The current limiting factor for new charities

By Joey 🔸, CE @ 2024-03-19T14:40 (+157)

TLDR: we think the limiting factor for new charities has shifted from founder talent to early stage funding being the top limiting factor.
 

We have historically written about limiting factors and how they affect our thinking about the highest impact areas. For new charities, over the past 4-5 years, fairly consistently, the limiting factor has been people; specifically, the fairly rare founder profile that we look for and think has the best chance at founding a field-leading charity. However, we think over the last 12 months this picture has changed in some important ways:

  1. Firstly, we have started founding more charities: After founding ~5 charities a year in 2021 and 2022 we founded 8 charities in 2023 and we think there are good odds we will be able to found ~10-12 charities in 2024. This is a pretty large change. We have not changed our standards for charity quality or founder quality - if anything, we have slightly raised the bar on both compared to historical years. However, we have received more and stronger applications over time both from within and outside of EA. We think this trend is not highly reliable, but our best guess is that it's happening.
    1. Side note: This does not mean that people should be less inclined to apply. We now have a single application system that leads to opportunities in both charity founding, for-profit founding, and high-impact nonprofit research simultaneously.
  2. Secondly, the funding ecosystem has tightened somewhat in seed and mid-stage funding. (Although FTX primarily funded cause areas unrelated to us, their collapse has led to other orgs having larger funding gaps and thus the EA funding ecosystem in general being smaller and more fragile.)
     

The result of this is we now think that going forward the most likely limiting factor of new charities getting founded will be early and mid-stage funding. (We are significantly less concerned about funding for our charities once they are older than ~4 years). This has  influenced our recent work on funding circles (typically aimed at mid-stage funding), Effective Giving initiatives, making our seed funding network open to more people, as well as our recent announcement launching the Founding to Give program (this career path makes more sense the more founder talent you have relative to funding for charities).
 

If I were thinking about the most important action for the average EA forum user to consider, I would consider if you are a good fit for the seed network (website, prior EA forum writeup).

Vasco Grilo🔸 @ 2024-10-03T09:09 (+8)

Thanks for the update, Joey. I understand founder talent no longer being the limiting factor means you have potential founders above your quality bar which cannot start a charity due to lack of funding. Do you have a guess for how much money Ambitious Impact (AIM) would have to receive to pick the marginal rejected founder over the marginal accepted founder?

Relatedly, do you have guesses for the amount of annual donations to AIM which would make it worth it for you to hire the marginal rejections instead of the marginal acceptances for other roles at AIM (e.g. operations and research)?

Joey 🔸 @ 2024-10-26T12:12 (+19)

Hey Vasco,

This is a complex question. I wouldn’t say it has literally resulted in founders who meet our criteria not getting into the program, as we prioritize at a slightly higher level. However, the practical shift has been a change in AIM staff focus, moving from outreach/research toward mid-stage funding and philanthropic ecosystem-building. On a smaller scale, I think it has made us more likely to discourage experiments or founders who have some potential but are less promising than other projects (e.g., solo founders).

I also don’t think the bottleneck is really AIM’s funding itself. It’s more related to the size of the ecosystem we are bringing charities into. For example, it might cost AIM around $150k to get a charity started, plus $150k for seed funding. That $300k is an enabling factor, but the charity may require that level of support each year for the next three years. So it’s more about the $900k gap in the mid-stage ecosystem than direct funding for AIM. One potential solution I see is funding circles (meta write-up here, circles we started here).

Taking all of this into account, I think a reasonable proxy would be around $1M per year donated to mid-stage/AIM charities, which would be worthwhile versus one additional founder. However, I think the variance across cause areas is substantial (it could be half this for animals/mental health and double for global health, or even four times higher for EA meta). I also think personal variance changes things a lot. For example, a top-third founder, I would say, would be twice as expensive as an average one.

Vasco Grilo🔸 @ 2024-10-26T15:56 (+2)

Thanks, Joey!

Taking all of this into account, I think a reasonable proxy would be around $1M per year donated to mid-stage/AIM charities, which would be worthwhile versus one additional founder.

Does your 1 M$/year refer to the value of a random founder relative to nothing, or relative to the best rejected founder? If the best rejected founder had a value of 0.5 M$/year, then it would make sense for a random accepted founder to earn to give if that increased their donations by more than 0.5 M$/year (= (1 - 0.5)*10^6).

Joey 🔸 @ 2024-10-26T18:58 (+4)

We would not accept the next funder down the list so the relative to nothing bar is the correct bar to use. 

Jason @ 2024-03-20T19:09 (+3)

However, we have received more and stronger applications over time both from within and outside of EA. We think this trend is not highly reliable, but our best guess is that it's happening.

Do you have any informed speculation as to why this may be happening?

Joey @ 2024-03-21T13:20 (+8)

I have a couple of guesses:

Every year, we generally become more well-known, particularly within the communities we consistently reach out to (e.g., EA, animal welfare, etc.). This creates natural momentum and credibility within those communities.

Our previous outreach efforts build up the applicant pool for the current year (e.g., someone who heard about us from a talk two years ago might only apply today).

We have done a lot more active outreach to non-EA communities. I think these communities are particularly affected by the visible success of our graduates, so they become a more viable audience as we acquire more prominent success markers (e.g., being featured on Vox's top 50 list).

Jason @ 2024-03-21T13:55 (+18)

Thanks! 

To me, one of the major stories here is that you have managed to break free of an important limiting factor, at least for the present. That is worth celebrating and learning from.

huw @ 2024-03-20T05:55 (+1)

Thanks for the insights! I'm wondering how you think about self-funding charities, i.e. those which produce a product or service which they sell to users that can pay (or whose health insurers / governments can), and donate to users which can't (or for whom it would be very cost-effective to give to). Have any applied to or gone through AIM before?

Brad West @ 2024-03-21T02:50 (+11)

One thought re self-funding charities is that it might best for entities to focus on what they are best at: charities on interventions and for-profit businesses on providing goods and services to consumers or businesses. 

A model that funds charities while enabling entities to focus on what they do best is Profit for Good, in which charities are in the vast majority shareholder position of for-profit companies. I explain why I believe that this model could be quite powerful in my TEDx Talk here:

 

huw @ 2024-03-22T02:19 (+3)

it might best for entities to focus on what they are best at

Off the top of my head it seems like there would be reasonable exceptions to this. I think the necessary conditions would be in markets where a handful of companies control global development & distribution of a necessary thing that affects people across the globe (usually due to economies of scale & intensive development costs + IP control).

Insulin manufacturers, for example, might be justified in charging richer consumers (or more likely charging their governments & insurers), but would also be the best-placed actors to donate their products to poorer people. Specifically, they would be better-placed than separate organisations which use donations to buy & distribute insulin at low margins, because they're still paying for the manufacturer's margins. It equally doesn't make sense for an insulin manufacturer to just target poorer people and run entirely on donations because of the cost-effectiveness they'd achieve by scaling globally.

But I'm not super sure on this. There are definitely advantages to having focus and I'm not sure really how many orgs fit this criteria, or, indeed, how many would practically do this given the overwhelming force of the profit motive.