Curse or conundrum? Drawing new donors when a big name is at the table

The last question put to the CEO of the Bill & Melinda Gates Foundation at a November event in Washington, D.C., was about a dynamic that the audience member deemed “the Gates curse.”

While the Gates Foundation encourages its grantees to diversify, it is often difficult for organizations that get Gates’ funding early on to attract other donors. This is because of a perception that they do not need further support, Peter Matlon, an expert in agricultural development, said in front of the audience at the American Enterprise Institute.

“When other donors are approached, they say well, ‘Gates has bottomless pockets. Why don’t they provide the support?’” he said, mentioning his experience working with the Alliance for a Green Revolution in Africa and African Women in Agricultural Research and Development when he was at the Rockefeller Foundation. “Or if Gates is beginning to phase down their support to encourage new donors coming in, they interpret that in the wrong way, that something isn’t working.”

In response, Gates CEO Sue Desmond-Hellmann acknowledged to attendees how support from the foundation can have unintended consequences because “people can assume that you’re completely funded.” Matlon had asked what the Gates Foundation might do early on in the founding of these programs to bring in new donors from the beginning. Desmond-Hellman explained that the foundation works with grantees to develop “a shared understanding of the pros and cons” of its support and ensures these organizations are “healthy and sustainable.”

The question points to a problem that extends across the sector.

Donors like to demonstrate their theory of change with their dollars, meaning they want to support an organization from the early stages. But early support from donors with big names and deep pockets can sometimes present difficulties for grantees who need to raise coinciding or follow on funding. The challenge can extend from individual organizations to entire sectors, because when high-profile philanthropists take on a new topic, funders can sometimes turn their attention toward other areas where they can make their mark.

So what can be done to bring other donors to the table when a big name is already at the table? To answer that question, it makes sense to start with the largest foundation in the world.

The difficulty of diversifying

The Gates Foundation took an early interest in Apeel Sciences, seeing the potential of its technology, which repurposes fresh plant scraps to create a barrier that preserves produce to extend the shelf life of cassava and other crops widely consumed in the developing world.

When James Rogers, founder and CEO of Southern California-based startup, traveled to the Gates Foundation in Seattle in 2012 along with other winners of $100,000 grants to improve yields from farm to fork, he got some advice from Rob Horsch, deputy director for agricultural development at the Gates Foundation.

Horsch told the group of founders that he was aware these grants were only drops in the bucket compared to the dollars these organizations would ultimately need to draw in order to develop their technology and carry out their work. He recommended they leverage that funding in order to draw private capital. And Rogers acted on that advice, making the rounds in Silicon Valley, raising $40 million in total, including a recent $33 million round led by Andreessen Horowitz and DBL Partners; he also ultimately received another $1.5 million in funding from the Gates Foundation.

“We’re looking for private capital, but most private capital says, ‘I know world hunger is a problem, but I’m not the one to invest in this, because I can’t validate whether or not you can make this technology,’” he said. “That’s where having the Gates Foundation was incredibly valuable because we could leverage that seal of approval to say that yes the technology is feasible to go raise private capital to develop the technology.”

Still, while he has had success with venture capital, Rogers told Devex it has been difficult for him — and other founders seeking out grants as well as investments — to manage what he calls a market failure in the philanthropic sector.

“If there's a solution that looks like it's working, has potential, has support, philanthropic organizations don’t often pile onto those things because they say, 'Well it looks like that will be okay, so why don’t we put our money on this risky thing?'” he said. “It's counterintuitive. The more success you have with a philanthropic organization, the less attractive you are to other philanthropic organizations, and so it really creates a challenge."

Philanthropy on a spectrum

Foundations in the field of catalytic philanthropy want their capital to propel an idea that leads to significant impact, said John Kohler, senior director of impact capital at Santa Clara University Miller Center for Social Entrepreneurship.  

“Part of being catalytic is an examination by the foundation on what would happen if they did not fund the idea or solution,” he said. “If there is reasonable evidence that the idea or solution will proceed anyway or be offered in a different way, then the catalytic test is not met.”

Many foundations define their success by grant recipients attracting capital from other sources. But philanthropic capital does not stay “in the game” long enough to create “investment ready ideas that other funders will pick up,” Kohler said. This only perpetuates the missing middle of impact funding.

What this really comes down to is the issue of “not-invented-here syndrome,” said Paul Brest, the former president of the William and Flora Hewlett Foundation.

“People want to be the first and they don’t want to follow somebody else,” he said. “When I was president of the Hewlett Foundation and wanted to engage in collaborative work, instead of going to another foundation and saying, ‘Here’s a great idea I have. Won’t you join?’ What I would say is, ‘I have just the beginning of an idea. Would you like to explore?’”

Again, this issue extends across philanthropy, but the bigger the foundation, the greater the potential for this perception that the funder can go it alone, he said.

Individual legacy and collective impact are not mutually exclusive, but rather at two ends of the spectrum, said Graham Craft, director of corporate and foundation partnerships at Mercy Corps in Portland, Oregon.

“There’s a natural human tendency to want your impact to be distinctive, so anybody that sets up a strategy will ask: ‘Which problem, why us, and why now?’ That is natural, and generally best practice, and it makes sense organization by organization,” he said. “But as a sector, the more unique everyone’s impact is, the harder it is for a nonprofit to bring donors together.”

Who takes responsibility?

When Matlon used “the Gates curse” term in a meeting at the Gates Foundation, he put some of the responsibility on the foundation.

“The responsibility should be on you to reach out in a collaborative fashion, to bring other donors on board early, or if not early enough, at least to convene groups of donors and convince them that you are fully in support of this program and would like it to grow and sustain but it does require more diversified funding,” he said, recalling his comments at that meeting. “Instead of the grantee going out alone and having to make the pitch, we really need someone as deep pocketed as Gates to serve in a convening and catalytic function to make that pitch succeed.”

Bill and Melinda Gates, the co-chairs of the Gates Foundation, often insist they cannot do this work alone, and Bill Gates himself has made the case for official development assistance to U.S. President Donald Trump.

“We always have to be thinking about who are our partners in each stage of the way and ultimately how we convince governments to fund these things and to scale them up,” Melinda Gates said in a recent onstage conversation with Lisa Cohen, founder of the Washington Global Health Alliance, after she mentioned constant pushback in conversations on global health funding that “the Gates Foundation will take care of that.”

Given the huge cuts to ODA proposed in Trump’s recent budget proposal, there may soon be more pressure than ever before on philanthropy, and coalitions of public and private funders could be part of the path to solving this sector-wide problem.

“Our foundation is committed to helping catalyze change to ensure all people have the opportunity to lead healthy, productive lives,” Mark Suzman, chief strategy officer and president of global policy and advocacy at Gates, said in an email to Devex. “However, the foundation's resources represent only a small fraction of what is needed, and we believe strongly in the power of working with a broad coalition of partners, both public and private, to solve some of the world’s most challenging issues.”

Coalitions are key

The Gates Foundation has brought other donors together in a number of coalitions, from GAVI to The End Fund to Uniting to Combat NTDs. And the list of coalitions launched by the co-chairs and the foundation itself only grows, with recent examples including CEPI, the End Malaria Council, and Breakthrough Energy Ventures — all of which mobilize a range of donors to tackle big problems. But the key, particularly for the Gates Foundation, is to make sure that other donors feel that their ideas, as well as their dollars, are valued as part of the process, Brest said.

Mitchell Warren, the executive director of AVAC, received a five year, $14 million grant from the Gates Foundation in 2007, but has since brought other donors on board, and continues to accept individual donations. Warren said the best way organizations can navigate what he calls a conundrum, rather than a curse, is to stay on mission, focusing first on what they are trying to do, and then considering the different pots of money that can help them achieve those objectives.

“I can easily tell you what a $25,000 grant can do that the Gates Foundation with many more zeros can’t help me do,” he said. “If an organization can’t make a compelling case of why a $25,000 grant from a small family foundation isn’t just as critical as a $25 million grant from the Gates Foundation, then it’s not the Gates Foundation’s fault. And I think a good organization is able to do that.”

Of course, donors who might otherwise turn down applications from organizations funded by big donors like Gates can look at paperwork to see how close or far they are from being fully funded, but reports alone cannot dispel these preconceived notions, said Jane Wales, founder of the Global Philanthropy Forum and World Affairs.

“In the end it is up to the organization to make its needs known, through effective communication and ongoing fundraising, something they would do with or without the Gates funding,” she said. “If indeed a Gates grant leads to a mistaken impression of affluence, I still suspect that no one would trade that support in order to avoid that possible problem!”

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