Solving the Giving Pledge Bottleneck: How to Finance Social and Environmental Challenges Using Venture Philanthropy at Scale

By Sean Davis

This book highlights the historic inflection point we are in, both in terms of philanthropy in general, and specifically in financing the solutions to our largest and most urgent social and environmental problems. It covers the two movements that have recently had a dramatic influence on capitalism. First, wealthy millennials have been pressuring their bankers to invest their family portfolios in companies with high social and environmental impact (ESG ratings), triggering a wave where the wealth management industry, and now all public companies, are significantly adapting to the increasing demand for good. Second, The Giving Pledge triggered another wave, changing what success and the accumulation of wealth means. It has even begun to redefine the goal of capitalism as more than 200 billionaires have pledged to give half or more of their wealth away. 

This book also focuses on the bottleneck problem that The Giving Pledge has created, as it is very hard to give hundredsof billions away with measurable impact to nonprofits lacking detailed long-term plans to scale. Nonprofits have never had the luxury of having all the resources to invest in the planning, management training and systems needed to rapidly expand. Thus taking in very large gifts is very difficult, and almost impossible to justify. Large philanthropy can always be used for traditional capital campaigns and to fund endowments, yet The Giving Pledge signers are often looking for large visible impact beyond these traditional avenues. The result is a bottleneck which has grown as more billionaires pledge their funds away while their wealth continues to skyrocket and giving rates stay very small.

Finally, this book covers the emergence of large giving vehicles, modelled after the private equity industry. They have sophisticated third-party managers focused on deploying funds and supporting management teams. It also covers the scaling of nonprofits in a significant way (“Big Bets”) as well as investing large philanthropy through for-profits as Program Related Investments (PRI) at scale. This book is of interest specifically to nonprofit and foundation leaders, as well as wealth managers, estate attorneys and other philanthropic advisors. It is also of interest to investors and corporate CEOs as they begin to access these large pools for philanthropic capital to increase their impact. This book is focused on providing those with the ability to make large philanthropic investments a path to scale their impact and increase their fulfillment and that of their family. It provides a step-by-step guide of how these approaches, especially PRI at scale, can actually solve the social and environmental challenges that have been seemingly hopeless. 

• Language: English
• Publisher: Palgrave Macmillan
• Release date: Aug 27, 2021
• ISBN: 9783030788650

Sean Davis

Purple Heart recipient Sean Davis is the author of The Wax Bullet War, which chronicles his experiences in the Iraq War and the Hurricane Katrina cleanup. Sean won the American Legion's Legionnaire of the Year Award in 2015 and the Emily Gottfried Emerging Leader, Human Rights Award for 2016. Published in a variety of books and publications, Sean teaches college writing and literature classes around Portland and spends his summers fighting fires along the West Coast.

Book preview

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021

S. DavisSolving the Giving Pledge Bottleneckhttps://doi.org/10.1007/978-3-030-78865-0_1

1. Introduction

Sean Davis¹  

(1)

Merton Capital Partners, Jupiter, FL, USA

Sean Davis

Email: [e-mail]

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Is there to be found on earth a fullness of joy, or is there no such thing? Is there some way to make life fully worth living, or is this impossible? If there is such a way, how do you go about finding it?

—Thomas Merton

There has never been an opportunity to finance more good. We are moving into an inflection point where for the first time in history we can finance the specific solutions to the social and environmental challenges dearest to each of us. Tonight in every city and many communities in the U.S., hundreds of mothers are sleeping in their cars with their children in a Walmart parking lot. According to the National Alliance to End Homelessness, there were 12,562 moms with children unsheltered on any given night in 2019 across the country.¹

If we use estimates based on population, in Florida’s Miami-Dade County alone we will find around 200 mothers with their children tonight sleeping in their cars, and many more in shelters. In Palm Beach County, about 100 mothers will do the same, as there are no more available beds, or any funds to provide them with emergency housing, like a motel room, have likely run out. They will be anxiously driving to find a safe place to park, while worrying about gas money and hoping for a clean bathroom that is safe. The fortunate mothers are the ones who will be temporarily sheltered with friends and family. Their goodwill still runs out, just as local funds for motels run out. This is America in 2021.

These numbers may be greatly underestimated as funds to count them, collect, study and report the data are limited and based in large part on the goodwill of volunteers. Many of these volunteers are nonprofit workers who are already working weekends and often needing a second job to continue to battle homelessness. This is one of many unyielding, unrelenting and worsening challenges overwhelming nonprofits as they only have a sliver of the funds needed individually or as a whole to solve their challenges. Tax funding is also only covering another sliver of the need despite there being proven solutions that just need more funding, and many of these save our communities’ costs overall and make them much safer and stronger. COVID-19 has made those vulnerable even more so.

This is one of many social and environmental challenges today in every community and globally. This inflection point will change everything. The work we need to focus on now is how do we attract, channel, and effectively deploy the enormous funds emerging looking to do more good. The most visible is The Giving Pledge. The dollars publicly pledged by over 200 of the wealthiest people in the world are estimated at $600 billion,² yet they are not flowing into solutions as the giving rates of these individuals are very low. At the same time, their wealth continues to grow creating a tremendous bottleneck. As an example of the high end of this spectrum, Elon Musk’s rapid wealth increases in 2021 may put the pledges well over $600 billion.

Corporations, private equity funds and others will also be looking to finance large solutions rather than sponsor incremental good. Incremental good is important; however, financing large-scale solutions is now possible and some of the largest solutions will require partnerships with these corporations and private investors who can deploy larger philanthropic capital for good. Many business and finance leaders are measuring which United Nations SDG goals their company is furthering. That is just a first step. Seeing how they can play a role in partnering with philanthropists in solving those challenges is the new path forward.

According to the Internal Revenue Services, the nonprofit sector accounts for 5.6% of U.S. GDP, and individuals, foundations and corporations gave $427.7 billion in 2018.³ Nevertheless, most of the philanthropy given in the U.S. is diffused among 1.5 million nonprofits.⁴ Even the larger foundations rarely give more than $500,000 to a specific nonprofit in any given year. In 2019, The Ford Foundation had $14.3 billion in funds and gave $463 million in grants. These grants supported the critical work of 2,066 nonprofits and most were less than $250,000 each. 48 grants were larger than $3 million.⁵ Scale in giving is a must to solve our challenges. We are beginning to witness scale in giving.

The MacArthur Foundation initiated a grant competition in 2018 which awarded the first $100 million foundation grant to one nonprofit.⁶ They are now selecting their second and plan to have a recipient every 2 years in addition to launching Lever for Change, a subsidiary to secure larger funds for more leading nonprofits. Other nonprofits are looking at similar Big Bets to scale quicker. However, this is hard to do as there are not that many nonprofits that can readily take in and quickly expand their operations with $100 or $200 million.

The individuals who have signed The Giving Pledge, led by Bill and Melinda Gates and Warren Buffet, have taken a leap of faith in order to inspire others to also do more. This is one part of the rising tide of good in these seemingly distressing times. Yet it is a time of great hope, as our societies are changing and this rising tide is beginning to accelerate. We must focus on developing effective solutions to our challenges. These are actual, quantifiable and visible large-scale solutions.

After working in and around the challenges of homelessness, urban poverty, early learning, affordable housing and mental health for the last 10 years, I have seen what is simply a chronic underfunding of solutions. Many successful solutions already exist and simply need scale. However, scale can be elusive but not impossible to achieve. There is a clear underinvesting in affordable housing, homeless services, education and job training that are easy to see. According to the Annie E. Casey Foundation, 68% of 4th grade children in the U.S. could not read at grade level.⁷ This is astonishing.

More fundamentally, there is a chronic underinvestment, and sometimes, a complete lack of investment in planning. Ask your local homeless nonprofit for the specific dollar amount they need to house these mothers and their children in your community for one night. How about permanently? Or the veterans. Ask the leading early child nonprofit leaders for the dollar amount need to have all the children in your community reading at 3rd or 4th grade level every fall. The latter is a question of more teachers, buses and buildings that can be managed through a nonprofit. The kind of growth needed requires management teams with experience in managing exponential growth and it begins with developing a detailed long-term growth plan. If there were an individual willing to write the very large check to fund this solution, most nonprofits would not have the detailed growth plan needed to scale. The amount to catch up all the children in Palm Beach County, is $176 million.

These management teams would love to fulfill their organizational missions and yet they have never had the luxury to create a detailed plan, as they scramble to keep the lights on or meet this year’s budget. There is thus very little in what for-profit financial experts would consider detailed planning in the nonprofit world. This has now changed. The Giving Pledge funds could be used to create detailed large growth plans and deliver high-impact solutions.

The mothers who are homeless in your community are often victims of domestic violence, and many were evicted following the loss of a job or large hospital bill that sent their finances into a tailspin. They were likely already forced to choose between food, buying medicine, or spending a restful and safe night in a motel. Tonight they may be considering worse and horrific options. What would they do in order to take their children to a motel tonight? I have had to tell mothers with children that our family shelters and all those across the county were full.

Seeing them drive away without hope in a car with all their possessions is a tragedy that will repeat itself at least 12,000 times today in the U.S. It was a good day when there were funds to pay for one or two nights in a motel room. Mostly, they were not good days. On the same day that I would have to see those mothers drive away, I would visit donors in Palm Beach looking to raise funds to provide these mothers with a temporary solution. But where were the permanent solutions?

An additional 52,000 families are sheltered in homeless shelters across America.⁷ Some will receive temporary housing and support, and that is all that a few of them need. But over 60% of them will exit these short-term stays with no prospect of permanent housing beyond their friends, family, cars, the street or other overcrowded shelters.⁸ Within these dire challenges, there are even more tragic challenges in terms of gender, sexual orientation and race. Solutions are also more complex when these challenges intersect with severe mental health issues, incarceration and human trafficking. However, solutions can be found today.

Beyond the mothers already on the streets, there is a tragic number of potential homeless mothers hanging on to their homes in a sea of poverty in the U.S. today. In May of 2019, the Federal Reserve released their report on the Economic Well-Being of U.S. Households. This report included a well-publicized finding that almost 40% of Americans do not have the ability to pay for an unexpected expense of $400.⁹ Most of our healthcare and social support systems are overrun with demands for food, shelter, financial support, health services and more. Tonight there are girls and boys with unimaginable trauma who are turning 18 and aging out of foster care, and becoming homeless on their birthdays. They are no longer able to stay with their foster families and the shelters are likely full.

Beyond the social challenges that have solutions already, there is an another set of environmental challenges with solutions. Tonight, there are over 21 million Americans with polluted water in their faucets.⁹ Also, 46% of U.S. rivers are polluted.¹⁰ Despite the growing and seemingly endless environmental degradation, there is a constant and persistent desire to reverse the damage to our ecosystems. And here solutions already exist too. Many of these solutions can be both self-sustaining and delivered at enormous scale.

The philanthropy to finance large solutions has always been limited and hard to find. Nonprofits, large and small, have had to take on these challenges with shoestring budgets and limited teams. The front-line social workers do not have the funds and cannot scale solutions to provide help once their residential facilities are at capacity and funds for a motel and for rent assistance run out. Yet they are still there providing kindness and emotional support.

Today is a new day in global philanthropy. We are moving towards a time when more individuals give much of their fortunes to provide the funds to scale solutions. Funding solutions is becoming a new way of measuring their success beyond being the wealthiest entrepreneurs and business leaders. Their funds will also be catalysts to unlock larger corporate philanthropy and to encourage more targeted government grants as the cost savings of these solutions are proven further. This philanthropy still needs to be attracted and cultivated, and this can be extremely challenging.

Innovation does not always proceed in a straight line, and today is the time for innovation in financial scale for good to not just alleviate, but solve many of the world’s challenges. Philanthropists looking to give billions of philanthropy are having a difficult time giving it away. A few like Charles Feeney, MacKenzie Scott and Bill and Melinda Gates have found their way; yet, these are just a few who have pledged to give billions. Nobody wants their fortune to be used in a way that does not have great impact. For the longest time, it has been very time consuming and complex to generate large impact, especially if someone wants to fund a ground-breaking solution.

All philanthropy is important. All nonprofit work is important. Matching those philanthropists who want to fund solutions is critical to actually solving these challenges. As we work towards solutions, more specialized talent is needed in growing organizations, structuring deals, partnering with Fortune 500 companies, private equity firms, large for-profit affordable housing developers to have them deploy these large funds quickly and efficiently. This can also reduce the risk of executing on these solutions as they are already sustainable, as they are for-profit companies. It is therefore better to scale the solutions by blending philanthropy in projects led by for-profits nationally and globally.

In this book, I’ll be using the term nonprofits for any 501(c)(3) organizations, which are also referred to as mission-driven organizations or a series of other terms. Some of the latter can be confused with for-profit companies which have an impact component or were primarily created to pursue impact such as B Corps (certified B corporations).

Because of decades of society discouraging nonprofits from investing in their management and systems, large philanthropists are generally not regularly being offered opportunities to solve these challenges with detailed 10-year growth plans showing how $200 million in philanthropy can solve the challenge nonprofits were created to tackle. The great news is that this is now starting to change. As I write this, MacKenzie Scott is showing the world how over $8 billion can be given in a span of a few months to hundreds of organizations with few strings attached and trusting their management teams to use it wisely.

Like MacKenzie Scott, some cutting-edge mega-philanthropists are looking to make much larger and more targeted gifts to scale organizations and move towards measurable solutions. They are teaming up with other mega-philanthropists to increase their giving and to fund specialized organizations to deploy the funds according to detailed long-term plans, high accountability and high levels of value-added assistance beyond funds. These philanthropists understand that nonprofit management teams need help creating detailed long-term plans and help to prepare for growth at rates not ever possible before.

Big Bets also need to develop sustainable exits once a $200 million ten-year scale up of a leading nonprofit has been completed. The nonprofit needs to replace these funds with forms of sustainable revenue. These include encouraging governments to fund the solutions once they are proven. This greater spending can be better justified to taxpayers as the cost savings or tangible benefits to the community can be seen and structured as performance contracts. We are past the 10-year point of the