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Fundraising and Philanthropy: Yesterday, Today, and Tomorrow

By Tom Watson on May 9, 2007No Comment

Fundraising and Philanthropy: Yesterday, Today, and Tomorrow
By Susan Raymond and Josh Moore

From the Islamic pillar of Zakat, to Jewish tzedakah, to Christian tithing, modern philanthropy is rooted in religion and human history, in our innate desire for good and for meaning.  Though little has changed over the centuries in our desire for benevolence, the methods and mechanisms by which we give, especially in recent times, are in constant transformation.  More and more, philanthropy is adapting to our modern era, and with it, modern practice, law, and scrutiny.  In the same way, the philanthropy of tomorrow must adapt to a changing world, to advances in technology, finance, and politics.  As the act of charity evolves into the business of charity, the ability for us to truly change the world requires innovation, creativity, and the capacity to adapt to what’s coming next.  Although our current climate has seen tremendous growth in giving, competition for, and restrictions on, these resources have altered the ways in which we raise funds.  As such, the successful future of philanthropy will require its leaders to adopt and create new approaches to fundraising and finance.

Philanthropy over the Last 30 Years
Over the last thirty years, the United States has seen a virtual explosion in the amount of philanthropy provided by its citizens and corporations.  Adjusted for inflation, total philanthropic giving has grown from $91 billion in 1965, to a staggering $260 billion in 2005, a sum greater than the entire gross domestic product of Israel, New Zealand and Jordan combined.  This growth, however, has been matched by an equally staggering growth in the nonprofit sector itself. Between 1982 and 2005, the total number of tax-exempt institutions in the United States increased by 40%, from 1.2 to 1.7 million.  For 501(c)(3) organizations, the growth rate was even greater, increasing their numbers 130% in the same time period, from 320,000 to roughly 900,000.

But why has the sector seen such a rapid growth in both the giving and receiving of charitable dollars?  It may seem that Americans have become increasingly more generous throughout the years; that they are now more prone to generosity than 30 years ago. Although there is some debate as to the degree to which Americans actually are generous, the answer to whether there has been an increase in overall generosity is clearly No.  In comparing philanthropic giving and economic data from as far back as 1963, we can determine that total philanthropic giving has held constant at roughly 2% of total Gross Domestic Product.  At times reaching as low as 1.7% or as high as 2.1%, it is clear that Americans are no more willing to give in 2007 than they were in 1963.  This is not a criticism.  As a percentage of income, American giving far surpasses that of any other nation.  Yet the power of the total resource flow is deeply tied to the power of economic growth. 

The World of Today
The world of philanthropy today is much different from that of the last three decades.  Although there is tremendous wealth, there is an equally tremendous competition for resources.  Gone are the days of multi-year grants that extend over five to ten years.  In their place come single year grants, often burdened with a myriad of restrictions, evaluation requirements, and reporting deadlines.  There is less and less renewal or non-project operation support, and more and more emphasis on pilot projects with emphasis on replicability and scalability.

This new stage of philanthropy is not, as the dollar figures may suggest, a feeding frenzy for nonprofit organizations. The landscape of today requires attentiveness to evaluation and sustainability, and a deep understanding of the space in which one’s own institution resides.  Anyone embarking on  (or in the process of) growing an organization must understand the structure of the revenue available to it.  It is simply not the case that every organization, big or small, has equal access to the $260 billion in annual philanthropic giving in the US.  For example, philanthropy to the religious sector accounted for the largest pool of giving in 2005, at $93 billion, while international affairs represented the smallest at only $6 billion.  Yet, within the subsectors, a deeper understanding of the structure and source of revenue is paramount.  For example, although $22 billion was given to health in 2005, when looking at sources of revenue, health organizations received only 5% of this money from philanthropic contributions, with nearly 90% coming from earned income.  Contrast this to organizations in the environmental subsector, who received $8.86 billion in 2005; 50% of their budgets came from philanthropic contributions. 

Still, even within these subsectors there is great disparity.  Put simply, the big are getting bigger and the small are not.  Sector wide, organizations with annual revenue of $10 million or more, only 7% of all organizations, control 80% of total annual revenue.  By contrast, organizations with an annual budget of less than $1 million, representing 68% of the total number of organizations, control only 5% of revenue.  Furthermore, not only do large nonprofits control the vast majority of funds, but also the majority of funders, with 65% of all philanthropic contributions going to organizations with budgets of more than $10 million.

The World of Tomorrow
As a result of the changing philanthropic landscape, the nonprofit leaders of today must adapt to the world of tomorrow. Though we will surely see continued growth in wealth, if trends continue, we will also see large organizations controlling these funds. With this increased concentration of funds come heightened donor sophistication and expectations, public scrutiny, and the need for financial innovation, not just for the prosperous few, but for everyone in the sector.

In many ways, the philanthropic world of tomorrow is already upon us. An independent review by onPhilanthropy of the New York Times, Wall Street Journal, and Washington Post found that between 2000 and 2005, there was a total of more than 16,000 articles on the nonprofit and/or philanthropic sectors.  Contrasting this to the mere 832 articles between 1970 and 1975, it is clear that the era of scrutiny is upon us. Further, a Gallop Poll found that the number of people who had “no” confidence in nonprofits increased from 8% in 2001 to 17% in 2003, while the number who had “a great deal” of confidence dropped from 25% to 18% during the same period.

The world of tomorrow will not only be one of increased public and political pressure for nonprofit accountability, but it will also see increasing reliance upon financial sustainability and impact measurement.  Donors will move away from making “gifts,” to creating philanthropic contracts in which the donor expectations are legally binding, often held in perpetuity by their recipient. 

As the desire for human good becomes increasingly sophisticated, we will see innovation in the mechanisms by which we address human struggle around the globe.  We will see more organizations like the International Finance Facility for Immunization Company, a nonprofit organization that has harnessed the potential of the bond market to raise an anticipated $4 billion for vaccines.  This is $4 billion in bond market power, not $4 billion in charity.  The development of commercial weather insurance to protect against the risk of famine, “social finance” to pool invested assets for nonprofit lending, microfinance to create pooled resources in poverty neighborhoods: all use commercial finance tools to fund social needs.  As social innovations spread and evolve, nonprofits will have no choice but to become more diverse and sophisticated about their revenue strategies.  Failure to innovate and adapt will mean failure to thrive.

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