Understand a new generation of philanthropistsIn the nonprofit world, you've probably heard the term "new philanthropy" used to describe a certain kind of donor. But what exactly is new philanthropy and, more importantly, how can it help your organization?
What is new philanthropy?
New philanthropy is an emerging field that refers to a new generation of philanthropists, many of whom became rich during the dot-com boom of the 1990s. These newly wealthy, along with some established foundations, began taking a more business-like approach to addressing social issues with their capital. Instead of following the traditional grant model, they viewed philanthropy as investments in portfolios aimed at the cause of a specific social issue, such as poverty. Another term for this type of approach is philanthrocapitalism.
These donors-as-investors are typically more willing to take risks and use technology to make a difference. However, they also want their investments to generate measurable social returns — and often financial returns, too.
Some examples of new philanthropy investment models include:
- Donor-advised funds. This is a type of philanthropic vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit and recommend grants from the fund over time.
- Venture philanthropy. This type of philanthropy is focused on capital building and working with recipients of grants to innovate. Performance measurement is important and the goal is to improve systems, rather than to promote a specific organization or project. The average engagement period is five to seven years. Typically, the idea is to make a profit while having a positive social impact.
- Impact investing. This type of philanthropy involves mobilizing large pools of private capital from new sources to address the world's most critical social issues. Impact investing can take place in a developed or emerging market and is done through private equity, debt or fixed-income securities. Impact investing is sometimes referred to as social investment.
What are the pros and cons of new philanthropy for nonprofits?
On the positive side, this new way of thinking about philanthropy can help nonprofits struggling to cover administrative or infrastructure costs that grants often exclude. Investors have an interest in building an organization's capacity.
But new philanthropists usually want to be engaged in how an organization is run. This might limit the number of nonprofits an investor is able to take on, creating more competition among nonprofits for scarce funding. In addition, tech savvy, entrepreneurial philanthropists enthusiastic about applying their skills to changing the world may face a steep learning curve as they bump up against political, social and cultural forces in the nonprofit world.
New philanthropists are also known for targeting an entrepreneur with a great new idea, rather than looking for existing nonprofit programs to support.
How can your nonprofit take advantage of new philanthropy?
New philanthropy could be an important source of funding for your nonprofit, especially if your organization has an innovative idea or new type of technology in need of cash. But you might need to make changes to become more attractive to this type of foundation or investor. For example:
- Carefully measure progress. Consider developing a more precise method of measuring progress toward your goals to demonstrate a return on investment.
- Reimagine your donor relationships. Instead of relying on traditional methods of communicating, make this type of philanthropist a part of your organization and its processes. Whenever possible, draw on his or her business skills and intelligence.
- Think like an entrepreneur. See and seek out opportunities. Weigh and assess risks. Creatively solve problems. Prepare for and expect change. Stay motivated. Show this type of investor that you're ready and willing to adapt, including to a new mode of giving.
Don't let new philanthropy pass over your nonprofit. While attracting and working with a donor-as-investor may require some changes in your organization, your mission will likely reap the rewards.