16 THE GOOD LIFE SEPTEMBER 2014 Investments & financial services The Frustrated Philanthropist


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hilanthropy is evolving. More and more business people are becoming active philanthropists and more and


more people from business are moving into the non-profit sector. Frustrated by the perceived inefficiencies of the ‘traditional charity’, philanthropists are seeking to drive ‘value’ from their philanthropy. Tis approach, however, leads philanthropists


to safe decisions, capped outcomes, and ensuing feelings of dissatisfaction. A move to ‘professionalise’ philanthropy has undermined the very role it exists to serve — to innovate. Today’s philanthropists are increasingly stuck


within a false narrative about the charity sector, believing a series of myths that are stopping them from having the impact they could have. Te first of these is that charities without


track records can’t be trusted. Tis leads to the mistake of seeking charities only with well- known supporters and proven ‘social return on investment’. Tis is the investment equivalent of investing in a FTSE 500 company: safe, secure, virtually guaranteed results. Tis strategy works well if your ambition is to


‘help some people’. You’re almost guaranteed to succeed. But if you’re giving away £50k to £5m a year and looking to make a major impact on national problems, it’s terrible. Te purpose of philanthropy is not to replace, top-up or replicate government expenditure which invests using the same criteria: funding proven programmes at scale. Except while an individual or small family foundation might fund £25,000 or even £1m into a programme, government has billions to spend. Te Department for Education’s budget is close to £50bn and yet foundations are springing up that copy its mission statement and strategy almost word for word. No, the purpose of philanthropy is instead


to do what government is traditionally bad at — translating services to local communities and innovating. Te charity sector can go to government for contracting services at scale but


it’s through early-stage, angel-style investment that high net worth individuals can make their biggest difference. £100k to a proven programme might extend its


reach by 1%,


while £100k to a new, unproven idea could lead to the development of a new programme that government picks up and eventually spends tens of millions on rolling out. Te risk increases, by the returns do also and with the amount of social innovation currently taking place, it’s a buyers’ market for early-stage ideas with the potential to have national and international impact. Myth two is that charities are wasteful, and


that waste is defined as dreaded ‘overheads’. A good business might aim for a 25% cost of sale, 75% gross profit, and 25% net profit. Sometimes this 25% net profit will be reinvested in growth and innovation. Tis is a strong operating model. Yet the second we look at a charity, we lose all sense of what a robust organisation looks like and instead seek charities operating at 80% cost of sale. It makes no sense. Philanthropists are using their resources to stifle innovation and create under-resourced organisations that are incapable of growth. To solve problems, the charity sector needs much larger amounts for testing, researching, partnering, and learning — we need to empower leadership teams, not tie them in to factory-style production. Te third myth is that running grant


application processes for causes you know very little about is worthwhile. Good angel investors base investments on their own expert insight into the market need for the proposed product/ service, their faith in the leadership team to keep innovating, and the potential for exit. Of course you want to see that work has gone


into a business plan and programmatic plans, but ensuring people enter into an agreement to stick to that plan is not how angels make their money. Yet in the charity world, philanthropists are increasingly sponsoring programmes (activity that leaves little flexibility) and rarely backing entrepreneurs.


Creating social change through philanthropy is hard. However, philanthropic failure should not be defined as giving to charities that have too high overheads, but rather as making gifts that constrain rather than enable, and not having the confidence to back an idea that could change the world but currently sits without proof, without funding and therefore, without hope


spent because they don’t have confidence in themselves


People are dictating how their money is to make


educated input on


changes to direction and don’t have faith in the leadership teams they are investing into to either. Tis is a huge problem and stems from the fact that philanthropists tend to start spending before they start learning — when it comes to business they’re savvy, do their research, look at competitors in the marketplace, understand how to judge leadership and yet when it comes to charity, they ask for a grant application, a ‘site visit’ and go to a charity ball. All this tells you is how smooth their fundraiser is and very little about the likelihood that the group of people you’re considering supporting has the potential to make a critical difference to the problem they seek to solve and, indeed, if your money can significantly increase their odds of success. We need philanthropists capable of making


expert decisions, and the only way to do that is to meet experts, practitioners, read, and listen and — most importantly — spend real time with the communities you wish to serve. Creating social change through philanthropy


is hard. However, philanthropic failure should not be defined as giving to charities that have too high overheads, but rather as making giſts that constrain rather than enable. Te move toward ‘professionalising’ philanthropy and assessing a non-profit


The Social Investment Consultancy helps individuals, businesses & families giving £50,000 - £5m to back ideas that can change the world. Contact CEO, Jake Hayman: E: jake@tsiconsultancy.com T: 020 7239 8935. www.tsiconsultancy.com


organisation with a balance-sheet approach is to misunderstand the role it plays in the ecosystem of change. Philanthropists don’t have the resources to reach market penetration of programmes so fund a solution for a fraction of those that need it. So 12 months later when they find they’ve had next to no impact on the national problem they care about and the charity asks them for the same amount again to have another fraction of a percentage penetration against the problem, they become frustrated. New philanthropists need to


take the


time to really educate themselves about the communities they care about, the problems they wish to solve and, most importantly, the range of solutions and ideas that they could test to have an impact. If they do this, then they might begin to have the confidence to back an idea that could change the world but currently sits without proof, without funding and therefore, without hope.


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