Head or Heart When Appealing to Donors? (Part Two-The Head)

A ‘Heady’ Approach
Another school of thought is that donors are really more like investors: they invest their charitable dollars in nonprofits of their choice, and the ‘return’ they get from so doing is the ‘psychic reward’ of having done a good thing with their money. In other words, ideally there would be a social capital marketplace that facilitates the connection of sources of capital (donors) to uses of capital (nonprofits). According to a key feature in The Economist that highlighted this issue almost three years ago, three things would be needed for a philanthropic marketplace to work:
"First, there must be something for philanthropists to ‘invest’ in—something that, ideally, will be created by ‘social entrepreneurs’, just as in the for-profit world entrepreneurs create companies that end up traded on the stockmarket.
Second, the market requires an infrastructure, the philanthropic equivalent of stockmarkets, investment banks, research houses, management consultants and so on….
Third, philanthropists themselves need to behave more like investors. That means allocating their money to make the greatest possible difference to society's problems: in other words, to maximise their ‘social return’."

Writing for the Financial Times, Sean Stannard-Stockton describes the social capital marketplace as one that is, “characterized by a model of giving that mirrors the financial markets,” but that is, “still in its infancy.” In the article, he goes on to hypothesize about what this marketplace will look like in 25 years. He suggests:
“For many donors, the year 2033 does not look a whole lot different from 2008. Many people simply write checks to charities and devote the bulk of their giving to non-profit organizations in their community.
But for some donors, the landscape is radically different. The “social stock exchanges” that became popular between 2011 and 2019 now include all but a few large non-profits and many small but ambitious start-ups.
These exchanges compete for non-profit listings. Exchanges include big national networks with some international organizations, down to small local exchanges.
The business of giving money away is particularly different for large private foundations and smaller “impact-oriented” foundations. Instead of expecting non-profits to solicit them for grants, these foundations’ “impact committees” and “program analysts” spend their days looking for and researching potential grantees. Given the considerable information disclosure required by the exchanges, much of the information required for grantee research is available online. Third-party evaluation firms provide regular reports on listed non-profits and these reports are a valuable input for the foundations.
While the cost to non-profits of conforming to the exchanges’ information disclosure requirements is steep, once listed they find grant dollars come looking for them rather than the other way round. Exchange-listed non-profits tend to have small fund-raising groups that focus on “donor relations”. They market the non-profit by attending “road shows” where they have the chance to make their case.”

Jeff Tuller and Allan Benamer agree that the philanthropic sector is ripe for this type of mechanism. They are co-founders of SocialMarkets, an Internet-based organization whose mission is to “build the foundation for a true social capital marketplace. This is only possible through the measurement of both social good and the risk involved in its creation, asking for the cooperation of both those who create social goods and those who invest in them.” [Full disclosure: GivingNet currently serves as fiscal sponsor for SocialMarkets.] Their “vision” is “of an ideal outcome of the socialmarkets enterprise: the foundation of a true social capital marketplace. We believe such an outcome is only possible through the measurement of both social good and the risk involved in its creation. We know that such an outcome is only possible with the cooperation of both those who create social good and those who invest in them.”

In his blog on the subject, Benamer goes on to describe socialmarkets.org as a place, “where donors ‘invest’ in nonprofit projects based on their SROI (Social Return On Investment.):
“There are plenty of donors looking for a “best-bang-for-the-buck” (i.e. maximum SROI) approach to non-profit investment, and right now there is not much useful data out there for them. The success of sites like Charity Navigator are a testament to the need for metrics, but they only tell potential donors about what nonprofits spend, rather than what they accomplish. Surely we can do better than that.”

Socialmarkets is in its very early stages of development, but you can check out their approach by viewing their current listings. For example, a donor might choose to fund Rushing Rivers Institute to train people to save rivers. Socialmarkets has determined that a $100,000.00 investment in this cause would yield a $238,853.00 SROI. Donors can also vote for their favorite listings, and there is a “leaderboard” in which donors are rated by their overall social return on investment for all the donations they have made through socialmarkets.

Meeting in the Middle
While on the surface GreatNonprofits and SocialMarkets seem to have almost diametrically opposed approaches to luring donor interest and investment in nonprofit causes, in reality their founders would agree that some combination of touching the hearts of donors while appealing to their desire for transparency, accountability and efficient, effective use of their charitable dollars is required. There is a spectrum of donor types and donor expectations, and some combination of the information provided by these two organizations is likely to appeal to most. Donors--what do you think?

Caroline Heine

Posted at 1:00 AM, May 01, 2008 in Accountability | Global Philanthropy | High Net Worth Donors | Nonprofit Management | Performance Measurement | Scaling Philanthropy | Social Entreprenuers | Technology | Permalink | Comment