Before an innovation can positively impact higher proportions of people, one or more funders must provide seed funding. It is well-known that philanthropy is necessary for taking initial risks to pilot programs that, if successful, governments can scale. Likewise, unless people are willing to take at least some level of risk to enable Social Impact Infrastructure Organizations (SIIOs) to grow, very little progress will occur.
Here are three considerations to help mitigate risks when investing in SIIOs:
1. Take Small, Calculated Risks
The operative words in supporting SIIOs are “small, calculated risks.” For example, the Conrad N. Hilton Foundation and a second grant maker made a small investment in an organization in Kenya by sharing the cost of hiring an assistant to a high-powered leader, Arif Neky, the Country Coordinator for the SDG Philanthropy Platform. The gift was small, but the results were extraordinary.
This assistant provided approximately 20,000 hours a year in service to Mr. Neky. This time freed up Mr. Neky’s time to do critical mission-centered work, such as creating a band of 10 governors who advanced Early Childhood Education in their respective counties. He then incubated the African Venture Philanthropy Network, which has attracted over $150 million in social impact investments in countries across the continent!
Since the cost of hiring the assistant was modest, the two grantmakers took a small, calculated risk with the prospect of reaping high returns.
2. Provide Funding that Saves Time and Enables Growth
One way to mitigate risk is by funding an organization to hire an assistant at $25.00 per hour. The cost can be even less if hiring someone overseas. In such situations providing relatively small grants to hire an assistant who can help with critical but burdensome administrative and data entry tasks allows senior staff to put more time into important work such as fundraising.
Remember that your gift doesn’t have to be done all at once when trying this strategy. You can mitigate risk by running a trial for three to six months before committing funds for an entire year. Try to maintain a relationship with the organization and get regular feedback from different sources regarding how your gift has helped increase organizational productivity.
3. Engaging in Funding Alongside Others
If two or more people share the costs, the individual outlay for each person is less.
What is a Pooled Fund?
- According to Giving Compass, “in a pooled fund, multiple donors make grants to a single entity, often a 501(c)(3) intermediary, to have a greater and more coordinated impact on an issue. Dollars are combined to create a larger pool of funds, and participating donors jointly make recommendations about how these funds can be used.” Pooled funding can reduce the risk of your donation not making an impact, as the collective donation will be larger, and therefore more likely to achieve a positive impact. Below are three additional vehicles for sharing the cost and risk. Find more information on this topic here.
Giving Circles
A giving circle is where a group of donors come together to decide on the nonprofit or philanthropic project they wish to support. This approach allows them to pool their resources and leverage their collective knowledge, networks, and impact to make a more significant impact than they could have made individually.
Issue Funds
The Raikes Foundation wrote, “these funds offer unique ways for donors to learn about and support an issue or cause through a portfolio approach, rather than giving to an individual organization.”
In conclusion, lessening risk can happen in five ways: (1) Spending less than it would cost to hire a development or communications person, although the benefits may be less. 2) Committing to 6 months or less upfront. (3) Engaging in pooled funding to lessen the amount each person contributes. (4) Joining a giving circle or issue fund to increase the amount of money made available for the project. 5) Joining a giving circle or issue fund to increase the human resources, intellectual capital, and expertise that goes into the project.
Conclusion
Again, we all have cause to be grateful to the countless philanthropists who were willing to take risks with their giving. It is impossible to calculate the immense value these individuals added to bettering our world. As you explore new opportunities and ways to give, please remember those who put their fears aside and took a risk – perhaps just a small calculated risk – that initiated a first ripple effect toward achieving long-lasting social progress.