Investing and philanthropy are traditionally seen as separate things — one brings financial returns, and one brings social returns. While there is some truth to this, in reality, investing and philanthropy are two sides of the same coin.
As co-directors of a foundation, experienced investors in for-profit and nonprofit sectors, and board members of nonprofit organizations, we have a unique opportunity to see both sides of this coin. It’s time that we viewed philanthropy as a space for investing in innovation — and for donors to become comfortable with risk-taking being an important part of what their contributions fund.
First, for-profit companies have an advantage that nonprofits do not. They can experiment, and they can fail. Consider Windows 8, the operating system launched by Microsoft in 2012. While the product ultimately failed, many of its features have become ubiquitous technology in mobile interfaces, including using grids (as opposed to menus) and touch applications. Windows 8 failed because it was too revolutionary for the time and consumers couldn’t adapt, but it has an important place in the history and advancement of computing technology.
Nonprofits’ inability to “fail forward” is not simply because they lack prior profits to fall back on. It’s also because donors often specifically define what their giving should be directed toward and how the results of that funding should be reported.
Additionally, with giving cycles often limited to short periods, long-term, systemic change becomes impossible to yield within a reporting period. Thus, nonprofits must right-size program delivery to reporting parameters rather than to the problem. Despite the push for more philanthropists to contribute to unrestricted and longer-term funding, traditional ways of giving remain entrenched.
The result is that nonprofits do not have the same opportunities to innovate, and that is stifling creative solutions for some of our most intractable social problems from the people and organizations who know those problems better than anyone.
When donors invest in nonprofits, ground-breaking innovation can happen. For example, nonprofit Orbis International partnered with for-profit Fundamental VR to develop a virtual reality simulator that trains eye doctors to perform cataract surgery in the method most commonly used in low- and middle-income countries.
Existing cataract training VR simulators were expensive, not transportable, not easily sourced, and trained doctors on a surgical method usually only practiced in high-resource areas. With restricted funding earmarked for innovation from individuals and support from an eye-care foundation, the nonprofit could develop an ophthalmology VR simulator to be used in surgical training programs around the world, allowing doctors in areas of need to practice their skills before operating on patients. By partnering with a reputable corporation and leader in the space, Orbis could pursue its big idea while minimizing risk for donors giving restricted funds. This investment had the added benefit of incentivizing the for-profit sector to create a VR training solution that works outside of high-resources areas.
Take, as another example, charity. Water’s development of a revolutionary sensor technology that provides real-time data from a malfunctioning remote water system, ensuring timely repairs can be made without interruption to a community’s clean water source. With support, the nonprofit was able to bring this big idea to life. But opportunities to explore such innovative ideas are few and far between, extremely competitive, and typically come from just a few funding sources.
Just think if nonprofits had something like Google X to innovate. Where could society, poverty, health and technology be today? What if more investors looked at philanthropy this way? Which nonprofit has the idea for the next game-changer that will bring people out of poverty but lacks the means to create it? The opportunity, the desire, and the ability already exist, and the funding must follow to make it reality.
The goal of investing in an innovative company is to disrupt an industry, but donors can look to nonprofits for the same kind of innovation if they give with their investor hats on. The desired result is the same for both entities: profound change and long-term impact. Donors should not come to the table with a predetermined vision of what they want to fund, but rather with eagerness to understand where funding would be most effective based on the effect the nonprofit aims to achieve.
Donors can ask nonprofits how they are thinking differently to address old problems that have been around for decades, or even centuries. They can ask nonprofits to share what strategies have failed in the past, for them and for their field, and how innovation will open a new avenue that will not only address one problem but potentially the whole ecosystem of need.
Donors can challenge nonprofits to think bigger. Ask them what problems they want to solve but can’t because of financial restrictions. Ask them about the pie-in-the-sky ideas they want to try but haven’t been able to. Ask them how existing funding is limiting these goals from being met.
Instead of asking about the risk of investing in a nonprofit because they may not provide clear financial returns, donors should be curious about the broader economic effect of the issue a nonprofit is trying to solve and why lack of investment is a risk to society as a whole. For example, one person going blind from cataracts causes a ripple effect throughout society beyond themselves. They are likely not working and not making money. A family member likely has to help care for them and pull them out of work. The truth is vision impairment poses an enormous global financial burden.
A recent study estimated that vision impairment resulted in $410 billion of lost economic productivity in 2020. But the good news is investment can make a big difference; every $1 invested in eye health in low- and middle-income countries is estimated to yield $4 in economic gain. Every issue that nonprofits are trying to solve has a financial cost in addition to the human one, and donors willing to fund innovation can help solve for both.
We need to start a new chapter for charitable giving — one no longer just about donating to a good cause. Instead, it should be a commitment, just like investing, that can advance real change and foster innovation.
When donors respond to the call from nonprofits, they’re able to fund innovations that allow nonprofits to break through and be true pioneers, giving back to and supporting the communities within which they are deeply involved. This is how we make meaningful, sustainable change for humanity and the planet.
