We’ve come across many cases where a funder took a leading role in creating a now-major nonprofit. This has been surprising to us: it intuitively seems that the people best suited to initiate new organizations are the people who can work full-time on conceiving an organization, fundraising for it, and doing the legwork to create it. Most successful companies seem to have been created by entrepreneurs rather than investors, and the idea that a philanthropist can “create” a successful organization (largely through concept development, recruiting and funding, without full-time operational involvement) seems strange. Yet we’ve seen many strong examples:
- The Center for Global Development (which we are generally impressed by) got its original start due to the philanthropist Ed Scott.
- Ed Scott also played a leading role in creating several other organizations: “Besides co-founding CGD, he founded the advocacy organization DATA (Debt, AIDS, Trade, Africa) together with Bill Gates and George Soros (DATA has since joined forces with the ONE Campaign). He founded Friends of the Global Fight, which provides support in the U.S. for the Global Fund to Fight AIDS, Tuberculosis and Malaria, and has served as a model for similar organizations around the world. And he founded the Center for Interfaith Action on Global Poverty, a global center of excellence on interfaith action.”
- The Bill and Melinda Gates Foundation has been integral in the creation of many of the organizations it has made major grants to, such as GAVI (which has received several of its largest grants), Alliance for a Green Revolution in Africa, Innovative Vector Control Consortium, Foundation for Innovative New Diagnostics, and PATH Malaria Vaccine Initiative.
- We previously wrote about the Sandler Foundation and its role in founding ProPublica, Center for American Progress, Center for Responsible Lending and Washington Center for Equitable Growth.
- We believe that the Center on Budget and Policy Priorities (whose track record generally impresses us in terms of political influence) is another case where a funder took the lead in conceiving, and recruiting for, a new organization. Our source is not public at the moment, but we hope to write more in the future as part of our History of Philanthropy project.
- I skimmed the Wikipedia pages of 10 major think tanks that I’ve come across in the context of U.S. policy, I note that five of the ten seem to have had a funder play a major role in initiating them – either because they started as a foundation, were conceived by a foundation, or had a philanthropist as one of the co-founders. (The five that seem to fit this description are Brookings, Cato, Demos, Heritage and Roosevelt. The other five I looked at were AEI, Manhattan, Hudson, Urban and EPI.)
This is not anything approaching a comprehensive list. It’s a set of organizations we’ve come across in our work, many of which we perceive as prominent and important. I would struggle to think of many analogous cases of for-profit companies for which the original concept, recruitment, etc. came from investors rather than full-time founding employees.
Assuming this difference is real, what might explain it? While I’m not sure, I’ll list a few speculative possibilities:
- A nonprofit startup must raise funds from a relatively thin and fragmented market. Investors ultimately all want the same thing (returns); philanthropists want very different things, and a nonprofit won’t be able to get off the ground if it can’t find a match. One symptom of “philanthropists want different things” is that nonprofit proposals are generally highly tailored to the values of funders. Thus, people with ideas may choose not to write up and shop proposals until they’ve identified a highly interested funder.
- A nonprofit startup also doesn’t have an analogous option to bootstrapping to prove its value and raise its negotiating power. It can hope eventually to reach the point where its donor base is highly diversified, but early on nonprofits will very often live or die by major funders’ preferences.
- Starting a new company is generally associated with high (financial) risk and high potential reward. But without a solid source of funding, starting a nonprofit means taking high financial risk without high potential reward. Furthermore, some nonprofits (like some for-profits) are best suited to be started by people relatively late in their careers; the difference is that late-career people in the for-profit sector seem more likely to have built up significant savings that they can use as a cushion. This is another reason that funder interest can be the key factor in what nonprofits get started.
- The dynamics of competition may be different. If someone sees a for-profit with a good concept and poor execution, s/he might start a competitor. Someone who sees a nonprofit with a good concept and poor execution (and a solid funding situation) might be more likely to try to improve the nonprofit, e.g. by working for it. If true, this might make funder-initiated organizations – which, it seems, would be hard to find the right leadership match for – more viable on the nonprofit side than the for-profit side.
Our tentative view is that funders should think of “creating an organization” as a viable possibility, though as something of a last resort, since it is likely to be a much more intensive project than supporting an existing organization.