Startups that aim for venture-style growth are almost always funded first from the founders, family and friends, and later by individuals (angel investors), before they reach the point where any institutional VC would give them the time of day.

As I recall, in aggregate, angel investors provide more capital to startups each year than VCs do.

Granted, angel investors are individuals with relatively high incomes or assets, but they certainly are not institutions. (Accreditation currently only requires either 200K/year income or $1M in assets.) And they are likely to be some of the very same people who are prepared to donate more than the average individual, and are seeking useful ways to identify worth charities — likely even in the sweet spot that a GiveWell might target.

Now, on might still argue that startup charities should be left to institutional/highly sophisticated donors. But I don’t think that can reasonably be argued based on the analogy to venture funding.

But I disagree with you bias against small start-up charities. Every nonprofit, like every business, was a start-up at some time. Someone had to be willing to take an educated risk.

Like a start-up for-profit business, the “credit” worthiness of a nonprofit depends on the market need (social ill) it is addressing; how its product/service addresses that need; if it’s done enough homework to understand the pitfalls, competition and challenges; and the organization’s leadership.

Chief among them is leadership: When investors and bankers are determining whether to put their money into a company that has no track record, they look at the management team.
*Are they passionate about what they’re doing?
*Will their passion weather the ups and downs of entrepreneurship?
*Do they have the skills and knowledge to go around, over and sometimes through hurdles, such as aggressive competitors; changes in regulation or technology, new markets opening or old ones closing.

Developing leadership for nonprofits is an important task for all of us — donors, foundations, and rating agencies. We need to build networking systems and provide professional support to nonprofit leaders to they have the tools to leap hurdles and out-think challenges. Instead of relegating start-up nonprofits to pulling themselves up by their bootstraps, let’s evaluate them rigorously, as we do start-up businesses, and weave a safety net of professionals and peers who can help them?

Both experience and networks increase the likelihood of success.

Those of us who lost 30-40% of our worth and donor base in the last 8 months may not have as good a grasp of sound investments as we thought. I’m not sure I want to rely on that good old approach in the coming days.

I would also like some solid numbers rather than speculations as basis for these opinions.

Ryan: it’s valid to raise this question for GiveWell’s donors (and Elie and I discussed it as I was writing this post). A few thoughts:

• Regarding point 1, I would broadly say the relevant issues are (a) what does the donor market and potential demand for GiveWell’s research look like? (b) how significant are the differences between mediocre and excellent charities, and how feasible is it to distinguish them? (c) what are the other available donor resources? Most of our major supporters questioned us (and/or were present while others questioned us) on these points, though they generally took our word on the answers - that very little information was available on (a) and (b) (and our project is a relatively low-cost way of exploring them), and that no other public resources focusing on outcomes existed. (The last point was easier for donors to verify on their own, and I believe that many did so.)
• Regarding point 4 - again, most of our major donors did question us (and/or were present for questioning) on this point.
  • At the time we were very focused on the “money moved” metric as our primary measure of intermediate progress; over time, we’ve recognized the limitations of this metric and are putting more emphasis on web traffic/engagement (our next self-review, which we will complete after our upcoming round of research, will address this issue more thoroughly).
  • Generally, I think most of us have felt that true/ultimate success would be fairly easy to detect regardless of intermediate metrics, since prominence is a key criterion (this is in contrast to many direct-service programs). Another important point that I believe most of our donors are convinced of is that Elie and I would not hesitate to walk away if prospects for success don’t look good.
  • As for how use/traffic translates into impact on lives changed, our analysis aims to answer this question directly by comparing more and less cost-effective charities, with as much evidence as is available. The more research we do, the better our case becomes, but our standing claims are available - with supporting evidence - for donors to evaluate.

FYI, we have a reasonable amount of documentation dealing with the question of whether/why we should exist over time. See our business plan history (including our initial plan, which addresses many of these questions, and our year-1 self-evaluation) and this board meeting, which contains the first annual review of staff.