments, said Gabrielle Fitzgerald, founder of Panorama Global, a philanthropy advisory firm in Seattle. “Is it better to get a one-off $10 million, or is it better to have a donor with you for 10 years at $1 million each, where you can count on it?” she asked. “The big bets trend, the localization trend, and then the cash transfers trend, I think are all a bit on a continuum of shifting control … to folks who arguably have more context … ” --— Alison Powell, partner, Bridgespan Group That is a question Panorama Global will explore in its ongoing research of MacKenzie Scott grantees, she said. 2. Cash transfers Providing direct cash payments to low-income people is an idea that is catching on among NGOs and international agencies such as the United Nations. The UN Refugee Agency has said that cash transfers “gives refugees the power of choice” on how to best meet their own needs. Among philanthropic organizations, GiveDirectly is probably the best known international cash transfer program. The U.S-based organization sends small amounts in no-strings-attached cash grants to people living in poverty in countries such as the Democratic Republic of the Congo, Kenya, Liberia, Malawi, Mozambique, Nigeria, Togo, Turkey, Uganda, the United States, and Yemen. It has been endorsed by some of the world’s wealthiest philanthropists including MacKenzie Scott and former Twitter CEO Jack Dorsey. It is headed by former United Kingdom International Development Secretary Rory Stewart. Cash transfer programs gained popularity during the COVID-19 pandemic due to their ability to deliver funds quickly amid widespread changes such as lockdowns and increased unemployment. But they also have faced skepticism from donors worried that cash transfer recipients might use the money for non-necessity items such as alcohol and cigarettes or become subject to misappropriation. GiveDirectly recently revealed that staff from its DRC program worked with others to steal about $900,000 in mobile cash payments intended for impoverished families, but said that it was already taking steps to prevent a similar scheme from happening again. Development experts have pointed out that corruption and diversion of funds isn’t unique to cash transfers. There may even be reduced risk of fraud or diversion with cash transfers because it is fairly easy to check whether people have received payments, Charles Kenny, a senior fellow at the Center for Global Development, recently told Devex. 3. Localization This approach fits squarely within the trust-based philanthropy movement that has gained steam within the past few years, in that, it asks donors, primarily from the global north, to trust that local communities and locally-based staff know best how to spend grant funding. This is another philanthropic strategy that lacks a universal definition. However, leading humanitarian group the International Federation of Red Cross and Red Crescent Societies, defines localization as “increasing international investment and respect for the role of local actors, with the goal of increasing the reach, effectiveness and accountability.” “The big bets trend, the localization trend, and then the cash transfers trend, I think are all a bit on a continuum of shifting control and shifting power to folks who arguably have more context, more proximity to the issues they’re trying to solve,” Powell said. The New Jersey-based Segal Family Foundation has been leading the charge among philanthropic groups advocating for greater adoption of localization. It concentrates its work in sub-Saharan Africa and rivals the Bill & Melinda Gates Foundation in terms of the number of grants given within the region. All of Segal’s program officers are African, which grantee groups said contributes to the sense that the foundation is serious about empowering local communities. “I feel like there is a lot of respect. And it feels like you are talking to a partner,” said Peter Kwame, co-founder and director of Hatua Network. The Kenyan nonprofit provides scholarships to impoverished children and has been receiving grant funding from Segal since 2013. Segal provides all of its grants directly to nonprofit organizations rather than working through intermediary or regrantor organizations, which are often INGOs rather than locally based. However, for some donors, partnering with intermediaries who can redistribute large grants to grassroots organizations makes more sense, Powell said. Sometimes it is easier for a funder to identify and do due diligence on a set of intermediaries that are experts on organizations within certain regions and may already be helping community groups by providing training and other resources, she said. 4. Blended finance Collaboration is the driving force behind this strategy. Within philanthropy, blended finance refers to funders using grants or loans to spur public and private investments in ambitious causes, such as achieving the U.N. Sustainable Development Goals. By using their funds as seed money, philanthropists can help attract more investors to ambitious, potentially risky development projects. Foundations such as Bezos Earth Fund, The IKEA Foundation, and The Rockefeller Foundation have advocated for this approach. The trio launched the Global Energy Alliance for People and Planet, or GEAPP, in 2021 with an initial commitment of $10 billion and a goal to raise $100 billion in public and private capital for renewable energy projects in the global south. “It’s harder to attract capital to the global south. If we can have this blended finance model where we use philanthropy money to catalyze other investment funds, then we can drive and accelerate the access to energy and renewable energy in a way that otherwise wouldn’t be the case,” IKEA Foundation CEO Per Heggenes has said of the project. Bezos Earth Fund CEO Andrew Steer also has spoken about how philanthropists can use their climate dollars to prompt further investments in green projects. The Earth Fund is “examining how we can best leverage funding to make our dollars go even farther and perhaps do things a bit differently,” said a Bezos Earth Fund spokesperson. However, it’s important to keep in mind that blended finance can be a limited tool when it comes to addressing issues where “it’s not about the type of finance, it’s about grassroots work, behavior change, cultural change,” Fitzgerald said. 5. Effective altruism Once on the rise among emerging donors, in recent years effective altruism has been hit by scandals that have damaged its reputation, including allegations of fraud and sexual harassment. Still, it remains a point of conversation among donors seeking innovative ways to give. At its core, effective altruism is about using evidence to make funding decisions and to ensure maximum impact for every dollar spent. It has been popularized by philosophers such as the University of Oxford’s William MacAskill who helped coin the term “effective altruism” and Peter Singer, the founder of The Life You Can Save charity assessment organization. It is associated with longtermism, an ethical worldview that focuses on developing future-friendly policies. GiveWell, the highly influential charity rater, is among the most notable organizations within the effective altruism movement. GiveWell measures cost-effectiveness by comparing charities and evaluating how much of an impact they can have for each dollar given. It typically recommends charities and interventions that it has determined to be more effective per dollar given than cash transfers. It was founded by former hedge fund analysts and is responsible for distributing money from its Top Charities Fund. Its recommendations also are generally followed by Open Philanthropy, a research and grantmaking organization started as a partnership between GiveWell and the Good Ventures foundation. However, effective altruism has faced some challenges. Most notable among them, was the downfall of one of its loudest and seemingly wealthiest promoters, Sam Bankman-Fried. Last year federal prosecutors indicted him for defrauding investors, leading to the implosion of his multibillion cryptocurrency exchange. Earlier this year, several women also alleged the EA movement was a culture of sexual abuse and harassment, further damaging its public profile. Even prior to that some had criticized the movement as encouraging donors to withhold money that could benefit grantees now because they think it might have more impact in the future. “I think what our experience has been with some people we have spoken to, is that it can perhaps, ironically, delay giving because there is such a high bar for getting the best impact and the sense that there is one best,” Powell said. “We don’t ascribe to this idea that there is one best way to spend a philanthropic dollar. And assuming there is a best can really exacerbate delay and moving resources to where they are needed,” she added.