Markets And Philanthropy

Brad has a great post on the Union Square Ventures weblog about the ways in which markets are likely to impact philanthropy. Brad went back and read the entire Hacking Philanthropy transcript and is going to post some of his thoughts. This is the first of those posts. Brad observes:

Recently we have seen the emergence of a new type of charity, one
that radically changes the relationship between donors and recipients.
Nonprofits like DonorsChoose and Kiva behave more like marketplaces
than traditional charities. This new model allows people in need to
post a request for a gift or a loan to the site, and donors to chose
which of those needs they would like to fund.

We spent a lot of time talking about why this is happening now, the
strengths and weaknesses of this approach, and how the emergence of
these markets might impact philanthropy in the future.

We have had the opportunity to experience the impact of a marketplace for philanthropy right here on this blog with the Donors Choose bloggers challenge. To date, 84 readers of this blog were able to click on a link, sift through dozens of public school classrooms in need of help, and make a donation.

My favorite moment at Hacking Philanthropy is described by Brad in his post:

Leslie Crutchfield stunned the technologists and entrepreneurs in the
group when she pointed out that the in the last 40 years, only two
organizations, Habitat for Humanities and AmeriCares , have broken into
the top twenty five of the Chronicle of Philanthropy’s annual list of
top philanthropies – the Philanthropy 400. The stability of this group
was a surprise to the folks on the for profit side who are used to a
world where one third of the top 25 companies on the Fortune 500 were
not in business in 1965 and companies like Google that did not exist 15
years ago. The emergence of marketplace oriented nonprofits could well
be the disruptive force that leads a reshuffling of the Philanthropy

To me that level of stability is problem. And so I hope marketplaces start to do their thing and bring Philanthropy into the 21st century. We are doing our part and I am very pleased about that.

#VC & Technology

Comments (Archived):

  1. Rob D

    I wonder what will happen to the charity aggregators. I believe the United Way was one that at a previous job wanted a payroll deduction which it then reallocated the money out to other charities. Seems like something that could be made much more efficient with the web.

    1. fredwilson

      United Way is the exact kind of charity that hopefully will be disrupted bytechnology and markets.

  2. Chris Phenner

    The “Atlantic Monthly’s” feature on the Clinton Global Initiative has Ira Magaziner (in particular) describe further the idea of bringing market-based efficiencies to public goods. This builds on market-making as the “new new philanthropy,” except CGI is making it happen on a massive scale relative to micro-donations the sites mentioned are enabling:

  3. greenskeptic

    Great to keep this dialogue going…and I look forward to Brad’s post. One clarification: I’m not sure the description of what Leslie said about the Philanthropy 400 is accurate. I think she was talking about groups that were started since the 1960s…certainly The Nature Conservancy (founded in 1951) broke into the top 25 while I was there and reached number 10 on the charts.Another anomaly that made the charts was Fidelity’s Charitable giving arm. THAT sent shockwaves through the industry, as I recall.Anyway, I’m continuing my dialogue — in part inspired by the Hacking Philanthropy sessions — over at The Green Skeptic (http://greenskeptic.blogspo…) and with Lucy Bernholz at Philanthropy 2173 (http://philanthropy.blogspo…). Check it out and enter the dialogue!

  4. Ethan Bauley

    Brad’s summary is amazing.I can’t wait for some more thoughts. Discussing fraud-management is particularly interesting; balancing “people are fundamentally good” with scalable controls has so many implications (for both non-profit and for-profit…)The response to “In Rainbows” fits in here somewhere as well…

  5. Steven Kane

    at the risk of alienating a lot of my friends…The core problem, I think, is with the way the tax code works. Specifically, with foundations and charitable remainder trusts and the like. Which allow people or institutions to get the tax breaks of philanthropic giving, but do not require that the philanthropies pass along the dough to needy recipients.Specifically, the tax code only requires that a ophilanthropy disburse 5% of its assets each year. Worse, the tax code allows non-profits to pay administrators humungous compensation — and even allows a foundation to pay its own donor compensation.Well, in a world where you can get a much greater than 5% return on assets pretty much in your sleep (remember, these are charities and they do not pay taxes!), that means that foundations and trusts and philanthropies become monsters, only nominally executing their missions while creating fat cat jobs for bureacrats and ego-strokes for donors who (inn some cases) literally pay themselves for “administering” their own charitable giving.It’s no woner a few humungous philanthropies dominate the “400” for long periods of time. Other than a once-in-a-millenium gesture like the Gates and Buffet gifts, how exactly will any new organization compete with the Ford, Sloan, or MacArthur Foundations?Btw, for all our hand-wringing over income inequality and “the BUsh tax cuts”, if you really want to do something about the disapperaing middle class and accumulation of extreme wealth, re-write the tax code to awy these types of sops to the wealthy. Tweaking income taxes is a fools game and a head fake…

  6. John McGrath

    I imagine the philanthropic world will, on the average, benefit from new ideas and a more market-driven environment.One possible downside: if people can more easily direct their giving on a granular level (a specific teacher, for instance), you could have a situation where photogenic feel-good causes get all the money, while thornier, uglier problems, which might be more in need of solving, are starved. Sort of the way charismatic megafauna get more attention than, say, cephalopods.This might be the case already, but it could be exacerbated if technology makes it easier to bypass a level of bureaucracy.