Although much has been written about ‘what donors believe’ and ‘how modern foundations work’, hard data about how private foundation donors view themselves, their roles, and the non-profits they support is relatively scarce. With almost 1,200 US-based private foundation clients, Foundation Source is well positioned to put some of the common assumptions about this sector to the test. Last November, we carried out a survey of our clients that debunked some of philanthropy’s most established axioms – especially those relating to foundation attitudes to non-profits.
And because most of our clients, like 98 per cent of the approximately 86,000 private foundations in the US, are private foundations with less than $50 million in assets, the 198 responses we received are likely to be representative of a much larger group.
High levels of confidence in non-profits
Today’s donors have a high degree of confidence in philanthropy’s ability to achieve results: 99.5 per cent of our respondents told us that philanthropy makes a ‘high’ or ‘moderate’ impact. Not only do these donors think highly of the efficacy of their philanthropic peers, but they are equally positive about their non-profit grantees. Given the oft-repeated rap in the media that charities are ‘where business-like efficiency goes to die’, this was a surprise.
Instead, our survey respondents told us they think highly of non-profit leadership. When asked, ‘How well-run are non-profits?’ 96.4 per cent of respondents ranked them between ‘fair’ and ‘excellent’, suggesting that their personal experience with non-profits shapes their perceptions more powerfully than the influence of the press.
Choice of non-profits based on personal experience …
When asked, ‘How do you typically identify organizations for potential grants?’ 85.6 per cent said, ‘We mostly find and choose organizations ourselves.’ Just 7.9 per cent said, ‘We mostly fund organizations that submit proposals/requests to our foundation.’ Given donors’ esteem for non-profit leadership, and their willingness to let non-profits ‘take the lead’, one might be surprised to learn that the majority of foundations aren’t all that receptive to receiving outside grant proposals.
Why do these foundations exhibit such a strong preference? Perhaps the answer can be found in their response to our question, ‘What is the most important factor in determining whether to grant to a non-profit?’ A majority said that their personal knowledge of/previous experience with an organization most influenced their decision. The way non-profits solicit funding from larger foundations simply does not work with those with less than $50 million in assets. For these funders, grantmaking is a relationship-based enterprise. They want to give to organizations that they’re involved with, organizations with which they have a personal relationship. To attract these foundations, non-profits need to provide opportunities for these donors to get to know them in a low-pressure way. The effort is definitely worth making because, once they’ve found non-profits that they trust, foundations tend to repeat their grants. Almost two thirds of respondents estimated that at least 75 per cent of their annual grantmaking went to organizations they had supported in the previous year.
… with evidence of results taking second place
Many in the philanthropic sector believe that if non-profits could provide hard evidence of results, donors would give more to the best-performing organizations. As already seen, our survey indicates that this isn’t necessarily the most important criterion. While 37.4 per cent cited ‘personal knowledge of/previous experience with the organization’ as the most important factor in determining whether to grant to a non-profit, only 25.6 per cent cited ‘clear evidence of demonstrable impact’.
Based on our experience, it seems likely that instead of relying upon external evidence of results to select grantees, these foundations look to this data to validate selections they’ve already made. Independent evidence of results is less important for these funders because their grantmaking is based on direct experience.
It’s not that these foundations don’t care about results – it’s just that they don’t use impact data to identify non-profits. In fact, they overwhelmingly prefer to find their own grantees.
A preference for ‘reactive’ philanthropy
There is an ongoing debate about how foundations should work with non-profits to solve social problems. Some argue that foundation should just make donations and let non-profits do what they are good at; others contend that foundations should drive the strategic agenda and ask non-profits to realize their own vision. According to our survey, most clients trust non-profit grantees to take the lead. An overwhelming majority of survey respondents (77.5 per cent) agreed with the statement that ‘Foundations should support non-profits without telling them what to do because it negates the value of non-profits’ “on the ground” knowledge’. Just 22.5 per cent opted for a more proactive approach, agreeing that ‘Foundations should direct non-profits to carry out the foundation’s own vision and ideas’.
However, we were surprised that the percentage opting for a more proactive, entrepreneurial approach was so high ‒ nearly a quarter of those participating in the survey. Ten years ago, that ratio likely would have been 5 per cent proactive versus 95 per cent reactive. This change may be due to the fact that a significant number of our clients are first-generation wealth creators. In our experience, entrepreneurial types who create their own wealth often want to use their business acumen to drive the agenda and pioneer their own philanthropic solutions.
General operating support
One criticism of foundations is that they too often support specific programmes and don’t offer much-needed operating support to grantees. But our survey found that nearly half the respondents, 48.7 per cent, ‘typically provide general support to non-profits without restrictions’. Contrary to common perceptions, nearly half of these donors provide the holy grail of foundation funding: general operation support – another sign of their confidence in the non-profits they support.
In philanthropic circles, collaboration among foundations for greater impact has been hailed as a ‘transformative trend’, but to what extent do private foundations actually collaborate? Our survey suggests that in practice foundations seem to have mixed attitudes. When asked, ‘Over the past year, did you collaborate with other foundations on your philanthropy?’ 24.9 per cent indicated that they had and 20.8 per cent said they had not but ‘planned on doing so in the near future’. Over half of those surveyed (54.3 per cent) indicated that they had not collaborated with other foundations and had no plans to do so. Interestingly, no respondents said that they had worked with other foundations in the past year but would never collaborate again, suggesting that those who do partner with other foundations find the experience worthwhile.
The final trend we looked at, impact investing, actually proved more popular than we had expected. Our survey indicated that for many foundations, the social impact of their investments isn’t just an important consideration; it’s the most important consideration. Although the majority (53.9 per cent) still contend that ‘getting the greatest returns on our investment’ is of prime importance, nearly half of the respondents, 46.1 per cent, said that ‘choosing investments that further our foundation’s mission’ is even more important than financial returns. As impact investing gains ground, donors will increasingly look to their advisers for investments that can provide both financial and social returns.
As our findings demonstrate, private foundations aren’t always a headline writer’s friend. Sometimes, they fail to follow the story lines; at other times, they write their own. Thankfully, for those of us who work with them, these philanthropists seem to have their own priorities.
To download the full survey