Key Questions about Philanthropy, Part 1: What Is the Role of a Funder?

By Holden Karnofsky @ 2015-06-23T13:30 (+3)

This is a linkpost to https://www.openphilanthropy.org/blog/key-questions-about-philanthropy-part-1-what-role-funder

Note: Before the launch of the Open Philanthropy Project Blog, this post appeared on the GiveWell Blog. Uses of “we” and “our” in the below post may refer to the Open Philanthropy Project or to GiveWell as an organization. Additional comments may be available at the original post. This post was updated on July 6 with language edits but substantially unchanged content.

As a new funder, we’ve found it surprisingly difficult to “learn the ropes” of philanthropy. We’ve found relatively little reading material - public or private - on some of the key questions we’re grappling with in starting a grantmaking organization, such as “What sorts of people should staff a foundation?” and “What makes a good grant?” To be sure, there is some written advice on philanthropy, but it leaves many of these foundational questions unaddressed. As we’ve worked on the Open Philanthropy Project, we’ve accumulated a list of questions and opinions piecemeal. This blog post is the first in a series that aims to share what we’ve gathered so far. We’ll outline some of the most important questions we’ve grappled with, and we’ll give our working answer for each one, partly to help clarify what the question means, and partly to record our thoughts, which we hope will make it easier to get feedback and track our evolution over time. We’d love to see others - particularly experienced philanthropists - write more about how they’ve thought through these questions, and other key questions we’ve neglected to raise. We hope that some day new philanthropists will be able to easily get a sense for the range of opinions among experienced funders, so that they can make informed decisions about what kind of philanthropist they want to be, rather than starting largely from scratch. This post focuses on the question: “what is the role of a funder, relative to other organizations?” In brief:

• At first glance, it seems like a funder’s main comparative advantage is providing funding, and one might guess that a funder would do well to stick to this role as closely as possible. In other words, a funder might seek to play a “passive” role, by considering others’ ideas and choosing which ones to fund, without trying to actively influence what partner organizations work on or how they work on it.
• In practice, this doesn’t seem to be how the vast majority of major funders operate. It’s common for funders to develop their own strategies, provide funding restricted for specific purposes, develop ideas for new organizations and pitch them to potential founders, and more. Below, we lay out a spectrum from “highly passive” funders (focused on supporting others’ ideas) to “highly active” funders (focused on executing their own strategies, with strong oversight of grantees). More
• In the final section of this post, we lay out our rough take on when we think it’s appropriate for us, as a funder, to do more than write a check. In addition to some roles that may be familiar from for-profit investing - such as providing connections, helping with fundraising and providing basic oversight - we believe it is also worth noting the role of funders play via cause selection, and the role a funder can play in filling gaps in a field by creating organizations. More

The spectrum from passive to active funding

There is a good deal of variation in how “active” different funders seek to be. If I were to articulate two ends of the spectrum, I’d say that:

• One end is roughly represented by groups like Ashoka and the Skoll Foundation, both of which consider proposals from “social entrepreneurs” in a wide variety of areas and fund the ones they find strongest. Neither is a purely passive funder, but both appear focused on identifying and supporting others’ ideas.
• The other end might be represented by groups that started as foundations but eventually made transitions, becoming public charities or operating nonprofits and choosing to focus on running their own programs rather than making grants. The Kaiser Family Foundation appears to be an example, as does the Pew Charitable Trusts.

Most major funders seem to be somewhere in between. They provide a mix of unrestricted and restricted funding. They develop their own in-house expertise, create their own strategies, pitch ideas to potential grantees, assemble convenings, and often get involved in grantees’ work at a level beyond simply cutting a check. At the same time, their relationship to most grantees is that of a supporter who checks in periodically rather than a partner who is involved day-to-day.

Our provisional take on the funder’s role

As we’ve written before, we initially envisioned taking a highly passive approach, but we have learned that there is a strong case for being active in certain ways. For us, the key question is what we, as the funder, are positioned to do better than others. We believe it makes sense to be active where we can offer something (besides money) that our grantees don’t have. But we want to avoid micro-managing grantees, who have more knowledge of their issues and their capabilities than we do. What a given funder has to offer will depend on what sorts of expertise and staff that funder has built up. But to generalize, it currently seems to us that:

• Funders have much of their impact via cause selection: choosing what problems and issues - for example, criminal justice reform vs. global health vs. biomedical innovation - to prioritize. This is a personal-values-laden decision, and not one that grantees are well positioned to help with, as they tend to have a focus on a particular problem or issue baked into their mission. Accordingly, it is often appropriate for a funder to support a grantee only on condition that they prioritize a given cause/problem/issue/goal. When a funder is interested in an issue that gets relatively little attention, it may be necessary for the funder to proactively build the field by holding convenings, speaking publicly about the issue’s importance, etc. I believe there is a significant difference with for-profit investing here: in the for-profit world, there generally is high alignment on the ultimate goal (making money) between prospective investors and investees, whereas in the nonprofit world, alignment on ultimate goals is the exception rather than the rule.
• A funder may be well-positioned to identify a gap in a field - a type of organization, collaboration or project that ought to exist and doesn’t. This is by virtue of having a broad view of, and relationships with, all of the organizations working on a particular cause, and having the funds to support the creation of a new one. Funders are not the only actors who can create new organizations; they can also be created by entrepreneurial individuals pitching their own plans. However, we’ve observed that funders often are key players in the creation of new nonprofit organizations (see our previous post on the subject). In order to be well positioned to identify gaps, we’ve tried to learn about what sorts of organizations can exist, particularly by looking at successful, well-funded causes. With this “inventory” in hand, we’re better able to look at a given field and see what’s “missing.” An example of such an “inventory” is our list of the different avenues by which nonprofits can influence policy.
• There may be times when a grantee has a basic, structural deficiency that a funder is able to spot and help to address. One example is the Sandler Foundation’s support for improving the communications capacity of the Center on Budget and Policy Priorities. Here again, it seems helpful to have a good sense for the basic “inventory” of different ways to accomplish philanthropic goals, as well as a strong network so that one can connect organizations with partners who are strong where they are weak. However, as a funder, we believe we should be careful to distinguish between (a) areas where the grantee has a weakness that we can help to address and (b) cases where the grantee and we simply disagree, and the grantee is well positioned to have an informed view, to which we ought to defer. We suspect that many organizations are eager enough for funding that they may act against their own best interests when pushed to do so by an opinionated funder. We also believe that if we try to help to address a weakness, we should focus on connecting the organization to qualified advisers, rather than on getting directly involved in the organization’s tactics and practices.
• Relatedly, funders often have networks that can be useful for a grantee to tap into, especially for the purpose of fundraising. A common role of a funder, as in for-profit investing, is to provide fundraising leads and other connections.
• Nonprofits often plan for their level of funding to stay roughly the same or grow modestly. When offered the chance to grow their budget substantially, some nonprofits have little idea at first of what they would do. But when continually encouraged to think about this question, they may come up with new ideas. We’ve seen examples of this as a funder, though they aren’t currently public. GiveWell also has experienced this dynamic as a grantee. We did not have the idea for the Open Philanthropy Project (previously GiveWell Labs) until Good Ventures expressed a high degree of interest in our work. Having a major funder encourage us to think about how we would allocate large amounts of money caused us to think more deeply about the matter than we would have otherwise. Now, as a funder, when we find strong people or organizations who aren’t actively seeking more funding, we often try to develop relationships with them and continually raise the possibility of providing funding, rather than simply expressing a basic level of interest and dropping out of touch.

Outside of the above situations, we ideally seek to have only high-level involvement in our grantees’ work - more analogous to that of a board member than that of a manager or consultant. We aim to check in periodically, assess high-level progress, ask critical questions, and drill down when we don’t understand a grantee’s answers. We aim ultimately to defer to the grantee on most details. We don’t think this is necessarily how every funder should behave - funders with certain kinds of expertise or staff may seek more involvement, or even to operate their own programs - but it is what we are aiming for.