Investment-Minded Philanthropy: Data Driven & Outcome Oriented

There are good investments and there are bad investments in every sector and asset class. At its most basic, “good” investors will seek differentiated opportunities, maximize profit and minimize downside risk. And at the end of every investment, you get a scorecard that measures your success: profit.

Surprising to some, there is a shared mentality between the investor and the funder. More funders are pursuing organizations that will use capital effectively and achieve a high level of impact. But philanthropy is much more nuanced than finance. In philanthropy, there is no “scorecard.” Impact is difficult to measure and can’t be broken down into numbers on a spreadsheet.

So how do organizations like Robin Hood measure impact? How do you quantify successful philanthropic contributions? How can you be sure of where the money goes and who it helps? 

Follow the data.

We are living in a data-driven world – we use data to solve all of our hardest problems – and philanthropy should be no exception.

If you’re trying to solve a problem, you need to first and foremost understand the problem that you are solving for. Without knowing the root of the problem, you can’t fund the intervention.

You need to invest in metrics and data measurements that can inform the efficacy of the organization. This is essential, but not inherent to most nonprofit organizations. In conversation with Wes, I learned that Robin Hood utilizes benefit-to-cost ratio to look at over 100 metrics in order to see the return on each individual dollar contributed. Organizations like Robin Hood have done a great job of being data driven and outcome oriented, but it’s a challenge for many nonprofits to adopt this mindset, most notably due to funding constraints. I’ve noticed in some instances that the desire is there, but the execution is difficult to achieve. 

Nonprofits must find ways to hold themselves accountable, while recognizing that success cannot be tracked like a stock price. Funders must also strive to be outcome-oriented, while acknowledging that tangible results may require a much longer timeframe in order to see the “return.”

The “social return” is one metric we can use to evaluate philanthropic investments. It helps to ensure that grants go toward helping the people that truly need it, through the most effective and efficient means possible. But this metric is fleeting and especially hard to capture. Further, no one data point can paint an accurate picture of an organization and its challenges. To take a line from Wes, “if it matters, it should be measured.”

Invest in a partnership.

Cutting a check just doesn’t cut it.

Just as an investor performs rigorous due diligence on a company before investing, in philanthropy, funders should perform due diligence on nonprofits before donating. It’s essential to know, at the most detailed level, the ins-and-outs of how a nonprofit operates. That means turning a critical eye towards everything from governance to financials to core programming.

Some questions that help me get there:

Is the nonprofit providing a direct line of service to those in need? Do they have the human capital infrastructure to create and amplify tangible impact? Does the org have a great management team who I’m excited to work with? Do they focus on capacity-building, such as leadership and training programs? Do I want to partner with them for the long-term?

You undoubtedly witness (and have a hand in) the greatest impact the longer you stick with an organization. I find lengthy partnerships to be much more meaningful than one-off cases of support. Ultimately, it’s fulfilling to take the time and effort to know an organization, its mission and the constituents they serve.

The ultimate goal: invest in a partnership that leads to catalytic and enduring change.

Be nimble when crisis hits.

Of course, in some circumstances, the extenuating demand is too great for a rigorous diligence process and long-term funding commitment.

Take the crisis we are currently facing: the Covid-19 pandemic. In ordinary times, most philanthropic giving is done through grants, which earmark giving years in advance, and at a regular cadence. This is ideal when you’re committed to a true thought partner with great management. But what happens when crisis hits and giving areas are less applicable to the individuals you are trying to serve? And on the flip side, how can you most effectively tackle new, immediate areas that emerge?

Using my family foundation as an example, today our portfolio of giving looks meaningfully different from how it did even a year ago. Pre-pandemic, one of our key areas of focus was after-school sports programming for underserved youth. In some cases, we had to pivot resources and offerings within our programs when most of those programs were not able to operate without in-person programming. Our grants remain in place, but grantmaking has been adjusted to fund immediate needs that have emerged. We have tried to orient around giving that would achieve similar outcomes with different inputs – as an example, we provided Chromebooks to students in Philadelphia to facilitate learning, community development and connectivity that could not be achieved through outdoor and afterschool activities.

But beyond each of our personal interest areas, immediate support in this crisis has been a major priority. We, like many other funders, have contributed supplies for hospital systems, meals for those facing food insecurity, and protection for heroes battling on the front lines. While as a foundation, we focus on local community building and support, aspects of these Covid contributions lay outside of our more regular strategic areas of interest. In order to drive tangible outcomes quickly and efficiently, we pivoted by targeting the greatest and most severe needs apparent at a time when individuals were most vulnerable. 

Let's keep at it.

There is no perfect science to philanthropy, just as there is perfect algorithm to investing. Impact takes time, attention, excellent people and collective experience to achieve. I do believe that with greater focus on data-driven outcomes, some very intelligent and strategic minds will be able to tackle, and hopefully solve, some of our most difficult problems.

For now, let’s keep at it. Investment-minded, but with passion and persistence.