News and analysis
April 19, 2013

Data, Risk Aversion, and Social Investing Dominate Donors’ Concerns

Donors often fail to research who else is financing a cause before they dive into it. That was one of many takeaways from this weeks’ Global Philanthropy Forum, an annual gathering of wealthy individuals, top foundation officials, and nonprofit leaders.

The gathering also focused on trade-offs required when investing in social businesses and on data that can constrain as well as embolden philanthropy.

This year’s theme was “Outrage, Opportunity, Choice.” Participants focused on three daunting global challenges—human trafficking, hunger, and a lack of access to quality education—and the many options available to donors in shaping their response.

“A lot of the problems we face are the results of millions of individual choices, including of the philanthropists in the room, and the solutions we find can also be a manner of individual choice,” said Jane Wales, a vice president at the Aspen Institute, who has built the invitation-only event into a destination for some of the world’s most innovative nonprofit leaders.

Courage and Risk

During a discussion on how to give money away, Larry Kramer, the new head of the William and Flora Hewlett Foundation, said he doesn’t think philanthropy lives up to its reputation in some quarters as a field that pays for experimental projects and can deploy its money in risky ways.

“It’s a very risk-averse sector,” said Mr. Kramer, who in September succeeded Paul Brest in the job.

Mr. Kramer said he believes that philanthropy’s growing focus on data and evaluation exacerbates that caution. “It makes you more nervous about venturing in,” he said, and may lead donors to focus on philanthropic work whose impact can more easily be measured.

But Bradford Smith, who leads the Foundation Center, argued that data can also be “liberating and give people courage.”

It can, for example, help donors recognize who else is supporting causes that interest them and give them ideas for shaping their grants to make a difference.

Yet Mr. Smith said that few philanthropists conduct that kind of research. Donors are too focused on trying to be unique, he said, and are too eager to set up their own approaches to solving problem, their own systems for managing grants, and their own policies, with little input from outside.

“This is an industry with unlimited potential, with something incredibly valuable, which is that our resources are not earmarked or tied down and are really free to take risks,” he said. “But there’s an enormous amount of inefficiency, to really stop and see who does what, where.”

Mr. Kramer, meanwhile, said he’s been surprised by how difficult it is to collaborate with other foundations.

The former Stanford law school dean said he was drawn to philanthropy in part because grant makers don’t compete against one another the way universities compete for students, faculty, donor money, and rankings. Yet he’s found it more difficult to forge collaborations with other grant makers than with other law schools, said Mr. Kramer.

“I did better getting cooperation with Elena Kagan at Harvard,” he said, referring to the Supreme Court associate justice when she was dean of the law school.

Mr. Kramer also questioned whether philanthropy was drawn to expensive evaluation techniques like randomized, controlled trials when cheaper, simpler alternatives to measuring the effectiveness of projects would be sufficient.

Data and Donors

In a session on data, top officials from GuideStar, the United Nations’ Global Pulse, and the John S. and James L. Knight Foundation discussed the quest for timely information on charity performance and how it could change philanthropy.

Donors who have an appetite for lots of data on charities are a minority, said Jacob Harold, president of GuideStar, but they still number millions of people. As more information becomes available on charities’ work and effectiveness, he said, the field of philanthropy needs to ensure that it pushes that information to people on Web sites they already visit rather than trying to draw people to all sorts of new sites.

Mr. Harold described telling a friend who works at Google that GuideStar attracts 10 million people to its Web site each year. The friend responded that Google has that many users every minute. Mr. Harold said his friend’s numbers were off—Google attracts approximately 3 million users every minute—but the example shows that philanthropy has to think about deploying information about charities in ways it will easily reach people.

“We can no longer call people over to us,” he said.

Making Trade Offs

Another hot topic at the conference was impact investing, or deploying money in ways that can produce both social and financial returns.

Speakers said that too many donors and investors are risk averse, willing only to finance social businesses and nonprofits that have a record of returning money on their investment.

“There’s not enough money that’s willing to take risks,” said Sasha Dichter, chief innovation officer with Acumen Fund. The field needs more people, he said, who are “going to say, I hope that this business is successful, I expect this business to be successful, but I’m going to take a bet.”

Matt Bannick, who leads Omidyar Network, agreed, noting estimates that suggest that two-thirds of the money going into impact investing has been put there by people unwilling to sacrifice financial returns. But trade-offs are required, he and others said.

“A lot of impact investors are waiting for the water to flow and looking for high impact and returns,” said Mr. Bannick. “No one is really thinking about doing the hard work to invest in early-stage enterprises.”

Maya Chorengel, founder of Elevar Equity, an investment firm that supports socially minded entrepreneurs, cautioned nonprofit leaders against putting financial returns ahead of their impact on social problems.

Impact, she said, “is the only thing that separates us from Wall Street. We have to got to stay real.”

Yes, measuring an investment’s influence on people’s health or access to education is more difficult than measuring financial returns, she said, but it’s ultimately far more important.

Send an e-mail to Caroline Preston.