t h e s ta n fo r d pac s

GUIDE
to e f f ec t iv e p hi l a n thro py

—
EFFECTIVE PHILANTHROPY LEARNING INITIATIVE
 Table of Contents

3 Introduction

13 Part One: Developing Your Plan for Giving

14 Chapter 1 Finding Your Focus

42 Chapter 2 Involving Family

54 Chapter 3 Learning About Philanthropy With and From Others

61 Chapter 4 Giving Vehicles: The Basics

84 Chapter 5 Understanding Problems, Their Causes, and

Approaches to Solutions

97 Chapter 6 Theory of Change, Monitoring, and Evaluation: Understanding

an Organization’s Activities, Outcomes, and Impact

119 Part Two: Implementing Your Plan

120 Chapter 7 Finding Effective Organizations

133 Chapter 8 Due Diligence: Vetting and Evaluating Organizations

164 Chapter 9 Engaging Organizations and Developing Relationships

With Their Leadership

176 Chapter 10 Making Gifts

197 Chapter 11 Funding With Others: Collaboration and Pooled Funding

204 Chapter 12 Socially Motivated Investing

217 Conclusion

Copyright 2020 Board of Trustees of The Leland Stanford Junior University.

Licensed under a Creative Commons Attribution 4.0 International (CC BY 4.0) License.
Introduction

3
I f you are reading this Guide, perhaps you have experienced
a “wealth event”—a sudden increase in your net worth from an
IPO, inheritance, or the like—or perhaps you have been accumulating
wealth during your working years. You may have been volunteering
your time, including serving on a nonprofit board, and you have likely
been responding to requests to give to your alma mater, your children’s
schools, religious institutions, and organizations that you or your friends
care about. Perhaps, on your own or with the help of your financial
advisor, you have started exploring a few “giving vehicles,” such as donor
advised funds or foundations.

You may be at an inflection point—a moment of reflection when you

realize you would like to be more purposeful in your charitable giving.
With more money and possibly time, you’re feeling the mounting
pressure of requests. At the same time, you would like to improve
your philanthropic impact: you really want to do it well. Though not
professionally trained in philanthropy, you aspire to have a professional
level of impact in the areas you care about.

4 / I N TR ODUCTI ON
This Guide is written for donors who are interested in significant and
sustained giving. It was born out of our experience at the Stanford Center
on Philanthropy and Civil Society in helping donors improve their
philanthropic effectiveness. Although much of the Guide is relevant to
philanthropy across the globe, it is focused on donors making gifts to US-
registered charities.

When we use the term “effective philanthropy,” we refer to what’s most

likely to achieve your objectives while avoiding unintended harm to others.
Effective philanthropy has these essential characteristics:

• No matter how broad the realm of your philanthropic interests may

be, you make gifts in few enough areas that you can learn about each of
them reasonably well.
• You have a clear sense of the social or environmental goals that you wish
to accomplish through a gift or set of gifts.
• You make gifts to organizations in which you have reasonable
confidence that they can help achieve your goals—based on their track
records, strategies (theories of change) (see Chapter 6: Theory of
Change, Monitoring, and Evaluation) management, and operations.
• When your goals include benefiting individuals or communities, you
ensure that the organizations you support have listened attentively to
your mutual beneficiaries to ascertain their needs—and you often can do
this yourself.
• The terms of your gifts are designed to achieve your and the grantee’s
shared goals while respecting the organization’s autonomy and its need
to thrive. When the organization’s activities demonstrate alignment
with your goals, you presumptively make multi-year unrestricted gifts for
general operating support. When you direct gifts for a particular project,
you include reasonable funds for necessary indirect costs, or overhead.
• You engage personally with organizations to the extent that it is useful
for your due diligence and monitoring and to the organization—but
not just because it gives you pleasure. (You can often achieve your goals
effectively just by writing a check.)

5 / I N TR ODUCTI ON
• You monitor each organization’s success in achieving your shared
goals and consider other “competitive” organizations before renewing
your gift.
• Whether or not your particular philanthropic goals include social
justice, your grantmaking embodies the principles of diversity, equity,
and inclusion (DEI) (see Chapter 6 for more about DEI).

This is by no means an exhaustive list of effective philanthropic practices,

but it’s a good starting place and we will suggest others in the pages to
come.

The Guide is inevitably donor-centric, because no matter how much you

delegate grantmaking decisions to communities, grantees, beneficiaries,
and other stakeholders, you cannot avoid choosing which communities or
individuals to benefit and how to benefit them. There are good arguments
for alleviating global poverty, for mitigating the risks of climate change
and pandemics, and for meeting the needs of your own community.
There are good arguments for various service-delivery strategies, for policy
advocacy and systems change, and for putting cash directly in the hands
of beneficiaries and letting them decide how to spend it.

The donors we have worked with pursue a virtually infinite number of

goals, motivated by their experiences; by religious, political, and moral
beliefs; or by their sense of where the need is the greatest. We do not
suggest that you pursue certain goals over others but rather aim to help
you clarify your goals and effectively deploy your financial and other
resources to achieve them. By the same token, we do not recommend
particular strategies. We privilege neither short-term strategies with
more certain results nor long-shot, risky strategies. Rather, we provide a
framework to help you decide what is most effective for you in different
situations.

6 / I N TR ODUCTI ON
We understand that philanthropy can be a complex and daunting
undertaking. You might be wondering where to start, asking questions
such as:
• How can I move from giving reactively—in response to requests from
friends, business associates, and organizations—to determining my
own philanthropic priorities?
• How do I gain the confidence to make gifts of $100,000 or more to
individual organizations?
• How can I find the right organizations to fund, and how should I
approach them purposefully yet respectfully?
• How do I say no?

• How will I know if I’m making a difference?

• How can I avoid failures?

(The answer to the last question is that if you’re doing valuable

philanthropy, you can’t avoid failures—but you can learn from them and
improve your work.)

Our aim for this book is to simplify the components of effective

philanthropy. The Guide has two major parts. Part One lays out a series of
personal considerations that will help shape your philanthropic strategy.
Part Two delves into the tactical practices of philanthropy to help you
deploy your resources most effectively.

Part One: Developing Your Plan for Giving

Chapter 1 advises on how you can focus your philanthropy on a

manageable number of areas, based on your and (if you wish) your family’s
values and interests. Chapter 2 considers how you might involve family
members in your philanthropy. Because you may wish to consult with
and learn from others beyond your family, Chapter 3 considers who
else might be of assistance. Chapter 4 provides an overview of the various
vehicles, or structures, through which you can make charitable donations.

7 / I N TR ODUCTI ON
Recognizing that much philanthropy can be understood as solving social
or environmental problems, Chapter 5 examines different approaches
that nonprofit organizations use to solve these problems. A particular
strategy that an organization employs is termed its theory of change,
which we explain in Chapter 6. This is one of the few technical concepts
in the Guide.

Part Two: Implementing Your Plan

Part Two begins with your search for and assessment of potential
grantees—which are, respectively, the topics of Chapters 7 and 8.
Now you’re almost ready to support organizations. Chapter 9 asks when
and how you might develop a relationship with a particular organization,
and Chapter 10 focuses on the nitty-gritty of making gifts that advance
your shared interests. Since you are seldom alone as a funder of an
organization or cause, Chapter 11 explores the ways you can collaborate
with others to achieve shared goals.

The majority of the Guide focuses on donations to nonprofit

organizations. Chapter 12, however, explores how you might also achieve
your goals by making socially or environmentally motivated investments—
in social enterprises and other for-profit firms.

We conclude the Guide by summarizing some contemporary thinking

about philanthropy and nonprofit strategies and offering suggestions for
how you can build your philanthropic practice over time.

Like many other sectors, philanthropy is replete with hyperbolic

metaphors and jargon. We’ve all heard about philanthropy that is
described as “innovative,” “disruptive,” “transformational,” and “catalytic”
and less about what we call “humble” philanthropy—which elevates the
knowledge and needs of grantees, their end beneficiaries, and others
who have been in the trenches working to tackle the same problems we
are now beginning to address. This Guide counsels an approach that
combines ambition with humility.

8 / I N TR ODUCTI ON
C.P. Cavafy begins his poem about Odysseus’ journey:

As you set out for Ithaka

hope your road is a long one,
full of adventure, full of discovery.

We wish the same for you—an ever-changing journey filled with surprises
along the way. No one can be expected to “get it right” from the start—
or, perhaps, ever. But we hope that with the help of this Guide, you can
develop your own impact-driven philanthropic practice.

May you have fair winds and following seas!

—The Stanford PACS Effective Philanthropy Learning Initiative Team

Impact-Driven Philanthropy (IDP)

Throughout this guide, we provide examples of IDP principles and

practices that encapsulate our recommendations. In 2015, when Jeff
and Tricia Raikes of the Raikes Foundation founded the Impact-Driven
Philanthropy Collaborative “to help more donors give more dollars to do
the most good,” they offered this definition1:

Impact-Driven Philanthropy is the practice of strategically using our

time, talents, and resources to influence meaningful, measurable
change on issues and in communities. Guided by clear goals and strong
values, impact-driven philanthropists have a passion for addressing
problems and a commitment to partnering with the people closest to
the problems we aim to solve. While each person’s journey is different,
certain core beliefs and practices can guide us to discover the strategies
and solutions that will allow us to do the most good for the causes we
care about2.

Stanford PACS has participated in the IDP Collaborative since its inception.

9 / I N TR ODUCTI ON
For Further Reading

We refer to useful readings throughout the Guide. If you would like to go

deeper into the general topics of this book, we recommend:
• Laura Arrillaga-Andreessen, Giving 2.0 (2011)

• Paul Brest and Hal Harvey, Money Well Spent: A Strategic Plan for
Smart Philanthropy (2nd ed. 2018)
• Phil Buchanan, Giving Done Right: Effective Philanthropy and
Making Every Dollar Count (2019)

Who We Are

The Stanford Effective Philanthropy Learning Initiative (EPLI) is an

interdisciplinary team within Stanford’s Center on Philanthropy and
Civil Society (Stanford PACS). Through teaching, writing, and conducting
applied research at the intersection of strategic philanthropy, the
behavioral sciences, and design thinking, Stanford EPLI aims to help
donors make more informed, outcome-focused decisions and thereby
increase their philanthropic impact.

Stanford PACS is a research center that develops and shares knowledge to

improve philanthropy, strengthen civil society, and effect social change.
Stanford PACS connects students, scholars, and practitioners with three
primary goals: building the pipeline of scholars in the field, increasing
practice-informing research on philanthropy and social change, and
improving the practice and effectiveness of philanthropy and social
innovation. Stanford PACS also publishes the preeminent Stanford Social
Innovation Review (SSIR).

10 / I N TR ODUCTI ON
Authorship & Acknowledgments

This book is a collaborative effort by faculty and staff at Stanford PACS’

Effective Philanthropy Learning Initiative (EPLI):
• Erinn Andrews is the director of philanthropy research and education
for EPLI at Stanford PACS. She has long been a proponent and
practitioner of effective philanthropy. She spent years researching and
developing metrics and methodologies to evaluate nonprofit outcomes
and impact.
• Paul Brest is former dean and professor emeritus (active) at Stanford
Law School and faculty director of EPLI. He teaches and writes about
philanthropic and nonprofit strategy and impact investing. He is co-
author of Money Well Spent: A Strategic Plan for Smart Philanthropy
(2nd ed. 2018).
• Adi Greif was a fellow at EPLI. She is a monitoring, evaluation, and
learning consultant. She helped draft chapters and led development of
the vetting chapter.
• Davey Kim is the program manager at EPLI. Having formerly worked
in the global development sector with a specialization in leadership
development, he assisted with Guide content and user testing.
• Nadia Roumani is a co-founder of EPLI. She is an expert on integrating
design thinking, systems thinking, and strategic planning, and she
uses these methods to support philanthropists and nonprofit leaders
to increase their effectiveness.
• Nina Sun was a senior fellow at EPLI. She is a human rights lawyer and
advocate who led the development of much of the Guide’s content.
• Additional EPLI Fellows who contributed to this project include
Sandhini Agarwal, Celina Artusi, Hanna Meropol, and Gillian Raikes.
Thanks are due to Nicholas Kristof Branigan for his contributions.

Work on the project was generously supported by Kathy Kwan, who

directs charitable giving for the Eustace-Kwan Family Foundation. Kathy
exemplifies engaged giving at its best. Never imposing herself on the

11 / I N TR ODUCTI ON
process, Kathy provided extraordinarily valuable editorial advice on
matters of organization, content, and tone. We are grateful to Daniel
Hemel, who suggested improvements to the chapter on giving vehicles.
Additional thanks to the many donors who offered their feedback on the
beta edition of the Guide—in particular, donors from SV2 and Ensemble
Capital. We wish to thank the sector professionals who provided valuable
input as well, such as Ciciley Moore, Stephanie Gillis, Aaron Kotler and
Maya Winkelstein from Open Road Alliance, Iris Brest, Bill Somerville,
Alexa Culwell, Sampriti Ganguli and Falona Joy from Arabella Advisors,
Julita Eleveld, and Lara Fox. Any errors and omissions are the authors’
alone.

Contact Us

We welcome and encourage readers to contact us with feedback,

suggestions, and personal stories from your own philanthropic journey.

Submit feedback at:

pacscenter.stanford.edu/donorguide

Write to or visit us at:

Effective Philanthropy Learning Initiative
Center on Philanthropy and Civil Society
Stanford University
559 Nathan Abbott Way
Stanford, CA 943052

To learn more about EPLI visit:

pacscenter.stanford.edu/epli

12 / I N TR ODUCTI ON
 PART O NE

Developing Your Plan

for Giving
 CHAP T E R 1

Finding Your Focus

14
T he first step toward effective philanthropy is to decide on your
particular interests, or focus areas. This chapter helps you consider
the following questions:
• Why should I have philanthropic focus areas?

• What motivates me to give?

• How do I align my values with my tolerance for taking risk?

• What personal values should be reflected in my giving?

• How do I decide what causes or issues to fund?

• How do I allocate my philanthropic budget and time to my focus areas?

If you already have a clear idea of your focus areas and how much
funding you plan to allocate to them, skip to Chapter 3: Learning About
Philanthropy With and From Others.

Focus Areas

Q. Why should I have philanthropic focus areas?

A. Focusing on a small number of philanthropic areas is fundamental to

effective philanthropy because:

• You have limited capacity. You will have to learn deeply enough
about a field to know which organizations to fund to achieve your
goals. You will need to conduct adequate due diligence and then make
and monitor your gifts. These tasks can require considerable effort.
Even large foundations with many staff members typically fund only a
handful of program areas. If you’re starting off by yourself or with one
or two staff members or advisors, funding a few areas is probably your
limit as well.

15 / C H APTER 1: FIN DIN G YOU R FOCU S

• Change takes time. To make and see meaningful change, it is most
effective to commit to supporting a focus area for the long term. You
are also more likely to sustain investment in a few areas closely aligned
with your values, rather than a wide and changing range of issues.

Clearly defining your focus areas creates a framework for decision-

making, helps define your philanthropic goals and assess your progress
toward them, and reduces choice overload in making giving decisions.
Reviewing your values and your motivations for giving can help you home
in on focus areas.

ATIONS & VA
V LU
TI
CAUSES
MO

ES
FOCUS
AREAS

Motivations & Values

Even if you are reading these chapters on your own, you may wish to
engage others in your philanthropy. (In Chapter 2, we explore how to
involve family members.) You might ask each family member to articulate
their focus areas independently, or to develop a unified family funding
strategy. If the latter, consider working through these exercises together.

16 / CH APTER 1: FIN DIN G YOU R FOCU S

Q. What motivates me to give, and what values do I want to
embody in my giving?

A. Your motivations for giving may include concerns with particular social
or environmental problems, the belief that your good fortune obligates
you to “pay it forward,” or the desire to use philanthropy to bring your
family together or create a legacy. In any event, your personal values
will surely guide you to the issues or causes to which you direct your
philanthropy.

D O N O R STO RY

Encountering Poverty and Finding Purpose

—Bill and Melinda Gates
Bill and Melinda Gates’ concerns for global poverty arose out of a trip they
took to East Africa in 1993. To celebrate their engagement, they decided to
go on safari. For them, the most memorable part of the trip was not the safari
itself but the people they met—it was the first time they had seen extreme
poverty. Profoundly affected by this experience, the couple began learning about
poverty, inequality, and diseases. In 2000, they funneled their knowledge and
philanthropic resources into creating the Bill and Melinda Gates Foundation. For
Bill, running the foundation has been “the best job in the world: as thrilling and
humbling as anything I’ve ever done.”³

When you read the news, you are likely to have emotional responses to
some events. You may feel sad about humanitarian crises or angry about
the verdict in a court case. These reactions are usually based on your
personal values. Think of your values as guideposts for your giving—they
are the principles or standards that you’d like to see shine through your
philanthropy.

Value-based giving makes philanthropy more meaningful and personal; it

also helps sustain interest in issues throughout the decades it may take to
achieve real impact.

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 Impact-Driven Philanthropy practice: We intentionally draw on our values,
ethics, and life experiences to identify the causes we want to address and
guide our giving—thereby increasing meaning and joy and inspiring us to
sustain our efforts.

Examples of values:
Refer to a longer list of Value Cards at the end of this chapter.

ACCESSIBILITY EQUITY LEADERSHIP

ACCOUNTABILITY FAITH PEACE

COLLABORATION FAMILY RESPECT

COMMUNITY FREEDOM SECURITY

CREATIVITY GROWTH TRADITION

DIVERSITY HUMILITY TRUSTWORTHINESS

EFFECTIVENESS INNOVATION UNITY

EMPATHY JUSTICE

Use this list as a jumping-off point for reflecting on which values are
important to you—as some may resonate more than others. You may
also identify other values that are not listed. If you wish to involve family
members, including them in the values discussion may lead to more
aligned giving.

What values guide your philanthropy?

18 / CH APTER 1: FIN DIN G YOU R FOCU S

 D O N O R STO RY

Aligning Strategy Around Sustainable Development

Goals—Janine Firpo
I’ve become a big supporter of the Sustainable Development Goals (SDGs),
and I think more and more people are using them too. They seem to be showing
up everywhere. The SDGs have become a framework for how I make all my
decisions. I picked 5 SDGs that most closely reflected my values—and now all
of my money, all of it, is being invested against those goals. That includes my
philanthropy.
One of my SDGs is number 11, which relates to building sustainable cities and
communities. For me, homelessness falls within that goal. Therefore, part of my
philanthropic dollars are going toward fighting homelessness. As an example, I
am donating to Samaritan, an innovative company in Seattle that is using beacons
to connect citizens to the homeless and the homeless to services that can help
get them off the streets.
And I have found that by using the SDGs and being strategic about my giving
helps me not feel guilty when I have to say no.

Risk Tolerance

Q. What is my philanthropic risk tolerance and how does this

align with my values?4

A. Knowing your motivations and values is important. It’s also

important to know how these align with your tolerance for risk. Some
philanthropists are willing to support promising start-ups, while others
prefer to donate to organizations with longstanding track records. Some
philanthropists are willing to shoot for the moon to achieve ambitious
policy goals, while others feel more comfortable supporting the delivery of
services that offer predictable benefits.

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We recommend that you write a paragraph that captures your attitudes toward
risk. Write a draft below:

Example risk profile statements:

1. I am very comfortable with risk. I want to test solutions that others may
be afraid to try. I am comfortable supporting new programs, start-up
organizations, and ambitious but well thought-out strategies whose results
may be uncertain.

2. I want to see major changes, but, given my public profile, I’m concerned about
reputational risk. So while I’m willing to fund innovative approaches, I don’t
want to be the first funder. To mitigate potential reputation concerns, I may
also use an intermediary vehicle or make my donations anonymously.

3. I’m not very comfortable with risk. I like knowing where my money is going and
what I am getting for it. I’d rather get a predictable, lower impact return than
invest in a new solution that is unproven—even if it has greater potential for
impact.

My Risk Profile Statement:

20 / CHA PTER 1: FIN DIN G YOU R FOCU S

Interests

Q. How do I decide on my philanthropic interests and which

causes to fund?

A. Where would you like to make a difference? Now that you have
reflected on your motivations and values, it’s time to identify your
philanthropic interests. Will you focus on the environment, homelessness,
education? If you are looking for ways to identify these causes, we
recommend two tactics:
• “looking back”
• “clean slate”

Looking Back

By reviewing your past giving, you can identify patterns and trends in
your philanthropy. Have certain causes received greater proportions of
your giving or time? Do those causes align with your values, interests, and
philanthropic aspirations? Have any gifts given you special satisfaction—
or not? The insight you glean from looking back can help you decide how
to focus your giving in the future.

ACTIVITY LOOK BACK AT YOUR GIVING

Think about your giving over the past several years. In the first table below,
write the names of the organizations to which you made a contribution, the
approximate amount, and the frequency of the donation. In the second table, note
the organizations with which you volunteered your time, the amount of time, and
the frequency of your involvement.

• Where have you given your time and money in the past, and why?

• Have there been any recent shifts in your giving, and if so, why?

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The following table reflects my giving history

from to

G IVI NG OVERVI EW

ORGANIZATION / EVENT / AMOUNT / FREQUENCY

NOTES
PERSON (inlcuding one-time only)

I was already interested in

$1,000 / 3 times within working on homelessness and
Example Larkin Street Youth Services
the last 2 years a friend told me about the
organization.

22 / CHA PTER 1: FIN DIN G YOU R FOCU S

The following table reflects my giving history

from to

VOLUNTEERI NG OVERVI EW

ORGANIZATION / EVENT / AMOUNT / FREQUENCY

NOTES
PERSON (inlcuding one-time only)

Rescue Mission 3 hours / week I really enjoyed interacting with

Example Soup Kitchen for 6 months the clients of the soup kitchen.

23 / CHA PTER 1: FIN DIN G YOU R FOCU S

On the basis of your giving and volunteering history, answer the following
questions:
• To which issues or causes did you give the most money and time?

• Does your giving and volunteering history reflect your most important values?
If yes, how? If no, why not?
• Do any other themes or trends emerge from your giving and volunteering
history?

Using this exercise, select the causes or issues that are most important to you.
With further refinement, these will become your focus areas.

EXAMPLE

When I reviewed the two organizations that I volunteered with (Larkin Street and Res-
cue Mission), it became clear to me that I care a lot about supporting the basic needs
of those facing poverty in my city. I care about equity, and I am motivated by a sense
of responsibility to give back to my community in San Francisco. My focus area could
then be providing living spaces and food for those experiencing homelessness in San
Francisco.

The “looking back” approach has some inherent limitations. For example, you may only
be aware of the problems closest to you, which may not align with the areas where you
could have the greatest impact. To cast a wider net to develop an intentional giving
approach, we suggest that you also explore the “clean slate” approach that follows.

24 / C HA PTER 1: FIN DIN G YOU R FOCU S

Clean Slate
The “clean slate” approach involves identifying the broad causes or issues
that concern you, regardless of your giving and volunteering history.

This approach may be helpful if:

• You are new to philanthropy. If you are just beginning to think about
philanthropy, this approach will help you choose focus areas.
• You have generally given reactively. Reflecting on your giving
history, have most of your donations resulted from friends asking
or in response to emotionally compelling appeals? If so, the clean
slate approach may enable you to think more strategically. (We’re not
suggesting that you exclude all reactive giving. Many strategic donors
maintain philanthropic budgets for unanticipated opportunities,
friends and family, and emergencies.)
• You feel your current giving is not fully aligned with your values.
Have you been giving mainly to your alma mater, religious institution,
and similar organizations and now realize that there are other entities
or causes that you also believe are important? The clean slate approach
can help you to articulate those areas and focus your philanthropy.
• You believe that the scope of your current philanthropy may
be overly constrained. In this case, begin exploring issues on the
periphery of your vision, or consult some wise friends and colleagues
for their ideas.

ACTIVITY CLEAN SLATE

Refer to the Issue Cards at the end of this chapter.5 Select up to five issues that
most resonate with you and write them down below. Think about how your
motivations and values align with your priority causes or issues.

25 / CHA PTER 1: FIN DIN G YOU R FOCU S

 EXAMPLE

I am interested in protecting the environment. I am aware that many of my neighbors

do not participate in the county’s recycling program because of unclear recycling
guidelines and collection schedules. For me, recycling is a concrete program that I can
support to contribute to protecting the environment. As a donor, I would like to focus
on improving the way our recycling programs operate—striving for them to be more
efficient and innovative in making recycling easier within my community.

26 / CHA PTER 1: FIN DIN G YOU R FOCU S

Issue Cards

The list in the Annex contains suggested causes under the following
broad headings:

ANIMAL RELATED FOOD & NUTRITION

ARTS, CULTURE & HUMANITIES HEALTH

CIVIL RIGHTS & ADVOCACY INTERNATIONAL DEVELOPMENT

DISASTER PREPAREDNESS & RELIEF LAW & SOCIETY

EDUCATION SOCIAL SERVICES

ENVIRONMENT OTHER

As priorities can change over time, you may find it beneficial to reevaluate
the issues you support every few years.

Choose Your Target Beneficiaries

In addition to particular issues of interest, you might want to consider

focusing on particular populations or geographies. Alternatively, you
could consider people’s needs independent of geography.

You may decide to focus on supporting the needs of a particular group.

For instance, if you aim to increase access to higher education, you may
tailor your giving to services for people you believe have particularly great
needs, such as students from low socioeconomic backgrounds.

You may wish to focus on the greatest needs of your own community. If
so, you might consult a community foundation to help identify those
needs.

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 D O N O R STO RY

A Pitch for Local Grantmaking—Leo Linbeck6

I would describe myself as a conservative communitarian and an advocate of the
‘self-governance movement.’ The conservative part goes to the idea that most
new ideas are bad. I believe human beings tend to choose things that work over
time, not unlike natural selection. The bar is pretty high for finding something
else that will work better.
The communitarian piece is built around this idea that we’re social animals.
We’re built to live in communities, to relate to people. Centralized, top-down
authority structures tend to destroy what is human in us.
Self-governance means that everyone participates in decisions that shape the
commons. But if I have no say in those decisions because they’re made 1,500
miles away by a group of people I’ve never met, never will meet, don’t know who
I am, and know nothing about me or my neighbors, how’s that going to work?
Self-governance means that we don’t have other people impose their vision on
us—and, of course, vice versa.
My encouragement to philanthropists would be to focus on where you live, and
find the people you can get to know who are committed to addressing something
that’s in your community. If it’s in your own backyard, you’re much more likely to
have a positive impact because the feedback loop is short and clear.
Adapted from an interview originally conducted by Philanthropy magazine
(PhilMag.com) for their Spring, 2019 issue.

At the other end of the spectrum, you might be interested in addressing

the needs of the world’s poorest people wherever they live or averting
global catastrophes, such as climate change or pandemics. These are
the goals of the effective altruism movement, which aims to improve
the conditions of the world’s poorest people and mitigate catastrophic
global harms.7 The web-based charity rating service GiveWell8 rates some
organizations based on their cost-effectiveness in addressing the needs of
individuals and communities in the Global South.

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 D O N O R STO RY

Thinking Carefully About Which Causes to Support—

Luke Ding
The one piece of advice I wish I’d had earlier in my philanthropic journey is to
spend far more time evaluating which cause to support. Should I support climate
change mitigation, or malaria interventions, or any number of other worthy
causes? We know that some charities can do hundreds of times more good with
our support than others. So it should not be surprising that some cause areas can
do hundreds of times more good with our support than others.
In my early years as a donor, I often chose which cause areas to support based on
how intuitive they seemed or how they spoke to me personally. While there was
nothing wrong with this, I realized that it went against my goal: to do as much
good as I can. As cause selection is such an important factor in determining
impact, it needs much more consideration than I originally gave it.

Philanthropic Portfolios: Decide How Many

Organizations to Support in Your Focus Area

How many organizations you support in your focus areas depends on your
capacity to adequately learn about the area and conduct due diligence on
individual organizations. Depending on these capacities, you can make a
few large gifts or a number of smaller ones.

Q. Should I treat my giving like a financial portfolio?

A. Most individuals and families diversify their investment portfolios to

reduce the risks of substantial losses. Does this imply that you should
diversify your philanthropic gifts? Probably not.

29 / CHA PTER 1: FIN DIN G YOU R FOCU S

Suffering a substantial loss to your portfolio of financial investments may
adversely affect your family’s wellbeing. The fact that other families on
the block are doing just fine is of no help to you. But if you devote all your
philanthropic gifts to one or two organizations in your focus area (for
example, homelessness or reducing incarceration) and they fail, there are
likely to be many other philanthropists supporting other organizations
with the same goals. The risks inherent in your own gifts’ failing are
diversified by many other donors supporting the cause.

That said, you may find it personally stressful to put all your
philanthropic eggs in one basket and risk having them all break at the
same time. If so, you might want to fund several different organizations in
a focus area.

Budgeting

Q. How do I allocate my budget and time for philanthropy?

A. Once you have identified one or more focus areas, it’s time to think
about how many dollars to allocate to them. You may decide to provide
sustained, robust funding in a single focus area. Or, with a sufficiently
large philanthropic budget, you can fund several focus areas—if you
have the capacity to learn the field and find, fund, and monitor effective
organizations in each of them.

If you have several focus areas, consider allocating funds based on how
important you believe each focus area to be and how pressing the need
is—for example, you might decide to allocate more to organizations
working to reduce diseases and poverty than to a local theater group.
Consider allocating your volunteer time to where you can make the
greatest difference.

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 D O N O R STO RY

Aligning A Portfolio With One’s Priorities

—Jan Half
At this point in my life, I have a very clear idea of my philanthropic priorities: 27%
of my giving goes to education-related nonprofits (of which 23% are focused
on STEM/STEAM education groups targeting underserved youth), 52% goes
to my post-secondary alma maters in the form of scholarships to students in
underserved areas, 20% goes to my religious institution (the first gay and lesbian
synagogue in San Francisco where I met my partner), and 1% of my giving goes to
miscellaneous donations in honor or in memory of others. While my strategy has
evolved over the years, my focus on supporting underserved youth has remained
consistent. Upon graduating with my teaching credential, I began teaching in
the small, rural town of Leland, Illinois. Years later, as a nonprofit executive
at MOUSE Squad Student Tech, my focus on helping underserved students
persisted and still does to this day.

ACTIVITY SET YOUR PHILANTHROPIC BUDGET

You may already have an amount in mind for your philanthropic budget this year.
To begin this process for the first time or to reconsider your allocation, review the
question below—on your own or with the support of your wealth advisor.

How much do you wish to allocate to philanthropy in the next year, over the
next several years, or for a longer period?

Once you have determined your annual budget, you can allocate funds across
your focus areas. In addition to supporting organizations financially, you may wish
to make non-monetary contributions of your time and talent by volunteering,
including serving on a board (see Chapter 9: Engaging Organizations and
Developing Relationships With Their Leadership).

31 / CH APTER 1: FIN DIN G YOU R FOCU S

 ACTIVITY ALLOCATE YOUR BUDGET AND TIME

In the chart below, list your focus areas and allocate your giving across those
areas for the coming year. Also include:
• existing funding patterns or commitments that you’d like to continue, such as
donations to your children’s schools, your alma mater, or a religious institution
• an “opportunities” budget for unanticipated opportunities, requests from
friends and family, and emergency/disaster relief

SPECIFIC POPULATION W/
FOCUS AREA BUDGET ALLOCATION TIME ALLOCATION
GEOGRAPHY

Would like to volunteer

Example Homelessness San Francisco 70% at a soup kitchen if my
time allows.

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Finding Your Focus Takeaways

F To engage in effective philanthropy, begin by identifying focus areas to

which you will devote your funding, time, and talent. Focusing allows
you to set boundaries for your giving and channel your capacity into
your top-priority issues.
F Proactive giving that is aligned
with your values and motivations
sustains interest and is more
personally rewarding. Impact-Driven Philanthropy
practice: We don’t spread
F Estimate your annual philanthropic
ourselves too thin. Instead,
budget to enable funding decisions
we focus our resources to
within focus areas.
ensure the best opportunity
F Tailor the budget to ensure that to make a meaningful
you also have resources to address difference and learn along the
unanticipated opportunities, giving way. We express our trust in
requests from friends and family, the organizations we support
and emergency relief. through fewer, larger, and
multi-year grants.

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CHA P T E R 1 ANNE X

Value Cards
ACCESSIBILITY ACCOUNTABILITY AUTHENTICITY

COLLABORATION COMMUNITY CONNECTION

COURAGE CREATIVITY CURIOSITY

DIGNITY DISCIPLINE DIVERSITY

EFFECTIVENESS EMPATHY EMPOWERMENT

EQUITY EXPLORATION FAIRNESS

FAITH FAMILY FREEDOM

 FUN GENEROSITY GROWTH

HAPPINESS HARMONY HEALTH

HONOR HUMILITY HUMOR

INDEPENDENCE INNOVATION INTEGRITY

INTERDEPENDENCE JOY JUSTICE

KINDNESS LEADERSHIP LOVE

LOYALTY PASSION PATRIOTISM

 PEACE PERSISTENCE RESOURCEFULNESS

SELF-
RESPECT SECURITY
ACTUALIZATION

SERVICE SIMPLICITY SPIRITUALITY

SPONTANEITY STEWARDSHIP TRADITION

TRUSTWORTHINESS UNITY WELLBEING

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CHA P T E R 1 ANNE X

Issue Cards
This is a compact summary of the Issue Cards. To access a free,
downloadable sheet of the cards in their full format, visit our
website: pacscenter.stanford.edu/donorguide
 ANIMAL ARTS, CULTURE &
CIVIL RIGHTS & ADVOCACY
RELATED HUMANITIES

DISASTER PREPAREDNESS
EDUCATION ENVIRONMENT
& RELIEF

FOOD & INTERNATIONAL

HEALTH
NUTRITION DEVEOPMENT

LAW & SOCIETY SOCIAL SERVICES OTHER

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 • Arts & Culture
• Civil Liberties • Arts Services • Animal Protection & Welfare
• Civil Rights • Historical Organizations
• Humanities • Veterinary Services
• Democracy
• Media & Communications • Wildlife Preservation & Protection
• Intergroup & Race Relations
• Museums • Zoos & Aquariums
• Voter Education & Registration • Performing Arts •
• • Visual Arts
•

• Climate Change • Adult Education

• Environmental Education • Elementary & Secondary Education
• Graduate & Professional Education • Disaster Preparedness &
• Natural Resources Conservation Relief Services
& Protection • Higher Education
• Libraries • Search & Rescue Squads
• Pollution Abatement & Control
• Special Education •
• Recycling Programs
• Vocational & Technical Education
• •

• Diseases & Conditions

• Hospitals & Primary Healthcare
• International Human Rights • Medical Research • Food Programs & Security
• Mental Health
• International Peace & Security • Nutrition
• Public Health
• •
• Rehabilitative Care
• Reproductive Health
•

• Criminal Justice Reform

• Children & Youth Services
• Crime Prevention
• Fair Employment
• Law Enforcement
• Family Services & Assistance
• Legal Services
• Housing & Shelter
• Protection Against Abuse
• Labor Unions
• Rehabilitation Services
•
•

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 CHAP T E R 2

Involving Family

42
P hilanthropy presents an opportunity to involve your family
in one of life’s most fulfilling activities: giving back to society. This
chapter will help you find answers to questions like these:
• Why should I engage my family?

• What are some ways to involve my family in philanthropy?

Family Engagement

Q. Why should I engage my family in philanthropy?

A. Engaging your family in giving can strengthen relationships, instill

values, and develop a meaningful legacy. It can be immensely rewarding
for you as well as for future generations who may build on your legacy
of charitable giving. You may engage family members in philanthropy
in many ways—ranging from asking them to advise or assist you in
developing philanthropic goals to developing and implementing a giving
strategy to launching family members on their own giving trajectory.

Q. Who is your “family”?

A. That’s entirely up to you. It may include your spouse or life partner,

children and stepchildren, children’s spouses and partners, parents, in-

43 / CHA PTER 2: IN VOLVIN G FA MILY

laws, cousins, and other extended family members. Who you include and
in what ways depends on your relationships with them and how they can
contribute to your philanthropic mission.

Q. When should I start talking about giving?

A. Philanthropic giving may be a regular topic of family conversation,

or a discussion may be motivated by particular events or decisions—for
example, if you are thinking about9:
• changing priorities in your current giving plan

• devoting significant resources to philanthropy

• donating to an institution that provides a naming opportunity for you

and your family
• becoming a visible funder for a controversial cause

• leaving much of your wealth to philanthropy rather than to your heirs

• asking family members to have a formal role in philanthropic decision

processes (for more information about philanthropic structure for
giving, see Chapter 4: Giving Vehicles)
• inspiring them to start thinking about their own philanthropy

• excluding from your philanthropic decision-making family members

who would expect to be included

Some parents like to talk about giving with their children from a young
age. For very young children, modeling and explaining philanthropic
behavior can lay a foundation for deeper involvement later on. As children
get a bit older, some families set up a “giving allowance” through which
the children decide how to donate say, $100. Teenagers may benefit from
participating in family meetings where family members can pitch specific
ideas to one another.

44 / CHA PTER 2: IN VOLVIN G FA MILY

Children may also have the opportunity to donate their time to
philanthropic efforts. Offering children opportunities to volunteer to
address societal and environmental problems, as well as meet people
from different backgrounds, can instill a philanthropic mentality from a
young age.

As they grow up, children get busy with college, work, their own families,
and other competing priorities. Yet many young adults wish to stay or
become involved in philanthropy. To help them develop independence
while staying connected with the family’s values, consider encouraging
them to make donations from their personal assets, to be matched by a
trust or family foundation. Consider the activities in the Annex to this
chapter to further refine your strategy for engaging your family.10

Q. How can family members contribute to my plan?

A. In some cases, couples have been very successful in developing a shared

vision and strategy for their philanthropy. In others, the key to success
may be doing philanthropy separately—each with their own set of focus
areas, goals, and budget.

Family members can assume varied responsibilities in your shared

philanthropy. Which of the following roles align with your and their
needs and competencies? (There can be more than one.)
• Advisor: This person can act as a sounding board, advising you on
your philanthropic goals and approaches to achieving them.
• Agent: This person can help you research how and where to give and
help make and monitor gifts.
• Co-Decision-maker: This person can be your partner in
philanthropy, collaborating to determine goals, approaches, which
organizations to give to, and how much to give them.
• Foundation Board Member: This person may combine aspects of
the roles just mentioned and will have shared authority over major
decisions and governance.

45 / CHA PTER 2: IN VOLVIN G FA MILY

• Successor: This person will ensure that your charitable intentions
continue to play a role after your death.
• Other: You may have your own ideas about roles and the people who
play them.

As a tip: keep your expectations realistic and tailored to each person’s

capacity, time, and interest.

D O N O R STO RY

Involving Adult Children—Sam Ginn, Ginn Family

Foundation
When we first funded our family foundation, my wife and I consulted with our
three adult children. I wanted them to grow in life with a sense of philanthropy
and giving back. I thought a good way to do that was, in addition to having a
seat on the Board, to give them a certain amount of money they could disburse
through the foundation. And we’ve been doing that for 15 years now. I found that
my children's ideas of what we ought to give to are not necessarily my own and
that has been a wonderful thing.
We generally have three meetings a year: the first round in the spring for
everybody to determine what they want to support, another review in the fall,
and then at the end of the year we clean everything up to make sure we complied
with all regulations.
I heard that involving family like this often causes contention, but I would say
for us it has worked extremely well. We are very flexible; for example, if the kids
need to give a bit of their portion to someone else’s project that year, they do it.
Simply put: we just try do the right thing and sometimes that means getting out
of each other’s way.
Once the checks are made, they aren’t just mailed but are hand-delivered by
my kids to the organization, especially the smaller organizations. As an old guy,
looking at our station in life, I’m really proud of my kids.

46 / CHA PTER 2: IN VOLVIN G FA MILY

Involving Family Takeaways

F Engaging your family in giving can strengthen relationships, instill

values, and develop a meaningful legacy.
F There are many ways to engage family members in philanthropy—
ranging from informing them and getting advice to involving them in
decision-making.
F To facilitate a productive discussion of philanthropy with your family,
we encourage you to reflect on your reasons for involving them and the
roles that you would like them to play.

47 / CHA PTER 2: IN VOLVIN G FA MILY

CHAP T E R 2 ANNE X

48
 ACTIVITY REFLECT ON YOUR FAMILY

In this activity, review the questions below and jot down your thoughts.

1. Philanthropic Identity and Values

• How do you think about your philanthropic identity? Is it a continuation of a

legacy from your parents or other older family members?
• If your children are grown, what values underlie their philanthropic
interests? If they are young, how do you want to engage them in thinking
about these issues, if at all?
• What values inform your and your family’s giving? Have you written them
down—perhaps along the lines of a vision and mission statement? Would
you want to involve your family in doing so?
• Do you think about your philanthropy one year at a time, or do you have a
vision that takes you well into the future? Either way, how do you feel about
the next generation playing a role?
• Are you inclined to spend down your philanthropic assets during your
lifetime or to have them administered by others after your death?
• Are you concerned that including your children could subvert their
ambition or life paths? Do you feel some hesitations about engaging your
children in philanthropy? Have you shared those with them?

49
2. Involvement of Particular Family Members

• Which family members do you wish to involve and in what ways?

• Will your choices create bad feelings or dissension? If so, how will you
handle it?

It can be helpful to first make a long list of possible candidates and then note those
whom you would prioritize.

3. Logistics

• What are your expectations about time investment from family members?

• What are your expectations about the frequency of meetings and

decisions?

50
4. Communication
• How will you communicate productively with the family members you wish
to involve?
• How will you communicate to family members who you do not plan to
involve but who might expect to be involved or notified?

5. Decision-Making

• What are your family members’ strengths and weaknesses with respect to
the roles you would like them to play?
• Over which decisions do you—as the primary donor—want full discretion?

• Over which decisions do you want others to have full discretion? (For
example, some donors provide each of their children with funds to donate
as they desire.)
• Which decisions should be made collaboratively? How would you like
these collective decisions to be made? (for example, by majority vote?)

51
 ACTIVITY INVOLVE FUTURE GENERATIONS

As a donor, you may be interested in involving your descendants in philanthropic

giving. This can often be difficult: they may be occupied with school or work; their
focus areas and approaches may differ greatly from yours or from one anothers’;
or they may not get along with one another. In any event, here are topics and
interactive activities to help you engage the next generations in your philanthropy.

1. Reflect on Family Values

Reflecting on values that you hold, or do not hold, in common will help you and
your children or grandchildren, etc. (hereafter, family members) develop common
ground for your shared philanthropy.

2. Start a Conversation About Your Past Giving

In starting a conversation with your family members about your philanthropy,
consider sharing how your life/experiences led to particular philanthropic
interests as well as your giving history with particular organizations. What role
has giving played in your life? What philanthropic activities have been most
meaningful to you and why?

3. Set up a “Giving Allowance”

Set up a “Giving Allowance” in an amount that you feel would be appropriate
to the ages of your family members. Learning by doing provides motivation and
experience for the next generation to engage philanthropically.

52
This activity uses the Issue Cards and Budgeting Coins. To access a free,
downloadable sheet of these resources, visit our website:
pacscenter.stanford.edu/donorguide.

Suggested activity format:

1. Lay out the Issue Cards (found at the end of the Chapter 1: Finding Your
Focus) on a table. Omit any issues that aren’t relevant to your family
members’ age groups, and add any issues you wish using the write-in
cards.
2. Ask your family members to select up to three issues that are important
to them.
3. Review the back of the cards and circle any specific issues of interest or
write in focus areas not listed.
4. Once the issues have been selected, use the Internet or other sources to
research organizations involved in the chosen issues.
5. Ask family members to decide on the amount to donate to each issue
from their Charity Allowance. It may be helpful to use the EPLI Budgeting
Coins. For younger age groups, writing in the amount (even $25 or $100)
may be easier to understand than percentages. Decide together how you
would like to make the donation (online, check, contact the organization,
etc.).

53
 CHAP T E R 3

LEARNING ABOUT PHILANTHROPY WITH

AND FROM OTHERS
P hilanthropy can be very personal, and the process of giving
can sometimes feel like a solitary pursuit. Though you will inevitably
work with many others outside your family—including nonprofits, their
beneficiaries, and co-funders—as you develop your philanthropic practice,
you can still feel that you are alone at the helm. This chapter answers an
important question:
• How can I learn with and from others about the giving process?

You can begin your philanthropic planning by learning more about your
selected focus areas from experienced peer donors, philanthropic experts,
and other sector specialists. Quite a few organizations offer educational
and networking opportunities for both new and experienced donors. You
can also hire experts to support you throughout your giving.

Learning Resource:
Philanthropist Resource Directory

The Stanford PACS Effective Philanthropy Learning Initiative designed

the Philanthropist Resource Directory (PRD)—an inventory of
approximately 280 organizations across the United States that support
donors’ activities. You can visit it here:
pacscenter.stanford.edu/philanthropist-resource-directory

The PRD includes three types of philanthropic support organizations:

education providers, peer networks, and research and data providers.

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 Education providers: These organizations provide
educational supports for donors, including events,
workshops, conferences, research, online courses, and
programs. The Philanthropy Workshop, the Social
Impact Collective, Boulder Giving, and Founders Pledge
are all examples of education providers that work directly
with donors to support their philanthropic journey.

Peer networks: Some education providers

support peer learning. In addition, giving circles
are an important type of peer network for donors.
They convene a network of peers in learning and
collaboration activities, and they may also present joint
funding opportunities.

Giving circles can be especially good places to learn about the focus
areas you care about because they create philanthropic communities
that share knowledge and information. They are usually hosted by
nonprofit organizations. Giving circles also allow donors to contribute to
pooled funds related to specific issues or geographic areas; donors then
decide together how and where to distribute the funds (see Chapter 11:
Funding with Others). Some examples of giving circles include the Asian
Women Giving Circle in New York, the Environmental Defense Fund’s
Catalyst Giving Circle, the Jewish Venture Philanthropy Fund, Solidaire,
Latino Giving Circle Network, and Next Generation of African American
Philanthropists.

Affinity groups allow donors to come together around shared issue areas
(such as protecting oceans or improving children’s health) or locales (for
example, the San Francisco Bay Area or Francophone Africa) or identities
(such as Asian Americans & Pacific Islanders or women). Affinity groups
host a range of activities, including in-person meetings with expert
panels, interactive workshops, and social gatherings. Webinars and email
subscription lists provide updates on current events related to the group
or create a space for group members to share their ideas and experiences.
Affinity groups also function as peer networks.

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 D O N O R STO RY

Learning with Others at SV2—Kelly Pope

A staff member from one of the nonprofits I was involved with told me about
Silicon Valley Social Venture Fund (SV2), which my husband David and I joined
in 2011. SV2 is a community of more than 200 individuals and families who
come together to learn about effective giving and to pool resources to support
innovative social ventures.
Early in my career, I wasn’t connected to many networks so I didn’t understand
their value. SV2 taught me just how important being part of a network is in
philanthropy. The network helps individuals amplify their impact for social causes
and helps accelerate their learning.
I believe that the SV2 year-long learning experience up-leveled my abilities as
a philanthropist. I learned to see things from a systems point of view. That’s
important when you are working to maximize impact.
There is something to be said for learning as a group. Maybe I would have come
to it eventually on my own, but it would have been a much harder, longer route.
The network at SV2 accelerated my journey. The reason for this is that at SV2,
people come first, there is power in the Partnership. The staff and the Partners
(members) are forward-thinking and have open minds. So, it’s partly the process
and the culture, but it’s also the people.

Research and data providers: These organizations

conduct research and provide data to support donors
in their philanthropic efforts. Examples of research
and data providers include Stanford PACS’ Effective
Philanthropy Learning Initiative, GuideStar (by
Candid)*, GiveWell, and the University of Pennsylvania
Center for High Impact Philanthropy (for more
information on GuideStar and Charity Navigator, see Chapter 8: Due
Diligence).

* In 2019, GuideStar and the Foundation Center merged under the name Candid.
candid.org/about

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 D O N O R STO RY

Learning With Others Through the Solidaire Network—

Jane Lerner
I’m relatively new to this world of philanthropy. I joined Solidaire two weeks after
the 2016 election. It was Trump’s election that motivated me and brought me to
a profound realization that I was not doing enough work, giving enough money or
time or energy toward doing better in the world. I was living in a bit of a bubble. I
was desirous of a more philanthropic life but I was quite intimidated.
When my mom died, my sister and I came into an inheritance and I was actually
quite uncomfortable with this wealth. When I joined Solidaire, I literally knew
nothing. I joined not even knowing much about the network but knowing that
most of the $15K membership would be part of a Research & Development grant
fund, going to causes that I cared about. I was joining a community of people who
were so knowledgeable about social justice work, electoral politics, philanthropy,
and how to move money working within a community. Solidaire has provided
me with so much knowledge and understanding and community and moved this
work forward for me in a way I never in a millions years would have gotten to by
myself.

Obtaining Professional Support

Advisors: If you would like professional help with

your philanthropy, there is an array of services at your
disposal. For instance, if you need help finding effective
organizations in one of your focus areas, you might
consult an expert in the field. In addition, the Stanford
PRD shares philanthropic advisory firms that can
support various aspects of your giving, from developing
your philanthropic strategy to setting up your giving vehicle, finding and

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vetting organizations, and making specific gifts.* Because anyone can
print a business card calling himself an expert philanthropic advisor,
the PRD does not name individual philanthropic advisors. In addition to
scrutinizing an advisor’s publications, you should ask for references.

Funding Intermediaries: The Stanford PRD also

includes funding intermediaries. This is a catchall
term for entities that facilitate donors’ contributions
to nonprofit organizations. Examples of funding
intermediaries are community foundations and funder
collaboratives. Some funding intermediaries also have
experts who advise donors on their philanthropic
strategy and grantmaking. They may also provide administrative
assistance and grant management.

Community foundations are public charities** that support donors and

nonprofit organizations in particular regions. Donors may contribute to a
community foundation’s endowment or targeted fundraising campaigns,
helping the foundation make grants to local nonprofits; open a donor
advised fund hosted by the community foundation (for more information
on donor advised funds and other giving vehicles, see Chapter 4: Giving
Vehicles); create “supporting organizations,” which have many of the
characteristics of private foundations; or open other types of funds,
such as ones that support a single nonprofit or issue area. If you want to
outsource selecting local nonprofits, you can make a gift to a community
foundation for this purpose. Although the PRD categorizes community
foundations primarily as funding intermediaries, many have professional
staff who can assist donors in their philanthropy.

* The PRD does not include the myriad wealth advisors—who may be associated with independent
consultancies, financial advisory firms, or banks—who can also help you navigate your tax strategy to
integrate giving into your overall wealth planning.
** A public charity by definition receives a majority of its funding from numerous sources in the general
public; a private foundation, on the other hand, typically receives its funding from one source, such as a
family or corporation.

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Learning About Philanthropy Takeaway

F The EPLI Philanthropist Resource Directory (PRD) is a compendium

of resources that can help donors learn with others and create a
supportive giving community.

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 CHAP T E R 4

Giving Vehicles: The Basics

M any people are catapulted into philanthropy because of a
wealth event. Often, their first question is what giving vehicle to use
to deploy their philanthropic dollars. We hope this chapter will help you
answer these questions:
• What are the types of giving vehicles, or structures, that I can use for my
philanthropy?
• What are the pros and cons of each, given my interests and
circumstances?

This chapter covers commonly asked questions on methods of giving. We

discuss:
• direct giving

• donor advised funds (DAFs)

• private foundations

• limited liability companies (LLCs)

A chart at the end of the chapter compares the major characteristics of

each vehicle.

There also are less common types of charitable gifts that may suit your
particular circumstances—for example, gifts to nonprofit institutions that
provide you an income for life and a deduction for the actuarial value of
the remainder, and gifts of art or real estate. (You should consult your tax
advisor or lawyer about these options, as well as about other ways of giving
through estate planning.)

Your donation only qualifies for a deduction if it goes to a qualified

charity—one accorded 501(c)(3) status by the Internal Revenue Service (IRS).
Other gifts, such as those to political efforts or for-profit social enterprises,
are usually not eligible for tax deductions. While this chapter provides basic
details on tax deductible gifts, we recommend speaking to a trusted tax
advisor if you have any doubts about the deductibility of a gift.

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Direct Giving

Q. What is direct giving?

A. Direct giving is the simplest way to make a gift. You can write a check,
use your credit card, or instruct your broker to transfer securities to an
organization. You can ask your accountant or bookkeeper to track your
donations or track them yourself using a money management tool like
Quicken or a spreadsheet.

Direct giving is also the most flexible giving structure. You can make gifts
to charitable organizations as well as to organizations that do not qualify
for tax deductions, such as political campaigns or for-profit businesses with
social missions. You have complete control over funding decisions.

Q. What tax deductions am I eligible for when I give directly?

A. If you give to 501(c)(3) charitable organizations, your contributions are

generally tax deductible provided that you itemize deductions—i.e., do not
claim the standard deduction. Cash gifts to public charities—i.e., 501(c)
(3) organizations that are not private foundations—can be deducted up
to 50% of your adjusted gross income (AGI); this limit can include gifts of
capital gain property up to 30% of AGI, with the rest in cash.* For instance,
a taxpayer with AGI of $100,000 could deduct $30,000 of non-cash gifts to
public charities plus an additional $20,000 of cash gifts to public charities.
For tax years 2018 to 2025, a temporary rule allows taxpayers to deduct gifts
to public charities up to 60% of AGI but only if all those gifts are in cash.
A taxpayer whose contributions exceed the applicable AGI limit can “carry
over” the excess deductions for up to five years.

* The 50% limit may also include cash gifts of up to 30% of AGI to private foundations, or up to 20% if the
gifts are in appreciated property.

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For gifts of capital gain property to public charities, taxpayers generally can
deduct the fair market value of the property if the property has been held
for more than one year. Capital gain property includes shares of stock, most
other financial assets, and most real estate. The rules can be complicated,
so consult your tax advisor about anything other than straight cash gifts.

Donations to 501(c)(4) social welfare organizations and other political

organizations are not eligible for individual income tax deductions, even
though these organizations may be tax-exempt themselves. Gifts to for-
profit businesses are also not tax-deductible even if the businesses have
social missions.

Q. Can my gifts be made anonymously?

A. Yes. Your personal tax return is not publicly available. Although public
charities must report certain gifts, the names of the donors are redacted
when the tax reports are made public.

Q. When might I consider vehicles beyond direct giving?

A. Direct giving is straightforward and easy, but if your giving becomes

complex—say, because you wish to develop and implement your own giving
strategies (for more information on developing your philanthropic strategy,
see Chapter 5: Understanding Problems, Their Causes, and Approaches
to Solutions)—then you should consider other giving structures. For
example, if you want to hire staff to support your philanthropy, or to
institutionalize your philanthropic legacy, you may consider establishing a
foundation (see below).

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Donor Advised Funds (DAFs)

Q. How does a DAF work?

A. A DAF is a unique sort of giving vehicle typically managed by a DAF

sponsor—a community foundation or the charitable arm of an investment
fund like Fidelity or Schwab. A DAF functions as a charitable investment
account, with the sponsor making gifts from the DAF based on the donor’s
requests. Donors get a charitable tax deduction when they give to a DAF;
in exchange, they relinquish aspects of control of the donated funds to the
sponsoring institution. For example, the DAF sponsor typically manages
the investment of the assets in the DAF, and a DAF holder cannot make a
grant from the DAF but rather can recommend a grant, with the sponsor
having approval authority. Typically a DAF sponsor would only decline to
make a grant if it does not comply with IRS regulations—for example, the
grantee is not a qualified 501(c)3 organization, or the holder wants to use
the DAF to pay for their child’s college tuition, or if the gift is inconsistent
with the sponsor’s announced policies—for example, prohibiting grants to
hate groups.

Q. Can I withdraw funds from a DAF if I want to use them to

support political campaigns or if I just need them for personal
expenses?

A. No, you cannot. Your DAF contributions and any income earned from
them are irrevocably committed to charitable purposes. If you have any
doubts about how much to allocate to your DAF and how much to keep for
other expenses, keep in mind that you can add to your DAF anytime you
wish.

Q. What if the sponsor doesn’t follow my advice?

A. Although you cannot withdraw the funds for your own use, you can
transfer funds to another DAF sponsor.

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Q. Do I receive income from a DAF?

A. No, once you place funds in a DAF, any income earned on them must
eventually be given to charitable organizations.

Q. What are the tax implications of giving to a DAF?

A. The tax implications are the same as giving to any 501(c)(3) public charity,
as described above. Because you can contribute very large amounts to a
DAF now without committing to particular organizations, it can provide
excellent tax benefits especially in the wake of a wealth event.

Q. Do DAFs require a minimum contribution and minimum size of

gift?

A. DAFs usually have an initial minimum establishment requirement, often

between $5,000 and $25,000. With most DAFs, you can recommend grants
as small as $50 and as large as you wish, typically with no additional charge
per grant.

Q. How much do DAFs charge for their services?

A. Most DAFs charge an administrative fee based on the amount in your

account; usually the fee is a higher percentage when the account is small
and declines as the DAF balance increases.

Q. Is there a minimum annual payout from a DAF?

A. While some DAF sponsors require a small minimum annual payout

(e.g., $500), many do not. Some do not permit funds to be dormant for
more than a couple of years. There has been criticism of some DAF holders
for being too slow to distribute their funds to operating charities. On the
one hand, the average payout from DAFs is about 20 percent11—well above
the 5 percent payout required of private foundations. On the other hand,
many dollars for which donors have received tax deductions are sitting at

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length in DAFs rather than going to charities. Your decision to give now or
postpone giving to a later time depends on at least two factors:
• The first is the nature of the issues you’re addressing with your
charitable dollars. If the social or environmental problems you’re
concerned with are growing faster than your DAF funds, that’s a good
reason to give sooner rather than later. But you may wish to support
perennial causes, such as education and the arts, and have no particular
reason to prefer today’s beneficiaries over future ones.
• The second is when you feel that you can devote adequate time
to charitable giving. One donor may treat his startup’s IPO as an
opportunity to take a break from business and focus on philanthropy.
Another may get right back into the fray and wait until she or family
members have time to consider how to use their charitable dollars most
effectively.

Q. Can I engage my children or grandchildren in my DAF?

A. Yes, you can involve your children as advisors to a DAF and even allow
them to continue to advise gifts after your death. Nothing in the IRS
regulations prohibit a DAF from being perpetual through the appointment
of successor advisors—though some DAF sponsors may impose their own
limitations.

Q. Can a DAF sponsor help find and vet charities in my focus

areas?

A. DAFs hosted by many community foundations have well-informed staff

who can advise you about charities relevant to your focus areas. Just as with
direct giving, however, you may have to rely on your own resources to find
and vet effective charities in your focus areas.

Q. Can I make anonymous gifts through a DAF?

A. Yes. If you wish, a gift from a DAF can be presented to the grantee with
only the name of the DAF sponsor and therefore be anonymous even to the

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organization receiving the gift. Alternatively, based on the DAF holder’s
wishes, the DAF sponsor can share the name of the DAF holder with the
grantee but advise them not to make it public.

Private Foundations

Q. What is a private foundation?

A. A private grantmaking foundation (hereafter, just “private foundation”) is

a nonprofit entity with 501(c)(3) tax status, whose funds typically come from
one source (e.g., a founding individual or family), and are distributed as
charitable grants. (In contrast, a private operating foundation uses its funds
mainly to conduct its own charitable activities rather than to make grants.)

The Internal Revenue Code requires a private foundation to expend at

least 5 percent of its endowment each year. The required distribution
includes reasonable administrative expenses, such as staff salaries, as well
as the grants. Individual philanthropists may choose to donate to existing
foundations or start their own.

Q. How do I decide whether to start a private foundation? Is there

a minimum amount needed?

A. In addition to its required annual payout, operating a foundation entails

burdens absent from direct giving and DAFs. Properly administering a
foundation and making annual reports to the IRS can be burdensome—
though you can outsource many administrative responsibilities to
organizations like Foundation Source. Among other things, a foundation
must report the recipient organization, amount, and purpose of every grant
made on the 990-PF form, which is publicly available. It has become a well-
regarded practice for many private foundations to publish their grants on
their websites.

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In deciding whether a private foundation makes sense for you, consider
whether its advantages in achieving your philanthropic objectives justify
the burdens. One potential advantage is that all the costs of running a
foundation are included in the required annual payout. If you plan to make
a large number of complex grants, you may well need staff to manage them.
You will probably incur further costs to rent or purchase an office for the
staff, as well as legal and accounting costs for reporting and complying with
regulations, and so on. (In contrast, you have no significant legal, reporting,
or real estate expenses when you give directly or through a DAF.) You
should consider whether these expenses actually increase the effectiveness
of your charitable activities by at least the same amount as their costs.

Apart from these operational matters, a private foundation provides a good

means of having your philanthropy last beyond your lifetime—though this
can be achieved through a DAF as well.

All things considered, you should give serious second thoughts to

establishing a private foundation with an endowment of less than eight
figures.

Q. Are contributions to a private foundation tax deductible?

A. Yes, but like other charitable tax deductions, there are limits. Essentially,
you can’t deduct more than 30% of your AGI for contributions of cash or
more than 20% of appreciated assets to a foundation. Moreover, gifts to
a foundation of appreciated assets that are not publicly traded generally
cannot be deducted at fair market value; the taxpayer will instead be
limited to a deduction equal to basis (which in the ordinary case means
the cost). Again, there are many tax complications, including how the
deduction for gifts to a private foundation are affected by deductions for
gifts to public charities. You should consult your accountant or lawyer
before setting up a foundation.

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Q. Do assets in a private foundation grow tax-free?

A. Not completely. Unlike public charities and DAFs, which generally do not
have to pay tax on their investment income, private foundations must pay a
federal excise tax of 2% on their investment income (reduced to 1% in some
cases).

Q. Can I make anonymous gifts to or through a private

foundation?

A. No. Private foundations must disclose all gifts they receive of $5,000 or
more in a given year. Private foundations also must disclose all grants that
they paid or approved. This information generally will be available on the
Internet through websites such as GuideStar.

Q. Can a private foundation pay out more than the required 5% of

our endowment annually?

A. Yes, you have complete discretion to pay out more than the required
5%. There are no upper limits on foundation spending. If you wanted, you
could, in theory, spend down your entire endowment within one year.

Q. Should I put my children on the foundation’s board?

A. Children often develop interests quite different from their parents’.

As long as you are comfortable with making room in the foundation’s
priorities for their interests, foundations offer a structured way to involve
the next generations in your philanthropy (see Chapter 2: Involving
Family).

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Limited Liability Companies (LLCs)

Q. How are limited liability companies (LLCs) used in

philanthropy?

A. While large, staffed LLCs look like foundations, they have no special tax
status. For tax purposes, an LLC is a pass-through and is just an extension
of your checkbook. If an LLC makes a charitable contribution, it gets
the deduction; if it makes a political contribution or socially motivated
investment, it doesn’t.

Q. If an LLC is simply a pass-through, why bother setting one up

rather than writing checks?

A. Suppose that you have hundreds of millions of dollars dedicated to

some combination of gifts, political contributions, and impact investments.
Imagine paying staff members, consultants, and miscellaneous bills
from your personal checking account, withholding income taxes where
appropriate, and the like. The LLC is fundamentally a bookkeeping
structure to make all of this easier. Placing assets in a charitable LLC also
may help protect them from creditors or in a divorce.

Q. LLCs have been criticized for their lack of transparency. What

should I make of this?

A. Putting money in an LLC and later giving it to a public charity is neither

more nor less transparent than keeping money in a personal account and
later giving it to a public charity.

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 Q & A W I T H A W E A LT H A D V I S O R

Sean Stannard-Stockton, CFA, CAP, President and Chief

Investment Officer, Ensemble Capital
Q. How do you begin a conversation with your clients about giving vehicles and
their overall giving strategy?
A. We start conversations with high net worth donors around their personal and
philanthropic goals. Once we’ve established both, we start building out a set of
tools—philanthropic vehicles on one side, trusts, retirement accounts, etc. on the
personal wealth side—that work together to achieve the client’s combined goals.
For instance, consider a donor with children who has a goal of giving to charity
during life, leaving money to their children, and passing on to their children their
values about wealth and giving. This donor might find that a combination of a
charitable lead trust, a donor advised fund, and the involvement of their
children in both can ensure that their charitable giving is focused on impact and
that they can steward their own wealth successfully.
Q. What trends are you seeing in which vehicles clients are choosing and why
might this be?
A. We see more and more people using donor advised funds—especially donors
who make meaningful annual donations but are not ultra-high net worth. While
private foundations are not necessary if the donor only wants to make donations to
nonprofits (and doesn’t need to hire staff, host events, run scholarship programs,
etc.), we continue to see strong interest in foundations by donors who desire more
flexibility in both their giving and the management of their investments than is
offered by donor advised funds.
Q. Are there mistakes you regularly see clients make that you think could be
avoided? What would those be?
A. The main mistake is viewing philanthropic and wealth planning as entirely
separate. If instead donors treat their investment decisions and philanthropic
allocations as part of an integrated strategy, it enables more effective ways to
reach both personal and philanthropic goals. For instance, wealthy donors too
often create a philanthropic plan only after experiencing a large liquidity event such
as selling a company. But by waiting, they lose the opportunity to do philanthropic
planning related to the transaction, such as transferring a portion of the company
to a giving vehicle prior to the sale, which captures tax benefits that could be used
to enhance their personal and philanthropic capital.

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Other Considerations

Q. Whether I’m establishing a DAF or a private foundation, should

I plan to spend the charitable funds sooner or later—or leave them
for others to spend in perpetuity?

A. Your decision on timeline should be shaped by your goals and the needs
of your focus areas. For example:

• Is the problem growing exponentially—making it more urgent to address

immediately—or will it remain the same over time? Compare the
estimated growth of your charitable funds with the estimated cost of
addressing the problem at a future time.
• Can you achieve the greatest impact through a burst of funding now
(for example to accelerate research) rather than providing long-term,
sustained funding? For an example, the Aaron Diamond Foundation
spent down its $220 million endowment over a decade to fund research
that led to drugs to control the HIV virus in the early years of the AIDS
epidemic. On the other hand, a scholarship program that ensures access
to college for disadvantaged students might well last for decades if not
in perpetuity.

When faced with the choice of aiding your intended beneficiaries today
or in the distant future, consider this observation by Julius Rosenwald,
whose philanthropy aided Black children in the South in the 1920s: “I feel
confident that the generations that will follow us will be every bit as humane
and enlightened, energetic and able, as we are, and that the needs of the
future can safely be left to be met by the generations of the future.”12

Q. Can I make political contributions through my philanthropy?

A. Political contributions (other than to certain 501(c)(3) voter registration

and “get-out-the-vote” organizations) are not deductible from individual
income tax. Contributions to candidates, 501(c)(4) organizations, and
other organizations that are not eligible for tax deductions generally

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cannot be made by DAFs or by public and private foundations. For political
contributions, direct giving (or equivalently, giving through an LLC) is your
best option. State or federal law may require the disclosure of political
contributions.

Q. Can I support advocacy with my philanthropy? What about

lobbying?

A. Advocacy is among the legitimate tools an organization can use to

achieve its goals. Advocacy refers to a range of activities that aim to protect
rights or promote interests at the global, national, or local levels. 501(c)(3)
organizations may engage in some activities aimed at legislation, and may
engage in largely unrestricted advocacy to influence administrative agencies
and courts. You can make tax-deductible gifts to 501(c)(3) organizations that
engage in advocacy through direct giving, DAFs, private foundations, and
LLCs.

Lobbying is a subset of advocacy that is highly regulated by the Internal

Revenue Code as well as state laws. Generally speaking, lobbying is an
attempt to influence legislation through direct communication with
members or employees of a legislative body, or indirectly by attempting to
influence the public to take action on proposed legislation. Lobbying by a
501(c)(3) organization is permitted if it does not constitute a “substantial
part” of its activities. (Section 501(c)(3) organizations are totally prohibited
from supporting or opposing individual candidates for elective office.)
Within limits specified by tax regulations, community foundations, as
public charities, can also conduct or fund lobbying.

With narrow exceptions for “self-defense,” private foundations generally

may not lobby, but they may support public charities that do so as long
as the support is not directed to the lobbying. If you want to engage in
lobbying, consider giving directly to 501(c)(4) social welfare organizations.

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Q. What is impact investing, and which of the vehicles allow me to
make them?

A. As we’ll discuss further in Chapter 12: Socially Motivated Investing,

impact investing consists of investing in for-profit companies with the
goal of increasing their social impact as well as possibly getting financial
returns. You can make impact investments by writing a check, through a
private foundation, through an LLC, and through some DAFs as well.

Q. Are impact investments tax deductible?

A. The Internal Revenue Code generally does not differentiate between

investments intended just to make money and investments that also have
a social purpose. Impact investments are not tax deductible per se; income
and realized gains are taxable, and losses are deductible to the same extent
as for ordinary investments (although losses are deductible only if the
transaction was intended to be profitable). But there are at least two ways
that you can make impact investments using charitable funds:
• First, the tax code counts private foundations’ program-related
investments (PRIs) toward their required 5 percent payouts. For all
practical purposes, PRIs are investments that expect to sacrifice some
profit in order to achieve social impact. But making effective PRIs is more
difficult than making gifts; it requires staff with legal and investment
expertise as well as knowledge of the particular substantive area. PRIs are
really only for very sophisticated foundations.
• Second, an increasing number of DAF sponsors are permitting DAF
holders to recommend impact investments from their funds.

Q. What about giving through estate planning?

A. The vehicles that we’ve mentioned thus far focus on giving while living.
Estate planning focuses on preparing for the transfer of your wealth upon
your death, and it runs the gamut from drafting a will to establishing trusts
and purchasing annuities and insurance. Philanthropy can play a part in
all of these—and the Internal Revenue Code has intricate provisions for

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how these instruments are treated. An estate planning lawyer can help you
explore the possibilities.

Giving to public charities (including through DAFs) and private foundations

while alive will generally be more advantageous from a tax perspective than
giving upon death. A charitable gift during the donor’s lifetime entitles
him or her to an income tax deduction and moves assets out of her estate,
thus reducing her estate tax. A charitable gift upon death does not yield
any income tax benefit beyond the donor’s final income tax return, though
it does bring estate tax benefits. For this reason, it is sometimes said that
giving during life yields a “double benefit” (an income tax deduction plus a
reduction in estate tax liability) while giving at death yields only a “single
benefit” (a reduction in estate tax liability).

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 D O N O R STO RY

Leveraging Three Giving Vehicles to Maximize Impact—

Matt Rogers, Founder, Incite.org
We currently use three giving vehicles: a foundation, an LLC, and a DAF. This
particular model developed over time as we learned about the most effective
tools and activities for our impact work. My wife and I started making grants six
years ago, which at that time consisted of writing individual checks to various
organizations. We quickly realized that was not an effective grantmaking strategy
and we wanted to be more tax efficient while maintaining flexibility to best use our
assets for impact.
Establishing a Foundation
Mission related investments (MRIs) were important to us and difficult to
accomplish through a DAF, so we set up our foundation which is the primary
delivery vehicle for our grants and investments. We make about 7-10% in grants
and a similar quantity in MRIs every year and use much of the foundation’s corpus
for investments in high-impact, high-risk activities, like new battery technologies,
power, clean energy, etc.
Flexibility of an LLC
Our next learning emerged as we grew our team. When we hired our first two
employees, we could have used the foundation as an employer but quickly
realized that would limit the kinds of activities they could perform and the types
of organizations we could support to 501(c)(3) public charities. We wanted
the flexibility to be able to do whatever it takes; we work in areas like climate
change, democracy, voter reform—which are often difficult to engage through a
foundation. That’s when we decided to set up an LLC, which we use primarily as
an organizational and human resources vehicle. An LLC offers more flexibility and
with post-tax dollars there are no constraints around what kinds of activities our
employees can be doing across impact investing, political giving, and supporting c4
organizations.
Utilizing a DAF
Once I exited from my startup, I maxed out what I could give, 30% of adjusted gross
income, to our foundation, so we set up a DAF for the remaining 20%. We use this for
other grants that we write; however, the DAF is not our primary giving vehicle and we
plan to wind it down over the next couple years.

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Giving Vehicles Takeaways

F There is no one-size-fits-all giving structure. You can practice effective

giving through any of the vehicles—beginning with direct giving.
F While tax considerations are an important factor in your choice of
vehicle, consider other factors, such as the complexity of your giving and
administrative burden.
F Foundations can be administratively burdensome, so unless you are
planning to hire staff or retain an organization like Foundation Source,
consider other giving vehicles as a means to engage in proactive giving.

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 CHAP T E R 4 ANNE X

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Giving Vehicles Comparison Chart
The chart below summarizes the advantages of each giving vehicle. Review it to help you identify
the structures most suitable for your philanthropy. We encourage you to discuss these options with
your trusted advisor.

CONSIDER- DONOR ADVISED FUND LIMITED LIABILITY

DIRECT GIVING PRIVATE FOUNDATION
ATIONS (DAF) COMPANY (LLC)

ADMINISTRATIVE SUPPORT:
Administrative Administrative
Do you need support The amount of The sponsor carries responsibilities may be work is typically carried
for due diligence and support needed out administrative performed by paid staff out by paid staff and is
administration, and can depends on the responsibilities. Beyond or outsourced—and can not tax-deductible.
support be paid for by tax- complexity of your checking charitable be paid from tax-exempt
exempt dollars? gifts. Support is not status, capacity for due dollars.
tax-deductible. diligence varies. Fees
to the sponsor are paid
from the DAF— post-tax
deduction.

ANONYMITY AND PUBLIC ✓ ✓  ✓

DISCLOSURE:

Can you give anonymously?

Yes Yes No, private foundations Yes
are required to disclose
the names of grantees
and significant
contributors (those who
give more than $5,000
in a year) on the annual
990-PF Form.

✓ = yes = no = sometimes

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 CONSIDER- DONOR ADVISED FUND LIMITED LIABILITY
DIRECT GIVING PRIVATE FOUNDATION
ATIONS (DAF) COMPANY (LLC)

ASSET GROWTH POTENTIAL  ✓ ✓ 

AND INVESTMENT
DECISIONS: Not as such. Your Yes. Any growth in assets Yes. Any growth in assets
No
philanthropic assets is tax-free, offering the is exempt from income
Will your philanthropic
are not differentiated opportunity for greater tax, though subject to the
assets increase in value
from your other philanthropic giving 1-2% foundation excise
over time? If you can make
assets. If you give in the future. The DAF tax.
philanthropic investments,
assets to charity sponsor is responsible for
do you have control over
before selling them, investment decisions, but
how to invest?
however, you will not this may be negotiated
pay tax on the gains. for large funds.

CONTROL OVER ✓ ✓ ✓
GRANTMAKING: Donors can
Yes advise the DAF sponsor Yes, subject to the Yes
Can you retain control over on how to distribute their approval of the
funding decisions? funds’ assets, but the foundation board.
final funding decisions
rest with the DAF
sponsor. Except where a
proposed grant violates
an announced policy, the
sponsor will usually act
as advised.

DISTRIBUTION   ✓ 
REQUIREMENT:

No No; though some DAFs Yes; private foundations No

Is there an annual have a minimum annual are required to distribute
distribution requirement distribution requirement 5% of their assets
in place to keep your or a policy for funds that annually.
philanthropy moving? are inactive for two to
three years.13

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Giving Vehicles Comparison Chart

CONSIDER- DONOR ADVISED FUND LIMITED LIABILITY

DIRECT GIVING PRIVATE FOUNDATION
ATIONS (DAF) COMPANY (LLC)

FAMILY INVOLVEMENT: ✓ ✓ ✓ ✓
Can your family members Yes; this involvement Yes; family members can Yes; this involvement can Yes; this involvement can
be involved in grantmaking will be informal. be named as advisors or be formal, with family be formal, with family
decisions? successors on your fund members serving on the members serving on the
or can have their own board or as staff. board or as staff.
funds.

✓ ✓ ✓ ✓
IMPACT INVESTMENTS:
Yes, but income Yes, an increasing number Yes, private foundations Yes, but income made
Can you make investments made from impact of DAFs are permitting can make program- from impact investments
that generate social as well investments may be funds under their related investments may be taxable.
as financial returns? taxable. management to be used (PRIs) and mission-
for impact investments. related investments
(MRIs).

 ✓ ✓ ✓
PERPETUITY:
Yes; DAFs can be set Yes; the endowment can Yes
No
Can the structure exist in up as endowed funds, either exist in perpetuity
perpetuity? and named advisors and or be spent down over a
successors, or the DAF period of time.
sponsor, can keep DAFs
running in perpetuity.

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 CONSIDER- DONOR ADVISED FUND LIMITED LIABILITY
DIRECT GIVING PRIVATE FOUNDATION
ATIONS (DAF) COMPANY (LLC)

POLITICAL CONTRIBUTIONS: ✓   ✓
Can you make political Yes; these No—but public No—but public charities Yes; these contributions
donations or engage in contributions are not charities—including those to which you donate are not tax deductible.
lobbying? tax deductible. to which you recommend can allocate a portion
donations and those of unrestricted general
that sponsor DAFs—can operating grants to
engage in lobbying, and lobbying.
community foundations
can make grants for
lobbying up to a certain
limit.

TAX IMPLICATIONS: You are entitled to The entire amount given The donor is eligible for When contributions are
tax deductions for the to a DAF is immediately a tax deduction when made to a 501(c)(3)
What tax implications does support of 501(c)(3) tax deductible. assets are transferred to organization, the LLC’s
this vehicle have for my organizations. the foundation—though members are eligible
giving? on less favorable terms for a tax deduction;
than gifts to public there is no deduction for
charities and DAFs. support given to political
The income from assets activities or impact
held by a foundation are investments.
not subject to income
tax, but foundations
must pay an annual
excise tax of 1%–2% of
net investment income.

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 CHAP T E R 5

Understanding Problems,
Their Causes, and
Approaches to Solutions
H aving articulated a focus area, you may be tempted to
jump right into finding organizations that operate in that
space. However, nonprofit organizations may deploy very different
approaches to solving social problems, and it’s helpful to begin with a
good understanding of the problem you’re trying to solve through your
philanthropy. This chapter covers
two vital questions:
• How can I define the problem Impact-Driven Philanthropy
that I’m trying to solve to practice: We understand the
generate a good range of systems in which the causes are
solutions? embedded and make intentional
• What types of approaches can choices about the approaches
I fund that might solve the we fund, such as supporting
problem? direct services, advocacy, and/or
research.

Defining the Problem

Q. I know that I need to understand a problem before I can solve

it, but isn’t this something I can leave to the organizations I fund,
since they have expertise in their areas?

A. Each organization has its own idea of what the problem is and how
to solve it. It’s like the Indian parable of the six blind men describing an
elephant, in which each man sees a different part of the animal. Before
you begin picking organizations to support, it’s a good idea to get your
own sense of the problem you want to solve, its likely causes, and different
approaches to solving it.

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For example, consider organizations trying to halt the rise of child
obesity. They might undertake any of the following:
• teach children about the caloric content of the foods they eat

• provide exercise facilities

• advocate for schools to stop serving sugary beverages

• work to ensure that low-income families have access to affordable fresh

vegetables and fruit

Some of these approaches may be more effective than others, and some
may fit your tolerance for risk or other personal preferences better than
others.

As a second example, consider homelessness in some US cities. Ways

to tackle this problem may include on-the-street health services, soup
kitchens, shelters, permanent supportive housing, and working to
prevent the eviction of families at risk of becoming homeless. You can’t
choose among these approaches without understanding the causes of
the problem. Permanent supportive housing is an ideal solution for
adults who are on the margin of productivity—but not necessarily the
solution for runaway youth or people suffering from serious mental health
problems.

ACTIVITY DEVELOP YOUR PROBLEM STATEMENT

As a guide to understanding the problem you’re trying to solve, you may develop
a problem statement that identifies the groups you’re trying to help and articulates
the core of the problem. For example, a problem statement for helping a particular
homeless population might be: “Veterans, many of whom have served our nation
in war zones, suffer the indignity and deprivations of being homeless and on the
streets.”

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Reflect on a problem you’re trying to solve in your focus area, and write down the
problem statement. In creating your statement, consider:
• Is your problem statement empirically accurate?

• Does it identify its intended beneficiaries?

• Does it describe what really concerns you about the problem?

Approaches

Q. How do I learn about various approaches to solving the

problems that concern me?

A. A good starting place is to conduct Internet research or talk to

experts (as we will discuss in Chapters 7 and 8 on finding and vetting
organizations). The goal is not to know the answers for sure but rather
to know what questions to ask organizations and to learn enough to
prioritize some organizations over others.

First, consider which nonprofit approaches are likely to be effective at

solving the problem you’ve identified. Second, consider which of them
best fit your personal preferences in terms of factors such as immediacy,
visibility, and riskiness.

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Q. What types of approaches do philanthropists and nonprofit
organizations take?

A. Nonprofit approaches fall into five broad categories, which sometimes

overlap:
• providing direct services
• supporting research and the development of knowledge
• advocating to change government or corporate policies
• changing societal mindsets and systems
• funding prizes

Q. What are examples of direct services?

A. Providing direct services to individuals (or

animals) is the core work of organizations that most
people think of as charities: providing food and
shelter for the homeless, treating drug addiction,
and so on. Scholarships at universities, support for
symphonies and museums, and training and capacity-building programs
for teachers and nonprofit staff also fit in this category.

Q. What are examples of supporting research and knowledge

development?

A. Universities don’t only educate students. They,

and many other institutions, engage in research
and develop and preserve knowledge. Philanthropy
has been a crucial element of support for all these
endeavors, from huge telescopes to cancer research
to books on Renaissance history.

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Q. What about advocating for policy change?

A. Consider the advocacy to reduce over-incarceration

by a coalition of foundations across the political
spectrum, leading to the bipartisan First Step Act; or
advocacy to mitigate climate change; or the advocacy efforts for cage-free
eggs aimed at corporations, consumers, and governments.

Q. What about changing societal mindsets and systems?

A. In the years following World War II, philanthropists

supported the work of Friedrich Hayek, Milton Friedman,
and other scholars, who developed and disseminated the
concepts of neoliberalism, which became and remains the
dominant paradigm of Western societies and economies.

D O N O R STO RY

How to Impact Public Policy as a Donor

—Frayda Levy14
I believe donors can make a positive impact on public policy, though it’s a multi-part
process. You have to get the right people elected, and because of that I’m on the board
of Club for Growth. You need to elect people who believe in and understand economic
liberty, and have a willingness to fight.
Then you have to engage citizens to support and press legislators. That’s why I’m
involved in Americans for Prosperity. When people willing to stick their necks out for
liberty get to Capitol Hill, they need support.
And for the long haul, you need to shape culture. Unless you have people who
understand the value of economic liberty, and the dangers from losing it, you’re not
going to get citizens actively involved. So you have to create a culture that educates and
motivates people.
The liberty movement hasn’t really had much support from culture-purveying
institutions. Yet many people hold our views anyway. Can you imagine if we could
engage culture well, how many more people we could bring along?
Adapted from an interview originally conducted by Philanthropy magazine (PhilMag.
com) for their Fall, 2018 issue.

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(Today, some foundations are supporting the development of alternative
paradigms.) More recently, philanthropists supported the gay rights
movement, which both led to a change in mindsets and in the deeply
embedded system of marriage and its attendant rights.

These different approaches don’t reflect legal distinctions. They’re just

helpful ways of thinking about the different sorts of activities that nonprofits
might perform. And sometimes a single organization will undertake
several such strategies. Consider Planned Parenthood, which both provides
reproductive health services and advocates for access to it. Or consider a
university, which directly serves students and also conducts research.

DEFINITIONS

Advocacy refers to a broad range of activities that

are meant to influence public opinion and public policy.
Examples are research, public awareness campaigns,
strategic litigation, community organizing, and lobbying.

Lobbying is a type of advocacy aimed at influencing a

specific piece of legislation.

Q. Can policy change be pursued by organizations with 501(c)(3)

status, to which my contributions are tax-deductible?

A. As mentioned in Chapter 10 on Making Gifts, the Internal Revenue

Code restricts but does not prohibit all lobbying by 501(c)(3) organizations,
and they can also do policy work that does not involve lobbying—for
example, educating citizens about the consequences of particular policies.
But effective policy change sometimes requires significant engagement
in conventional politics. In those cases, you must forgo the tax deduction
and give to groups such as social welfare organizations covered by section

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501(c)(4) and other provisions of the tax code or give directly to political
campaigns.

Q. Do I need to worry about whether a 501(c)(3) organization is

going beyond the permissible limits of lobbying?

A. If you are giving to a 501(c)(3) organization as an individual or through

a donor advised fund (DAF), you can let the organization worry about
what advocacy is and isn’t permissible. If you’re giving through a private
foundation, its lawyer should vet grants to ensure that they do not violate
federal or state restrictions on lobbying.

Q What about prizes?

A. Inducement prizes typically are intended to increase knowledge.

Rather than, say, fund the development of a particular technology, you
could offer a prize for whomever comes up with the best technological
solution to a problem. For example, in 2010, the X Prize Foundation
launched the Oil Cleanup XCHALLENGE, which aimed to spur innovative
solutions for how to rapidly and efficiently clean up oil spills from ocean
surfaces. Contestants were required to develop systems for oil cleanup
with an oil recovery rate of over 2,500 gallons per minute (GPM) and
an oil recovery efficiency of over 70%. The winner, Elastec/American
Marine, designed a system to recover 4,670 GPM and tripled the industry’s
previous oil recovery rate.15

Prizes that recognize achievements may be intended to stimulate

knowledge development or movement building, or just to honor individuals
for their achievement. The Man Booker Prize for literature, Goldman
Environmental Prize, and Nobel prizes are well known examples.

We should note that many recognition prizes awarded by schools and

other institutions seem motivated mainly by the donors’ desire for
recognition, and the hassle of administering them is often greater than
their social benefits.

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Choosing Among Approaches

Q. How can I choose among these various approaches?

A. The fundamental question is which approaches will achieve your

philanthropic objectives most effectively. Let’s use as an example a
contemporary issue that has brought together philanthropists from across
the political spectrum: concern about mass incarceration in the United
States. It’s a problem for people who spend much of their lives in prison,
and a problem for their families and communities—and these burdens fall
disproportionately on people of color. It’s also a problem for taxpayers,
who are paying for huge government expenditures on prisons. The causes
of the problem include:
• legislation that criminalizes and sets harsh penalties for certain
conduct, including legislation enacting the “three-strikes” rule, which
can imprison someone for life for three relatively minor offenses
• excessive zeal by prosecutors, most of whom are elected officials
and campaign for re-election on a platform based on being tough on
crime—meaning long sentences
• bail and parole practices, including the practice of using proprietary
artificial intelligence algorithms that are hidden from the defense
• the shortage of successful reentry programs for ex-offenders, leading
to a high level of recidivism
• social and economic conditions, such as the lack of a job or place to
live

These different causes offer different perspectives on the problem, which,

in turn, imply different approaches to solving it—ranging from policy
advocacy and systems change to service delivery to non-tax-exempt
political activities.

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Q. I’ve heard it said that some approaches get at the “root causes”
of problems, while others only address “symptoms,” with the
implication that it’s better to fund solutions that get at root
causes. Do you agree?

A. This is seldom a helpful distinction. Consider the problem of over-

incarceration just mentioned. Possible root causes include the legacy
of discrimination against people of color and current prejudice. But
the most effective solutions, even for the long run, may lie in strategies
that respond to more proximate causes. To use another example, the
root cause of malaria is a plasmodium parasite, but no one has seriously
considered eliminating the parasite entirely (as has almost been done
with the smallpox virus). Rather, effective strategies include providing
people with insecticide-treated bed nets, and research to develop a
vaccine against malaria. And for one more example, the causes of
homelessness differ for different populations—for example, families that
suffer from housing insecurity because of economic conditions and
veterans with PTSD and other disabilities. For the latter group, perhaps
the root cause is war.

Q. OK, but suppose that several approaches seem equally

promising. How do I choose among them?

A. Begin by learning which approaches have been tried and how they have
worked out. Beyond this, consider how they mesh with your preferred
“style” of philanthropy and risk tolerance. In Money Well Spent, Paul
Brest and Hal Harvey mention several personal considerations that
philanthropists might take into account. Some prefer that results can
be achieved visibly in the near term without much risk of failure; they
want to know in advance that they will improve some people’s daily lives.
Others are willing to take big risks to bring about large-scale change.
Along similar lines, some philanthropists prefer to support strategies
that are clear and readily graspable, whereas others are comfortable with
indirect and complex processes. Some philanthropists would like their
particular contributions to be recognized. Others support work on such a

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 large scale or with so many actors that they will seldom know whether any
one person’s contribution made a difference.

As an example, if you have an activist mindset, you might support

grassroots movements against incarceration and mobilize against
prosecutors running for election on “tough on crime” platforms. These
are risky long shots and you may make enemies, but such efforts can have
big consequences.

Or you might prefer approaches that have clearer and more measurable
outcomes, such as programs to prevent recidivism. Or you might believe
that we need to understand more about what’s causing over-incarceration
and about the effects on crime if incarceration is reduced—and therefore
would be willing to put money into research.

Approaches Chart

RESEARCH AND
DIRECT SERVICE POLICY, MINDSET, AND
KNOWLEDGE PRIZES
PROVISION SYSTEMS CHANGE
DEVELOPMENT

Likelihood of Varies, depending on project Varies, depending on Depends on how high

High
Success scope project scope a bar

Timeline Short term Long term Long term Typically several years

Visibility of
High Seldom High High
Results

Systemic
No Not usually Yes Not usually
Change

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 ACTIVITY PICK AN APPROACH

Choose one cause of particular interest to you.

1. Define the problem you are trying to solve and its causes.

2. What approaches seem effective at solving the problem?

3. Besides effectiveness, which of these factors are the most important to you?
The least important?
Certainty of success
Timeline
Visibility of result
Systemic change
Other:

4. Which approaches seem to best align with your preferences?

Direct Services
Research and Knowledge Development
Policy, Mindset, and Systems Change
Prizes

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Understanding Problems, Their Causes, and
Approaches to Solutions Takeaways

F Before you pick organizations to support, it’s important to understand

the problem you wish to solve and its possible causes.
F There are five types of approaches to solutions:

• direct services

• research and the development of knowledge

• changing government or corporate policies

• changing societal mindset and systems

• funding prizes

F When choosing among approaches, ask which of them will achieve

your philanthropic objectives effectively. Also reflect on how your
personal preferences concerning time, risk, and other factors may
influence which approaches work best for you.

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 CHAP T E R 6

Theory of Change, Monitoring,

and Evaluation: Understanding
an Organization’s Activities,
Outcomes, and Impact
O nce a nonprofit organization has identified the problem it is
trying to solve and chosen an approach to solving it, it must develop
and implement a strategy to achieve its goals. In the nonprofit world, the
framework for describing such a strategy is called a “theory of change.”

This is one of the few jargony terms we use in the Guide, but it’s used
pervasively enough in the nonprofit and philanthropic sectors that
you might as well become familiar with it. And the concept will help
you transition from understanding problems to finding and vetting
organizations—the topics of the subsequent two chapters. That is,
understanding an organization’s theory of change helps you make your
own assessment of whether an organization has sound strategies for
achieving your shared objectives.

Whether or not an organization uses any particular term is unimportant.

What matters is whether it is clear about its intended ultimate outcomes,
or goals, and whether it can cogently explain how its activities are likely to
lead to those outcomes.

This chapter covers three questions:

• What is a theory of change and why is it important?

• How can an organization know if it is on track with its theory of

change and if it is having the desired impact?
• As a donor, how might I develop a theory of change for my giving?

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Theory of Change

A theory of change sketches the sequence of causes and effects that

underlie a nonprofit’s strategy, beginning with the organization’s
activities and ending with its intended outcome. An organization’s
theory of change gives you and its leadership a common framework for
understanding what it aims to accomplish and how it plans to do it. If
the organization is unable to describe the theory of change underlying its
programs persuasively, that should raise a red flag (for more information,
see Chapter 8: Due Diligence).

Elements of a Theory of Change

A theory of change incorporates three elements:

• Activities describe what the organization does, such as provide
particular services.
• Intermediate outcomes describe changes—often in beneficiaries’
behavior—that are predicted to occur as a result of the organization’s
activities and necessary to achieve its ultimate outcome.
• The ultimate outcome is what success would be in solving the problem
the organization is tackling.

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We’ll illustrate a theory of change by looking at a program designed
to reduce the recidivism rate among ex-offenders recently released
from prison. The program encompasses three activities: psychological
counseling to help beneficiaries cope with everyday problems, job
training, and assistance with job placement. Here is a theory of change for
this program:

This theory of change proposes that if the organization provides its

clients with psychological counseling, job training, and job placement
assistance, then they will learn to cope with the world outside prison,
succeed at job training, and acquire jobs. Counseling, job training, and
placement are the activities the organization conducts. Learning to cope
in society, being prepared for employment, and getting and maintaining
a job are intermediate outcomes that result from those activities. As
in this example, intermediate outcomes often involve changes in the
beneficiaries’ skills and behavior.

Next, if beneficiaries learn to cope, acquire new skills, and get jobs, then
they will be less likely to engage in criminal activities. In other words,
the intermediate outcomes will lead to the ultimate outcome: not
reoffending.

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In short, a theory of change is composed of a series of if-then statements,
or causal claims, that certain activities will result in specified outcomes.

The difference between activities and outcomes is captured in the saying

“you can lead a horse to water, but you can’t make it drink.” Leading the
horse to water is an activity that the organization conducts. The horse
drinking is an outcome for the horse. You might think of the horse’s
drinking as an intermediate outcome, with the ultimate outcome being
that the horse is adequately hydrated to be healthy and continue on its
journey.

At the end of this chapter, we provide a few examples of more complex

theories of change from Nurse-Family Partnership and Global AIDS
Interfaith Alliance (GAIA).

The Empirical Basis for a Theory of Change

A theory of change is only as good as its empirical underpinnings. Its

causal claims must be based on sound evidence. If the causal claims
underlying the anti-recidivism program are not empirically sound, the
organization likely will fail to achieve its ultimate outcome. For example,
the psychological counseling may not be adequate to help an ex-offender
from being drawn into criminal activities with his former associates, or
the job assistance may be ineffective.

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A theory of change that seems intuitively appealing may not actually work
in the face of evidence. Consider the Drug Abuse Resistance Education
(DARE) program, in which police officers went into classrooms to teach
students about the hazards of using illegal drugs. Because of its intuitive
appeal and its founders’ aggressive marketing, DARE spread to 5,200
communities in all 50 states. At its height, it was operating in 75% of
American school districts.16 Beginning in the 1990s, however, evaluations
demonstrated that the program had no positive effects and, indeed, made
some students more likely to try drugs.17 Despite much pushback from
DARE, the program eventually made changes based on the evaluation
results.18 Today DARE teaches youth decision-making skills.

Thus, even when a strategy seems intuitively obvious, you should ask your
potential grantee what evidence it has about the strength of the causal
links in its theory of change.

D O N O R STO RY

Good Intentions, Ineffective (Even Harmful) Plan—

Jason Sadler
Jason Sadler, a Florida businessman, started a charity to improve the lives of
Africans. His strategy was to collect one million t-shirts and send them to Africa.
His website ambitiously explained the idea in these words: “Share the wealth,
share your shirts—we’re going to change the world.” Experts on foreign aid were
skeptical, to say the least. First, shirts are not in short supply in Africa, and second,
flooding the market with free goods could bankrupt the people who already sell
them. After Sadler announced his plan, criticism flooded in, and he abandoned the
strategy.19

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Implementing the Theory of Change:
Feedback, Monitoring, and Evaluation

Developing a theory of change is not a hypothetical exercise. Before

an organization and its funders put time, effort, and money into
implementing a program, the theory of change offers a framework for
setting out the necessary steps and seeking evidence—typically from
research or the evaluation of similar programs—that they are likely to lead
to the intended outcome (or not).

If the organization decides to go forward, the theory of change also

provides a framework for learning about how its implementation is
actually working and to make appropriate course corrections. Among
other things, an effective organization seeks answers to these important
questions:
• Is the organization reaching its target population and serving their
needs? Are there major gaps in its theory of change?
• Are its beneficiaries satisfied with the program? What works well and
what can be improved?
• Are the programs creating any unintended harms? If so, how can those
harms be avoided or mitigated?

As a donor, you will want to see what the organization plans to do and
how well it is meeting its ultimate outcomes or goals (see Chapter 8:
Due Diligence). Equally important, you will want to know whether the
organization is equipped to obtain and use the feedback necessary to
make course corrections when things don’t go according to plan.

The information that an organization seeks when implementing a

program can be described in three general categories: getting beneficiary
feedback, monitoring activities and outcomes, and evaluating the ultimate
outcome.

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Beneficiary Feedback

Virtually every consumer-facing business gets customer feedback—

whether through Yelp reviews or questions following an Amazon
purchase—that can lead to improving its products and services. Feedback
from the beneficiaries of nonprofit organizations is no less important for
improving their products or services to ensure achieving their ultimate
outcomes.20 Depending on the nature of their beneficiaries, organizations
may use anything from open-ended qualitative questions to surveys
culminating in net promoter scores.

Monitoring

Monitoring involves tracking activities, intermediate outcomes, and ultimate

outcomes as the organization implements its theory of change. We’ll
illustrate this through the recidivism program described above on page 100:
• Activities. To how many clients did the organization provide
counseling, job training, and job placement assistance? At what
dosage? (Ideally, it also would be valuable to have indicators of the
quality of these activities.)
• Intermediate outcomes. How many clients are well-prepared for
employment, and how many actually get and retain jobs?
• Ultimate outcome. How many of the clients do not reoffend within,
say, five years?

An effective organization will have metrics for assessing progress at each

stage, and it will also have targets—for example: 70 percent of its clients
will be in stable employment 12 months after program completion, 60
percent will not reoffend within five years. Ambitious but realistic targets
keep the staff accountable to the organization’s management and keep
the organization’s management accountable to its beneficiaries and
funders. They are an indication that the program is on course or in need
of course correction.

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Evaluation

Returning to the anti-recidivism program, suppose that a year after the

program was initiated, the incidence of recidivism among its participants has
declined by 25 percent compared to the previous year. This seems like a pretty
good outcome, but is it the result of the program or some other factors?

Impact evaluation asks and answers an important question that goes

beyond whether the intended outcome occurred: did the program
contribute to the outcome—or might its clients’ reduction in recidivism
have happened anyway? Perhaps the anti-recidivism program cherry-
picked clients who it thought were most likely to succeed, or perhaps those
ex-offenders who were most likely to succeed chose to participate in the
program. Perhaps the rate of unemployment had dipped so low that it was
easy for participants to find jobs even without the program’s assistance.

Why incur the expense of assessing the program’s contribution to the

outcome? From a service provider’s point of view: to improve, expand,
revise, or abandon the program depending on the results. From a funder’s
point of view: to extend, withdraw, or set conditions for further support.
And from the broader field’s point of view: to improve similar programs.

What makes evaluation difficult is that it tries to compare a program’s

actual outcome with the outcome that would have occurred even without
the intervention—what’s technically called the “counterfactual,” because
it didn’t happen.

In theory, the evaluation technique that can instill the most confidence
that the intervention did or did not make a difference is a randomized
controlled trial (RCT), in which beneficiaries are randomly assigned to
receive or not receive the intervention. This is essentially how new drugs
are tested before the FDA allows them on the market. Analogously, the
state might randomly assign ex-felons to the anti-recidivism program or
leave them to cope on their own—an unfortunate choice but one that may
in any event be dictated by budgetary constraints.

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In reality, it is often difficult—as well as cost-prohibitive for many
nonprofits—to conduct RCTs on social interventions. But other evaluation
techniques are available, including comparing the ex-offenders’ success in
one program to their success in similar programs or in no program at all,
even in the absence of random assignment.

Although every organization can gather feedback and monitor its

progress, many organizations do not have the ability to evaluate their
outcomes. Especially for small organizations, the most that one can
expect is that they are faithfully implementing interventions that have
been evaluated elsewhere and shown to be effective.

Developing Your Philanthropic Strategy

Most readers will use this chapter to scrutinize an organization’s

theory of change during the due diligence process (for more in-depth
information on due diligence, see Chapter 8). If you are confident that
the organizations that you support in a focus area are working effectively
toward your goals, there’s seldom a need to develop your own theory of
change for that area.

As you perform due diligence and monitor organizations’ work in an area

over a number of years, you may develop your own views about which
theories of change work or don’t work to achieve your goals. For example,
you might learn that public awareness campaigns, by themselves, are
seldom successful in changing individuals’ behavior unless accompanied
by targeted behavioral strategies. In effect, you will have developed your
own theory of change and use this as a filter for future due diligence.

Beyond this, there may be situations in which you can only solve a
problem that concerns you through a set of coordinated grants. Suppose,
for example, that you wish to clean up a polluted river and this requires
advocating for regulation, providing companies with technical expertise
to reduce pollution, and monitoring water quality and health effects. If

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you cannot find an organization that’s conducting all these activities, you
may need to articulate your own theory of change, make gifts pursuant to
it, and monitor the progress and impact of your various grantees.

The Theories of Change Underlying Diversity,

Equity, and Inclusion (DEI)

For another example of how donors may develop a theory of change for
their own philanthropy, we turn to the issue of diversity, equity, and
inclusion (DEI), which is extremely important in its own right. With the
caveat that the term encompasses overlapping clusters of practice, its
component parts might be defined as follows:21
• Diversity means variation—staff members and beneficiaries who
reflect different demographic characteristics and life experiences from
a range of identities, perspectives, and experiences.
• Equity means ensuring equal outcomes by providing staff members
and beneficiaries with the support needed to eliminate unfair
disparities.
• Inclusion means creating an environment of involvement, respect,
and connection—where diverse ideas, backgrounds, and perspectives
are harnessed to create value.

Donors and private foundations may have several reasons for

incorporating DEI factors in their grantmaking and other practices.
The Hewlett Foundation captures the breadth of rationales for DEI in its
Guiding Principles:22

The foundation embraces the importance of diversity, equity,

and inclusion both internally, in our hiring process and
organizational culture, and externally, in our grantmaking and
related practices. We care about and hold these values essential
both because this is the right thing to do and because it is the
smart thing to do.

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 It is right because, as an endowed institution with significant
resources, our choices about how we use our assets have
important consequences. In hiring staff and supporting partners
to help address critical social problems, we also empower the
individuals and organizations we choose. We have a duty to
exercise this privilege—for it is a privilege—thoughtfully, mindful
of the larger society of which we are part, and of the historical,
economic, and cultural forces that shape it. We believe this duty
includes a responsibility, in hiring staff and choosing grantees
and other partners, to recognize that some groups have been
historically disadvantaged, whether by virtue of race, ethnicity,
socioeconomic status, gender identity, sexual orientation,
ideology, religion, or other characteristics that reflect significant
social categories or fractures.

Here we summarize several different rationales for DEI, some or all of

which may be relevant to your own philanthropy:
• Focus areas and goals. Your own philanthropic goals may center
around issues of equity—for example reducing the over-incarceration
of people of color or disparities in their health. In this case, you would
support organizations that have sound theories of change and the
capacity to achieve these outcomes.
• Increasing philanthropic impact through improved decision
making. There is considerable evidence that, whatever your particular
philanthropic goals may be, having a diversity of perspectives
among your staff, consultants, and partners tends to result in better
decisions.23 A commitment to DEI may counteract tendencies toward
unconscious, or implicit, bias to which all decision makers are
susceptible.
To make progress on social issues, one needs to have a deep
understanding of the challenges from the perspective of those who
are most affected. A successful entrepreneur does not develop a
product without engaging potential end-users early in the design
process. Similarly, in philanthropy, it is important to engage those

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 who are closest to the problem in developing solutions. Almost
every issue or problem affects different groups of people in different
ways. Understanding those who are least well-served is a good first
step. Seeking and supporting leaders within these communities and
engaging them as partners can lead to greater impact.
One important aspect of a funder’s decision making is selecting the
most effective grantee organizations. Your own commitment to DEI will
broaden the search for grantees—particularly smaller organizations led
by people of color or with diverse characteristics—that otherwise might
be overlooked.24
Another important aspect of decision making is getting accurate and
candid feedback from grantees. Whatever your goals, you will almost
surely benefit from feedback from a broad range of beneficiaries and
other stakeholders. Staff and consultants who share backgrounds with
beneficiaries and other stakeholders increase the likelihood of open,
trusting communications.
• Increasing grantees’ impact. For many of the reasons just mentioned,
your grantees’ commitment to DEI will likely improve their
performance as well.
• DEI for equity’s sake. The nonprofit sector is a non-trivial part of
the U.S. economy, contributing 5.4 percent to the country’s GPD.
Nonprofit organizations provide important jobs and opportunities for
economic and social mobility. Therefore, you may wish to ensure that
your grantee organizations are committed to DEI independent of their
mission goals.

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 D O N O R STO RY

How DEI Influenced My Funding Strategy

—Karen Grove
As an upper-class, white woman with the privilege to engage philanthropically,
the issue that inspired my first philanthropic activism was abortion rights. In
2004, I was incensed about anti-choice efforts to block access to abortion,
and I wondered why women of color and low-income women were not putting
abortion rights at the top of their agenda. I had no idea how much I did not know.
Thankfully, at reproductive health funder conferences, there were always a few
tables of women of color talking about a thing called “reproductive justice.” I
didn’t understand what that was, but I could tell it was important, so I introduced
myself to the women and started a conversation which grew into a multi-year
learning journey. I learned some pretty disturbing things. For example, while
women of all races face unacceptable obstacles to abortion in much of the
country, women of color experience a range of unconscionable challenges to their
ability to have and raise children with safety and respect.
Reproductive justice is just one example of a larger theory of change, which
posits that the leaders best able to solve problems are the people most impacted
by those problems.
In 2010, we—the Grove Foundation and other reproductive health funders—
embraced that strategy and ensured that women of color, immigrant women,
low-income women, young women, and other marginalized organizers had
the unrestricted multi-year funding they need to collaborate, innovate, and act
together. Within ten years, the coalition has achieved goals that had previously
eluded the movement for decades.
To develop authentic relationships with impacted communities, the Grove
Foundation has applied diversity, equity, and inclusion (DEI) strategies to build
our cultural competency as individuals and as an organization. Through concrete
changes to our practices, we have hired a more diverse staff and created a more
inclusive work environment.

Continued next page

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We strive to build equity within our organization by delegating grant decisions
to program committees consisting of board and staff members and including all
staff members in many decisions, including budgeting. Most significantly, we try
to direct most of our funding to underrepresented leaders who are impacted by
the problems we seek to solve. We track race, gender, and sexual orientation,
and we consider leadership within the executive team and board as well as the
executive director and front-line staff.
My personal learning journey (which ultimately became a learning journey about
racial justice more broadly) makes me a better funder, board member, friend,
and neighbor to people of color and white people alike. The DEI work we’ve done
at the Grove Foundation has made us better funders to our grantees and closer
colleagues to each other. And in these dark times, we are inspired and our spirits
lifted by the work of the front-line leaders we are honored to support and learn
from.

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Theory of Change, Monitoring, and Evaluation
Takeaways

F A theory of change provides a framework for understanding an

organization’s ultimate outcomes or goals and how it plans to
achieve them. It does not suffice that a theory of change is intuitively
appealing if it isn’t based on sound evidence.
F As it develops and implements a theory of change, an organization
should get feedback from beneficiaries and other stakeholders,
monitor its activities to assess what is actually working, and make
course corrections as needed.
F Ideally, an organization will rely on some form of evaluation to assess
whether it is actually achieving its intended outcomes. But some
organizations do not have the resources to conduct evaluations. It may
suffice that an organization is faithfully implementing an intervention
that has been evaluated elsewhere and shown to be effective.
F If you have interest and time, you may wish to develop a theory of
change and a plan for monitoring the progress of your own strategy in
a focus area. These are useful tools for keeping your activities strategic
and on course for impact.

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 CHAPTER 6 ANNEX

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Nurse-Family Partnership’s
Theory of Change

The Nurse-Family Partnership (NFP) works to improve health outcomes

for low-income families with young children. Its core activities are
home visits from registered nurses to low-income first-time mothers.
The intermediate outcomes include lower rates of cigarette smoking
among expectant mothers and parents and fewer instances of child
abuse and neglect. Ultimate outcomes include fewer neurodevelopmental
impairments and higher preschool language scores.

The NFP has been evaluated in randomized control trials in several

different locations. Its theory of change has been shown to be robust.25
This means that given similar cultural and community circumstances, a
donor considering funding an organization replicating NFP’s approach
can feel reasonably confident about achieving positive outcomes.

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 Nurse-Family Partnership’s
Theory of Change

GOAL ACTIVITIES

Home visits weekly in the first month following program enrollment,

then every other week until birth of infant

Nurses address:
• Effects of smoking, alcohol and illicit drugs on fetal growth
• Nutritional and exercise requirements during pregnancy
Improve pregnancy
• Preparation for labor
outcomes by
• Basics of newborn care
improving prenatal
• Family planning following delivery of infant
health
• Adequate use of office-based prenatal care

Home visits weekly postpartum period, every 2 weeks until toddler

is 21 months, monthly until child is 2 years

The nurses:
• Educate parent on infant/toddler nutrition, health, growth,
development and environmental safety
• Promote and assess parent-child interactions that facilitate
developmental progress
• Promote adequate use of well-child care
Improve child • Provide guidance in building and fostering social support networks
outcomes by helping • Assess safety of potential/actual child care arrangements
parents become • Refer to other health and human services as needed
sensitive and
competent caregivers

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 INTERMEDIATE OUTCOMES ULTIMATE OUTCOME

Pregnant women display Newborns are born at full term and with
improved health behaviors normal weight

cigarette smoking pre-term delivery among smokers

pregnancy-induced birth weight of babies born to young

hypertension teens

use of community neurodevelopmental impairment

resources

Parents demonstrate sensitive and competant infants and toddlers

caregiving for infants and toddlers: Child displays age and gender appropriate
development
childrearing beliefs associated with child
maltreatment language & cognitive/mental delays

verified cases of child responsiveness in interactions with

abuse & neglect mothers

stimulating home distress to fear stimuli

environments
early childhood (4–6 years)
safety hazards in home
preschool language scale scores
incidents of injuries
executive functioning

child behavior problems

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GAIA’s Theory of Change

GAIA seeks to end AIDS and related health crises by improving access to
healthcare services in rural Africa. GAIA’s community-based healthcare
and health worker training programs directly address the needs of the
vast majority of the population living in rural areas without access to
services, with the overall aim of improving health and productivity in the
rural communities where they work.

GAIA collects data; monitors progress; includes outcome evaluations

and impact assessments in every program’s monitoring, evaluation,
and learning plan; and conducts implementation science research
to understand and quickly respond to unexpected program results.
The organization has published 20 peer-reviewed journal articles and
made more than 20 scientific presentations since 2008, disseminating
knowledge of what works in remote and rural, high disease-prevalence
areas to the global health community.

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 Reduce morbidity
IF: THEN: and mortality due to
preventable and treatable
conditions
Deliver community-
based health care, health
education and one- Rural communities have
Increase healh literacy and
on-one counseling via expanded access to
health seeking behavior
mobile health clinics and healthcare Rural communities live
community healthcare End AIDS and mitigate
healthier, more productive
workers other health crises
lives

Provide training and Women are economically Improve nurse vacancy Enable health system to
deployment support for and socially empowered rates and nurse to patient provide high quality care
nurses through employment ratios

Activities Intermediate Outcomes Ultimate Outcomes

Rural communities and women specifically experience a unique set of Success requires community led solutions, partnering with local stakeholders,
health challenges placing them at a disadvantage economically. and integrating within existing structures and in line with country level strategic
objective.

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 PART T WO

Implementing Your Plan

119
 CHAP T E R 7

Finding Effective Organizations

E ven after you have decided on your philanthropic goals,
you may find it difficult to choose which organizations to fund when
a number of them seem to be doing similar work in your focus area. This
chapter addresses the question of how to find organizations aligned with
your goals. (The next chapter will help you assess the quality of the orga-
nizations that you identify.)

You can find organizations by:

• conducting a landscape analysis

• researching grantees of credible foundations

• asking knowledgeable people and networking

• performing online research

A landscape analysis will provide a strong foundation on which to build

your philanthropy. If your time and capacity is too limited, then skip
ahead to the other ways of finding organizations.

Understanding the Context:

Landscape Analysis

A landscape analysis helps you learn about the best research, strategies,
and practices in your focus area.

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A landscape analysis begins with desk research—Internet searches and
literature reviews about a field. You (or a consultant) can supplement this
by talking to key stakeholders, including your intended beneficiaries,
nonprofits, other funders, scholars, government officials, business leaders,
and community members.

If you decide to contact potential grantees, be mindful of the

power dynamics between a donor and applicant. Speaking with
an organization that might be eligible for your support may raise
its expectations for funding. Be clear about your purpose, and be
considerate of their time.

Here is an example of an actual

landscape analysis conducted
in 2014 by the William and Impact-Driven Philanthropy
Flora Hewlett Foundation to practice: We believe it’s important
review the trends, priorities, and to learn about and understand the
funding sources of youth-serving context of the issues we care about.
organizations in the San Francisco
Bay Area.26 The analysis sought to
answer four main questions:
• What are most important trends in the youth-serving field, in terms of
funding priorities and intervention strategies?
• What is the state of the youth-serving nonprofit community?

• Who are the main funders of youth-serving organizations? What youth

funder collaboratives exist?
• Are there gaps in the capacity-building services currently being
provided to youth-serving organizations?

The report focused mainly on programs for marginalized and “at risk”
youth in the nine counties of the Bay Area.27 It found that:

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• 55% of the total funding for disadvantaged youth went to human
services (including criminal justice, legal issues, and youth
development), 20% went to education, and 13% went to health.
• 79% of grant funding went to two counties: San Francisco and Alameda
(which encompasses Oakland).
• Top funding priorities included schools and local education systems as
critical sites for centralizing community change efforts, young people’s
mental health and emotional needs, alignment of K-12 education to
career paths, and improving outcomes for foster youth.
• There were relatively few nonprofit organizations outside of San
Francisco and Alameda counties, and those that existed tended to
operate at a small scale.
• Youth-serving organizations had great needs for capacity building to
strengthen their management and governance structures. Specific
skill sets that were noted included board development, fundraising,
financial planning, and growth planning.

This landscape analysis included a “gap analysis” of geographic locations

and activities in need of funding. Although the analysis did not list
specific organizations, a philanthropist armed with this information
could ask knowledgeable sources or conduct Internet searches to identify
potential grantees. (See other ways to find organizations later in this
chapter.)

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 ACTIVITY DIY LANDSCAPE ANALYSIS

UNDERSTAND THE FIELD AND ITS KEY PLAYERS

Basic Questions RESPONSE

What are the needs of the

intended beneficiaries of
your focus area?

Which strategies have

succeeded or
failed in the past?

What is the scale of the

problem? Where is the
greatest need?

Which nonprofit approaches

are being pursued
and why?

Which organizations are

the essential players in your
focus area? What problems are they
trying to solve and why?

Where are philanthropic efforts from

other funders currently concentrated
within your focus area?

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How are political, social,
and economic trends affecting
your focus area?

What does the latest

research in your focus
area show?

Are there gaps in current

levels of philanthropic
funding?

How might you build on the

efforts of other funders for
greater impact?

Who are proponents and skeptics of

specific approaches? What is their
reasoning?

Which organizations are competing

with each other? Which are
collaborating?

Which organizations are potential

partners?

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Supplementary Questions –
Speaking with Organizations in the Field

What are your views and

experiences in the field?

What strategies have worked?

What strategies have failed?

What are you continuing to learn about

the problem you are trying to solve?

What assets do you bring

to your work?

What challenges do you face?

What worries you the most?

What are your priorities?

What opportunities for solving

problems exist right now?

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If you lack the capacity to conduct a full landscape analysis, consider
three other ways to identify organizations to fund:

1. Researching grantees of credible foundations

2. Asking knowledgeable people
3. Shortlisting organizations through online research

Researching Grantees of
Credible Foundations

A good way to learn about organizations that have already gone through a
due diligence process by trained philanthropic professionals is to examine
the grantee lists of foundations that you respect. An increasing number
of staffed foundations publish their grantee lists. An Internet search of
foundations that fund in the issue areas you’re focused on could yield
a list of potential organizations for your support. Magnify Community,
focused in Silicon Valley, has cultivated a list of almost 400 organizations
across 40 issue areas that are recipients of funding from at least one of
seven local foundations.28 Other new initiatives like Grapevine work with
“professional grantmakers and other thought leaders” to build their list of
recommended organizations and “funds” to support.29

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Asking Knowledgeable People

If you have limited time to search for organizations on your own, consider asking
knowledgeable people for recommendations. You might ask subject matter experts
(e.g., an oncologist for cancer research, a development economist for organizations
working to meet the U.N. Sustainable Development Goals) or experienced donors
in your focus area. These connections can be made through acquaintances, or they
can include outreach to professionals. The connections may lead to opportunities
to attend events hosted by organizations in your areas of interest. You might also
consider talking with the beneficiaries you hope to serve to learn about how they are
receiving services and which organizations are best meeting their needs.

F I N D I N G O R G A N I Z AT I O N S E X A M P L E

Alleviating Hunger in Washington, D.C.

Suppose that you’re interested in supporting organizations that seek to reduce
hunger in the Washington, D.C. area. You start by asking your friend who is an
active volunteer with community nonprofits. She recommends that you look
into D.C. Central Kitchen. When you ask her why, she responds that D.C. Central
Kitchen is well thought of not only for its food distribution work but also for its
creative approaches to addressing the causes of hunger—for example, providing
job training.

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If you get nonprofit recommendations from a friend or professional
expert, understand the basis for the recommendation and try to ascertain
whether their views might be biased. Some questions might include:
• How do you know about this organization? Do you have any affiliation
with it?
• What makes you recommend it?

• If you have interacted with the organization, what has been your
experience?
• Have you conducted due diligence on this organization? Did that
process raise any red flags?

D O N O R STO RY

“Outsourcing” Finding Effective Organizations Early in

the Philanthropy Journey—Craig Silverstein and Mary
Obelnicki, Co-Founders of Echidna Giving
When we started in philanthropy, we started by giving to re-granting
organizations. We were focused in the developing world but knew nothing about
the local communities in which we really wanted to see change happen. We
were outsiders; we weren’t able to evaluate proposals or evaluate outcomes,
so we went to re-granting organizations that are based in the US or the UK or
somewhere in the developed world, but they are the ones who evaluate grants
and outcomes and have people on the ground in local communities in the
developing world.
Initially, we went into it thinking that it was a waste of money to involve a
middleman. But we found out that it’s actually a big money saver to involve these
middlemen because if we had to go and evaluate these things ourselves and fly
out to these communities it would take a long time to do and be very inefficient.
It’s actually much better to be working with an organization that can afford to
have someone living in these local communities; or ideally someone from that
community.30

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Shortlisting Organizations
Through Online Research

We mentioned above that an Internet search is an important component

of a comprehensive landscape analysis. Conducting the search alone is
an economical way to find organizations. Searching by your focus area
and geographic scope, plus the word “nonprofit” or “organization,” is
likely to yield a list that highlights potential grantees. Your search results
will often yield “best of” or “top ten” lists of organizations—though you
should check on the impartiality of the source. If you have more specific
preferences, you can add search criteria for example, geographies,
sub-populations, and organizational approaches (e.g., “advocacy” or
“research”).

“Homelessness” + “Washington DC”

If you are interested in giving internationally, online searches can help

you discover organizations that link you to foreign nonprofits that you
might not otherwise find—for example, Give2Asia for Asian development
organizations and the Global Fund for Women for women’s empowerment
organizations. Internet searches may also yield third-party reviews of
organizations, which can be useful in conducting organizational due
diligence later on.

For all of their usefulness, Internet searches may not uncover small or
new nonprofits. And in many cases, the organizations that appear in the
search results may simply have better marketing tactics.

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When to Stop Your Search

At some point, you will stop searching for organizations and begin
vetting those on your list. When you reach that point depends on
how many plausible candidates you’ve identified, how much time and
capacity you have to devote to the process, and your own preferences
for comprehensiveness. You may wish to ensure that you don’t miss any
organizations in the field, or you may be willing to “satisfice” after finding
a handful of good candidates.

Finding Effective Organizations Takeaways

F Conduct a landscape analysis to learn about approaches, organizations,

and research in your focus area.
F If you are time-constrained, you can find effective organizations
by asking knowledgeable people who can help you find potential
organizations to support—though it is important to filter out bias in
the recommendations that you receive.
F Another quick option is to do online research, using keywords to
narrow your search.

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 D O N O R STO RY

A Landscape Analysis of Education in Turkey31

Because of the importance I give to knowledge, we never adopted a “we know
the best” approach; we established working groups and organized our programs
based on these consultations…. We thought it was necessary to increase the
level of education if we wanted to make Bolu [in Turkey] a better place to live.
We looked at the reasons that prevented young people from accessing higher
education and tried to solve these problems. The low university entrance rates
had created strong criticisms of the Bolu Directorate of Education and the
educational institutions. The Izzet Baysal University conducted research and
stated in their findings that the early education rate was only around 5% and that
children who did not have an early education were not likely to be successful in
the future. In partnership with the Directorate of Education, support from donors,
and technical assistance from the University, we created an education center
which could be replicated in other parts of the country. We received comments
that a three-party partnership would be highly complicated and that handing
over a private initiative to public institutions would be ineffective. But we went on
with our work. And we got some wonderful feedback. With its proven success,
we now have a model in our hands that could be replicated.

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 CHAPTER 8

Due Diligence: Vetting and Evaluating

Organizations

133
O nce you have compiled a list of potential organizations to
fund, you’ll want to conduct a due diligence process to vet them
for effectiveness. Due diligence involves assessing a nonprofit’s goals,
strategies, and capabilities to determine whether the organization is
worth your support. This chapter addresses two essential questions:
• What is due diligence, and why does it matter to my philanthropy?

• How do I conduct the due diligence process—what tools and resources

should I use?

Due Diligence: Essential Questions

Due diligence covers six basic areas:32

Legal Compliance: Is the organization in compliance

with tax and other regulations?

Goals: What does the organization aim to

accomplish?

Strategies: What are the organization’s strategies, i.e.,

its “theory of change,” for reaching its goals?

Capabilities: What are its capabilities for implementing

these strategies in terms of leadership and human
resources, financial capability, and transparency?

Diversity, Equity, and Inclusion: How well does the

organization meet your DEI criteria?

Monitoring, Learning, and Evaluation: How does the

organization know if it is making progress?

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We hope this chapter will help you figure out what’s important to
know, where to find it, and how to decide whether you have sufficient
information to feel comfortable funding an organization.

How to Conduct Due Diligence

Here are the general methods we recommend for finding answers to these
questions:
• Search for material available online—from the organization itself or
from third parties.
• Talk to people you know who have contributed to or worked with the
organization.
• Ask the organization for materials that are not available online.

• If you are prepared to make a significant gift if the information is

positive, meet with the nonprofit’s leaders.33

We touched on some of these topics in the preceding chapter. The main

source of information about a nonprofit comes from the organization
itself. The contents of its website should provide answers to most of the
questions above. To avoid creating unintended expectations or imposing
an undue burden on the organization, we suggest postponing direct
contact with its staff until you’re pretty likely to make a gift.

In Chapter 3: Learning About Philanthropy With and From Others, we

introduced the Philanthropist Resource Directory, which lists different
types of donor support organizations. Individuals who join education
providers or peer networks may have access to staffed support on activities
such as due diligence and vetting. In some instances, community
foundations can take the lead in performing due diligence.

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Charity Evaluation Websites

Although the primary source of information about an organization is

its own website, it is usually valuable to look to third-party sources as
well. Several independent websites provide information about nonprofit
organizations. GuideStar publishes both an organization’s Form 990 tax
return and information provided by the organization, including, at times,
information that depicts its impact; GiveWell and ImpactMatters provide
impact evaluations; and Charity Navigator provides information about an
organization’s finances and transparency.

GuideStar (guidestar.org) aggregates information about the 2.7 million

nonprofits registered as 501(c)(3) organizations in the United States.
In addition to publishing their Form 990 tax returns, it categorizes
organizations into levels from bronze to platinum on the basis of the
amount of information they self-report. A gold level distinction from
GuideStar means that the organization has provided a sufficient amount
of information to answer the “Charting Impact” questions, which include
most of the Essential Due Diligence Questions listed above. To reach the
“platinum” distinction, nonprofits must also provide at least one sample
metric used for evaluation. Most of GuideStar’s information is free, but
you can access more detailed data for a monthly fee. CAUTION! Other
than an organization’s 990, GuideStar does not vet an organization’s data
but only provides a platform on which it can share information about its
work—so be cautious when reviewing the organization’s answers to the
Charting Impact questions and responses to the Platinum-level data.

GuideStar’s Charting Impact Questions

1. What is your organization aiming to accomplish?
2. What are your strategies for making this happen?
3. What are your capabilities for making it happen?
4. How will you know if you are making progress?
5. What have and haven’t you accomplished so far?
learn.guidestar.org/hubfs/Charting%20Impact%20Small%20Group%20
Handout%202018.pdf

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 GuideStar relies significantly on organizations’ tax returns. Check to see
that they’re recent.

• GiveWell (givewell.org), which is aligned with the Effective Altruism

movement, identifies the most cost-effective organizations addressing
health and other problems among vulnerable populations in the
Global South. Its reviews are based on third-party evaluations of impact
as well as an organization’s transparency and its ability to absorb more
funding. In addition to analyzing the evidence base for interventions,
GiveWell compares organizations using metrics such as “cost per life
saved.”

GiveWell recommends specific nonprofits for donors to fund. For

example, it recommends the Malaria Consortium as a top charity,
having reviewed its seasonal malaria chemoprevention (SMC) program
and estimated that “the total cost to achieve the equivalent of four
person-months of SMC coverage is $6.93.”34 GiveWell’s analysis of
the SMC program found that it has a strong evidence base, high cost
effectiveness, a good track record of implementation, and room for
more funding to scale up its activities.35

GiveWell sets a high bar for the evidence needed to assess an

organization. As of June 2019, it published reviews of only eight “top
charities” and eight “standout charities.

• ImpactMatters (impactm.org) rates the impact of direct service

organizations that are focused on health, anti-poverty, education, and
similar outcomes.36 It uses a star rating system (one to five stars) based
on its estimates of the cost-effectiveness of the nonprofit’s programs
and an analysis of its financial health and impact transparency.
Like GiveWell, ImpactMatters bases its reviews on the outcomes of
evaluation studies, but it does not have as high a bar and plans to
release over 1,000 reviews in the coming months.

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• Charity Navigator (charitynavigator.org) rates 9,000-plus US-based
nonprofits that have revenues over $1 million and provides data on
another 1.8 million nonprofits in the US. It allows donors to search
by an organization’s name or category of focus. Charity Navigator’s
ratings focus on financial health, accountability, and transparency
and are based primarily on information provided on an organization’s
Form 990 and website.37 CAUTION! Charity Navigator does not answer
many of the questions necessary for due diligence, and it uses overhead
costs as a proxy for effectiveness, which is highly misleading (for more
informtation on the importance of overhead costs, see Chapter 10:
Making Gifts). A four-star rating from Charity Navigator alone is not
enough to signal that an organization is worthy of your support.

Like GuideStar, Charity Navigator relies significantly on organizations’ tax re-

turns. Be sure that they’re recent.

Grantees of Respected Foundations

Another way to vet organizations is to look at the grantees of respected

foundations in your focus areas. You often can search the websites of
larger foundations for an up-to-date list of the organizations they support.
For example, the Gates Foundation has a comprehensive database of
grants, which is searchable by name, topic, year, program, and award
amount.38 The Ford Foundation has a similar searchable grants database.39
You can find foundations in your focus areas through Internet searches
or through (paid) access to the online directory of foundations40 run by
Foundation Center (now Candid).

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Core Due Diligence Questions, Illustrated by
Application to an Actual Organization

In this section, we will walk you through applying the due diligence
questions to an actual organization: D.C. Central Kitchen.

Is the Organization in Compliance With Legal

Regulations?

WHY IS THIS IMPORTANT?

A positive answer to this question will help ensure that the organization
is not a scam or a front for terrorist or other illegal activities. If you
wish to claim a tax deduction for your gift, you should check that the
organization has 501(c)(3) tax status under the Internal Revenue Code.41

WHAT TO LOOK FOR AND WHERE TO FIND IT:

• Use GuideStar or Charity Navigator to confirm that the organization
is a registered 501(c)(3) nonprofit. Alternatively, you can check the IRS
website directly.42
• If you are concerned that the organization might be connected with
terrorist or other illicit activities, see the US Department of the
Treasury’s list43 and the Office of Foreign Assets Control’s Specially
Designated Nationals and Blocked Persons list (“SDN List”).44
• Nonprofits that are agents of activities for foreign entities or perform
activities for them must register with the Justice Department under the
Foreign Agents Registration Act (FARA). If the organization seems to
have extensive international leadership or financial ties and you want to
double-check whether it is fulfilling its legal obligations, you can check
the FARA registration status on the Justice Department’s website.45

CHECKING D.C. CENTRAL KITCHEN’S COMPLIANCE

It’s clear from D.C. Central Kitchen’s website that it’s a domestic
organization. You can check on its 501(c)(3) status on Charity Navigator or
GuideStar, where you can download its 990.

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 Goals: What is the Organization Aiming
to Accomplish?

WHY IS THIS IMPORTANT?

Clear goals that address well-defined problems are signs that the nonprofit
is focused—and therefore more likely to be effective.

WHAT TO LOOK FOR:

A description or statement of the problem the organization is addressing,
its intended beneficiaries, and its goals.

WHERE TO FIND THIS INFORMATION:

• Look on the organization’s website for pages labeled “About Us,” “Our
Work,” and the like.
• An organization’s annual report can be another useful resource. It is
usually available online, sometimes under the “About Us” page.

D.C. CENTRAL KITCHEN’S GOALS

You can find D.C. Central Kitchen’s mission statement under the “About
Us” tab on its website.

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Mission statements are meant to be high-level and fairly broad. So, like
many mission statements, this one is pretty general and does not outline
specific goals, and you will want to search deeper. You can find a link to
the 2017 Annual Report under the “About Us” tab, which defines three
reasonably clear and actionable goals:
• create opportunities for meaningful careers

• expand healthy food access

• test innovative solutions to systemic problems

What Are the Organization’s Strategies for Achieving

its Goals?

WHY IS THIS IMPORTANT?

An organization with well-defined and evidence-informed strategies is
more likely to achieve its goals.

WHAT TO LOOK FOR:

• What approaches—such as providing direct services or advocating
for policy changes—does the organization employ (see Chapter
5: Understanding Problems, Their Causes, and Approaches to
Solutions)?
• Does the organization have a clear theory of change, and is it
plausible (for more information, see Chapter 6: Theory of Change,
Monitoring, and Evaluation)?
• Are the organization’s strategies informed by evidence from social
science research or its own prior work?
• What are the risks of the strategies not succeeding? What are the risks
of unintended harms to the beneficiaries or others?
• Do the organization’s main activities align with its strategies?

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WHERE TO FIND THIS INFORMATION:
Organizations sometimes present their strategies on their websites,
through their annual reports, or on their GuideStar and Charity Navigator
profiles. Often, you may also be able to infer their strategies by reviewing
their activities. If an organization’s strategy remains unclear, treat this as a
red flag and dig deeper to learn more.

D.C. Central Kitchen’s annual report, posted on its website, describes its
five main activities listed below.

Checking GuideStar, you also will find that D.C. Central Kitchen provided
answers to the Charting Impact questions, including one question on
strategy:

DC Central Kitchen fights hunger differently by using career

training, job creation, and sustainable business practices to
strengthen local food systems and reduce disparities in health
and economic opportunity. We operate five social ventures which
collectively recover 2 million pounds of food, prepare and distribute
3.5 million meals each year, and train 100 adults with high barriers
to employment for culinary careers.46

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 Operational Capabilities: Does the Organization Have
Sufficient Capacity to Achieve its Goals?

WHY IS THIS IMPORTANT?

Social impact is not only a product of sound strategies. It requires
leadership, management, and staff capacity to successfully implement
those strategies and manage the organization.

WHAT TO LOOK FOR:

• Leadership—Consider the senior leadership’s background and
professional qualifications. A simple Internet search might indicate
negative press or other red flags as well as positive information.
• Board—Understand the function of the board and who sits on it. Do
they have relevant knowledge or expertise? Do they actively oversee the
organization’s activities? Do they avoid conflicts of interest?
• Staff—Do the staff have successful track records of managing
programs, conducting fundraising, and overseeing finance and
operations? Does the organization provide staff with training
opportunities? Does the nonprofit retain its staff?

For additional resources on governance due diligence, explore the BBB

Wise Giving Alliance’s website47 and Bridgespan’s Nonprofit Due Diligence
Guide.48

WHERE TO FIND THIS INFORMATION:

An organization’s 990 includes some information relating to its financial
health and governance. GuideStar also asks nonprofits to report whether
their boards have reviewed their conflict of interest policy in the last year,
assessed the chief executive in the last year, assessed itself in the last
three years, ensured an inclusive recruitment process, and provided an
orientation process for new members.49 Getting a deeper understanding of
an organization’s human capacity will likely require in-person meetings.

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A Perspective from Bill Somerville: Which Leadership
Qualities Matter
I have been in professional philanthropy work for 45 years, starting foundations
and trying new ways to manifest grantmaking. My modus operandi is to find
people I trust, as well as train people to learn to trust in the work they do. From
my vantage point, effective social sector leaders:
• Relentlessly focus on the needs of their constituents. They are
compassionate. They have open hearts and are committed to doing good in
the world.
• Know how to get stuff done! They have goals and take action. They have an
idea of where they are going and what success (results) look like. They focus
on the present and on the horizon to be able to take aim.
• Motivate and inspire members of their community to achieve their highest
potential. They identify talent and strengths in others. They create shared
goals and a supportive “can do” culture.
• Engage their communities and constituents in “the work of doing good.”
They know how to bring consensus but don’t require unanimity to move
ahead. They understand that it takes time for others to make up their minds.
They collaborate.
• Are generous and courageous spirits. They give credit where credit is due.
They are willing to share but also know when to stand alone. They are willing
to take risks and not afraid of failure. They know how to bounce back when a
change in direction is called for.
Trust is a basic building block in philanthropy and a vital element in exercising
leadership. It allows you to speed up processes, diminish dependence on paper
and applications, and honor relationships.

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D.C. Central Kitchen’s Operational Capacity

LEADERSHIP
D.C. Central Kitchen provides leadership information in two places
on its website: a short summary on the “About Us” page and more
detailed information on the “Our Leadership” page. On the “About Us”
page, it provides information on the extensive awards the D.C. Central
Kitchen has won under founder Robert Egger and how it has grown and
weathered a recession under current CEO Michael F. Curtin, Jr. The “Our
Leadership” page provides executives’ biographies and the names and
contact information of staff members. From the information provided,
the executives appear to have relevant educational backgrounds and
industry experience, including hospitality, restaurants, finance, and
development work.

Finding “Our Leadership” in the Learn Tab:

BOARD
The same “About Us” page also provides the names and organizational
affiliations of board members. Many members are highly placed in local
hospitality, communications, and infrastructure management, which are
all related to the nonprofit’s fields of activity.

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STAFF
Staff titles and pictures are available, but biographies are not. The
organization has six executive-level staff and nine other staff members,
including some specialized staff members (such as a monitoring and
evaluation specialist). This is an indication that D.C. Central Kitchen
has more than the bare minimum staff necessary to implement its core
programmatic needs.

Financial Capability: Does the Organization Have

Sufficient Financial Capacity to Achieve its Goals?

WHY IS THIS IMPORTANT?

A nonprofit must have the financial systems and management to
successfully conduct its programs.

WHAT TO LOOK FOR:

• Revenue sources:

» How diversified are the organization’s funding sources? If the

nonprofit relies on very few funders or types of funders (e.g.,
foundation, corporate, individual) and it is not self-evident that
funding will continue, the organization’s revenue is at risk.

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• Organization’s budget:

» Is the budget appropriate for the organization’s goals and strategies?

(Is it trying to save the entire world on a shoestring?) You might
look at specific program budgets as well.
» Allowing for some short-term fluctuations, are the organization’s
revenues generally greater than its expenses? (This information is
often available on GuideStar, in annual reports, and in financial
documents sometimes provided on websites). If not, does it have a
plan for becoming more sustainable?
» How long could the nonprofit keep operating if its revenue streams
dried up? A healthy funding reserve will allow the organization to
continue operating for at least 3–6 months.
» If available, review any financial audits and check the notes for any
risks or potential problems.

• Financial transparency:

» Are the organization’s financial systems clear, transparent,

and credible? It is considered a good practice for nonprofit
organizations to publicly disclose their finances. A silver rating on
GuideStar indicates financial transparency.

WHERE TO FIND THIS INFORMATION:

A nonprofit organization’s annual report will often provide financial
information, financial audit reports, and lists of funding sources.
Sometimes a nonprofit will have a separate report focused on financial
information. GuideStar and Charity Navigator also compile financial
information and metrics on many nonprofits.50

For additional resources on financial due diligence, explore Finance

Unlocked for Nonprofits51 which includes a set of activities and toolkits that
can help you understand the basics of nonprofit financial statements.

If you want to consider additional financial questions as part of your due

diligence process, see the Bridgespan Due Diligence Tool.52

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D.C. Central Kitchen’s Finances
Let’s take a look at D.C. Central Kitchen’s financial statements, available
halfway down the “Learn” tab on their website along with their annual
report. The total 2017 revenue of $17.7 million is larger than the total 2017
expenses of $17.157 million, by $550,592. From the 990, we can see that the
revenue was larger than expenses in 2016 as well.

The same information can be found under GuideStar’s “Financials” Tab.

GuideStar summarizes essential information from the 990 and creates
interactive visual displays. For example, GuideStar indicates that D.C.
Central Kitchen has cash reserves for 3 months. Although this is a small
buffer, the fact that the organization has thrived for years and its revenue
exceeded its expenses in 2017 is a good sign.

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Funding Sources: Cash Reserves

Diversity, Equity, and Inclusion (DEI):

How Diverse, Equitable, and Inclusive Are an
Organization’s Operations?

WHY IS THIS IMPORTANT?

“Diversity, equity, and inclusion” encompass hiring, supporting, and
advancing people with diverse personal characteristics; providing everyone
with fair treatment, access, and opportunity; and creating a respectful and
supportive environment. We refer you back to Chapter 6 on Theory of
Change, where we described four rationales for valuing DEI.53

WHAT TO LOOK FOR:

• Leadership, staff, and board diversity: Is the organization diverse
and inclusive with respect to characteristics that will best serve its
beneficiaries?
• Beneficiary diversity and equity: Are diversity and equity
considered when choosing beneficiaries, as appropriate to the
organization’s purpose? Look at the organization’s data collection
practices. Is it tracking the demographics of its beneficiaries? Are
beneficiaries consulted or included in the program design process?
• Processes for improving DEI: Does the organization have DEI
incorporated into its core values? Does the organization use processes
that encourage diversity, equity, and inclusion?

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WHERE TO FIND THIS INFORMATION:
Search the organization’s website for its core values. If possible, review
employee benefits for inclusive benefits like maternity/paternity leave or
family leave benefits for adoption, including same-sex parents. If in doubt
and you’re considering a substantial gift, ask the organization’s leadership
what it does to promote DEI practices.

D.C. Central Kitchen’s Goals Around DEI

These criteria are a bit harder to verify simply by searching online
sources. The website doesn’t share employee benefits information.
However, its core values indicate a mentality of inclusion and
equity: “We believe in the transformative power of a job, and that
everyone deserves the chance to share in the dignity of work while
contributing to our community. We believe in building a more
equitable food system that ensures access to healthy, dignified food,
and economic opportunity for all.”54
Under the Board of Directors tab of the Operations section in
GuideStar, we also see self-reported information from D.C. Central
Kitchen on diversity and inclusion of the board.

Monitoring, Learning, and Evaluation: How Will the

Organization Know if it Is Making Progress?

WHY IS THIS IMPORTANT?

Effective organizations monitor whether they are on track to achieve their
goals or need to change course.55

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WHAT TO LOOK FOR:
• The theory of change as a monitoring framework: An organization’s
theory of change (see Chapter 6: Theory of Change, Monitoring,
and Evaluation for more in-depth information)—which describes its
activities, outputs, and outcomes as described in Chapter 6—is the
basic framework for monitoring progress toward its goals. Does it have
such a framework?
• Monitoring

» Does the organization have appropriate metrics and targets for each
major step in its theory of change?
» Does the organization seek feedback from its beneficiaries and
other important stakeholders?
» Is the organization regularly reviewing progress to improve its
activities?
» Are programs being implemented well, on time, and on budget?

WHERE TO FIND THIS INFORMATION:

Information about an organization’s monitoring processes can be difficult
to find online and may require conversations with its staff.

D.C. Central Kitchen’s Monitoring and Learning

D.C. Central Kitchen’s annual report, found on its website, discloses a
limited set of indicators that it uses to monitor its activities. For example,
it monitors outcomes by the total number of meals prepared and its job
placement rate.

You can also find this information on GuideStar, under “Our

Results.” D.C. Central Kitchen indicates its willingness to learn
from its experience by answering the due diligence question
on GuideStar’s website, “How will they know if they are making
progress?”

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Measuring Outcomes and Evaluating Impact: What Has or Hasn’t
the Organization Accomplished To Date, and How Would You
Know?

WHY IS IT IMPORTANT?
The organization and its donors want to know whether it is achieving its
goals and having an impact.

DEFINITIONS

Outcomes: An organization’s outcomes are the improvements in

its beneficiaries’ lives that it seeks to achieve. For example, for an
organization with the mission of reducing recidivism, an outcome
metric would be the number of young men released from prison
who do not return within a specified period of time.

Impact An organization has impact to the extent that its

activities actually contributed to its intended outcomes. For
example, the anti-recidivism organization has impact to the
extent that its activities—rather than, say, self-selection into the
program—resulted in the reduction in recidivism.

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Measuring outcomes requires quantifying the organization’s results. This is
occasionally easy—for example, the number of homeless people housed—
but often difficult; consider, for example, the difficulty of tracking the
number of people for whom a program helps prevent addiction.

As discussed in Chapter 6 on Theories of Change, assessing impact

requires the much more difficult task of comparing the program’s
results to what would have happened in the absence of the program—
the so-called “counterfactual.” Many smaller organizations do not have
the resources to conduct evaluations of their own programs. But if they
are implementing a program that has been evaluated on a large scale
elsewhere that may be a reasonable proxy.

Don’t be satisfied with anecdotes in place of outcome data. Many

nonprofits share stories, testimonials, or anecdotal examples as evidence
of success. These are often cherry-picked, so be cautious—these examples
may not be representative of the organization’s overall outcomes, let alone
impact.

The term “evaluation” is often used loosely in the nonprofit sector. There
are many types of “evaluations” that assess an organization’s activities
rather than impact. These implementation evaluations may be useful, but
don’t confuse them with impact evaluations.

WHERE TO FIND THIS INFORMATION:

Look for evidence of outcomes and impact on an organization’s website
or on a charity evaluation website. If you are considering making a
significant gift, ask the organization’s leadership about outcomes and
evaluations.

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D.C. Central Kitchen and Learning
D.C. Central Kitchen’s annual report gives a limited set of indicators that
it uses to report on its activities and goals. For example, it monitors the
total number of meals prepared and outcomes by its job placement rate
and reduction in recidivism.

See image on page 152 for examples of their recorded outcomes and
outputs.

WHEN SHOULD I CONTACT AN ORGANIZATION FOR FURTHER

INFORMATION?
We discuss this question in detail in the next chapter. Larger and well-
established nonprofits generally are better able to respond to individual
requests for information. But for a large enough gift, it is appropriate to
request time from smaller organizations as well.

INTERVIEWS AND SITE VISITS

For major and potentially ongoing grants, in-person due diligence allows
you and the organization to explore opportunities for communication
and partnership. You can:
• Conduct a site visit to the nonprofit’s headquarters or service sites.
You can see the work first-hand, and you may get to speak directly with
staff of various levels and with beneficiaries.
• Interview the Executive Director or other members of the leadership
team. This is especially useful for getting a sense of leadership style
and understanding the organization’s strategies, budget, and impact.
• Interview board members to gain perspective on the leadership and to
determine the nature of the board’s engagement.
• Interview other funders for their perspectives.

When arranging a site visit, it is good to ask if it is possible to observe

activities without being obtrusive.

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WHAT TO ASK:
On a site visit, start with general questions to build rapport and make sure
your basic understanding of the nonprofit is correct, then move to more
specific questions that you may have. You may be interested in:
• A broad overview of the organization’s programs and its internal
structure.
• How the organization would answer the five Charting Impact56
questions.
• Some of the questions the Due Diligence Checklist (see below).

• Staff members’ views of the organization’s culture and effectiveness.

• Beneficiaries’ views of the organization’s culture and effectiveness.

Bridgespan has helpful guides for conducting site visits and interviews
with a nonprofit’s leaders or board members.57

Due Diligence Takeaways

F Due diligence is an essential aspect of philanthropic practice—it allows
you to decide whether an organization is effective at achieving your
shared goals and whether you and the organization are a good fit for
each other.
F Vetting an organization entails looking at its:

• legal compliance
• goals
• strategies and impact
• human capital and financial capabilities
• commitment to diversity, equity, and inclusion
• monitoring, learning, and evaluation

F You should be able to find most of the information necessary for

due diligence through the organization’s website and other publicly
available resources. Because an organization’s staff members are busy
delivering services, it’s best to refrain from contacting them unless you
are seriously interested in becoming a major donor.

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 ACTIVITY DUE DILIGENCE CHECKLIST

C = (optional) Advanced criteria (for those who wish to conduct a deeper dive)
= Red flag. Review the follow-up questions to ask and considerations for your own reflection.

0. General Transparency
Is basic information—such as about the organization’s programs, budgets, staff, and
board members—publicly available? yes no

If not, ask Notes:

» Why not?
» Does it provide adequate contact
information and, when contacted, is the
organization forthcoming about its work?
» Do you have enough information to answer
essential due diligence questions?

1. Legal Compliance
Does the organization have 501(c)(3) status under the Internal Revenue Code?
yes no

If not, ask Notes:

» Why not?
» Is it registered outside of the US? If so,
where?
» Do you require that your gift be tax deduct-
ible?

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Is the organization absent from the OFAC list of charities affiliat-
ed with terrorism?
yes no

Notes:

2. Goals
Does the organization clearly define its major goals?
yes no

If not, ask Notes:

» Why not?

C Is the organization’s work aligned with the

needs of its beneficiaries? yes no

Notes:

3. Strategies
Does the organization have a feasible, evidence-informed strategy or
theory of change? yes no

If not, ask Notes:

» Why not?
» How much confidence do
you have in its strategy?

Has the organization engaged its beneficiaries and other stakeholders in

designing the theory of change?
yes no

If not, ask Notes:

» What barriers does the organization face in
engaging its target population?
» How does the organization take the target
population’s perspectives into account?

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Are the organization’s programs and strategies aligned with its mission
and goals? yes no

If not, ask Notes:

» Why not?

Does the organization have a track record of success?

yes no
If not, ask Notes:
» Why not?

Does the organization’s strategy take into account both internal and external
risks to success? yes no

Notes:

4a. Governance, Management, and Human Resources

Do the organization’s senior staff members have
the experience, knowledge, and skills necessary
yes no
to do their work?

Notes:

Is the staff capably managing its programs?

yes no
Notes:

Has the organization had stable leadership

throughout the years? yes no

If not, ask Notes:

» Why not?

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Does the board have the experience, knowledge, and skill needed to
give the organization strategic direction and oversight? yes no

Notes:

Do board members or major donors appear to be free of any conflicts

of interest with the organization’s work? yes no

If not, ask Notes:

» How does the organization confront the
conflicts?
» Do any conflicts of interest affect the
organization’s alignment with your
philanthropic goals?

Does the board have sufficient expertise about and (where appropriate)
representation from the organization’s intended beneficiaries? yes no

If not, ask Notes:

» What barriers does the organization face in
engaging these crucial players?
» How does the board try to make up for the
lack of their perspective?

C Are staff members satisfied with

yes no
working at the organization?

Notes:

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C Does the organization have a reasonable
retention rate for staff? yes no

Notes:

4b. Financials
Have the organization’s finances been audited?
yes no

If not, ask Notes:

» Is the organization’s budget of a size ($1
million or more) at which best practice is to
have an audit conducted?
» Is the organization generally transparent
about its finances?

Are the organization’s revenue sources (e.g., individuals,

foundations, corporations, government agencies) sufficiently yes no
diverse?

If not, ask Notes:

» Does the organization have a feasible strate-
gy to diversify its revenue sources?
» If the organization has few revenue sources,
are you willing to be among them?

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Are the organization’s revenues greater than its expenses?
yes no
If not, ask Notes:
» Why not?
» What is the organization doing to reduce its
deficit in the next two to three years (e.g.,
fundraising activity, revenue generation)?
» Are you tolerant of financial volatility in the
organizations you support?

C Does the organization maintain

appropriate cash reserves (ideally, yes no
three to six months)?

Notes:

C Does the nonprofit have the ability to

absorb a gift of the size and duration yes no
that you have in mind?

Notes:

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5. Diversity, Equity, and Inclusion (DEI)
Are the organization’s leadership, staff, and board members diverse on the
dimensions (e.g., race, national origin, disability, gender identity, or sexual
yes no
orientation) relevant to its mission?

If not, ask Notes:

» Why not?
» How might/does this lack of diversity affect
the organization's mission and programs?
» Are you willing to support an organization
that does not explicitly prioritize DEI?

Does it have processes in place that encourage diversity in its

programs or for its staff, leadership, or board? yes no

If not, ask Notes:

» Do you feel comfortable funding an
organization that does not have a feasible
strategy for meeting DEI goals?

C Does the organization have processes

conducive to recruiting, supporting, yes no
and retaining a diverse staff?

Notes:

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6. Monitoring, Evaluation, and Learning
Does the organization clearly track its work and impact?
yes no
Notes:

Is the organization monitoring its progress, including what didn’t work?

yes no

If not, ask Notes:

» Why not?
» Are you comfortable supporting a program
that is not monitoring its progress?

Does the organization have processes for learning from its failures and
near failures?
yes no

If not, ask Notes:

» How does the organization
seek to improve its programs and general
functioning?
» Are you comfortable supporting an
organization that does not have explicit
learning measures?

C Does the organization obtain and respond to

feedback from its beneficiaries? yes no

Notes:

C Does the organization evaluate its impact as

appropriate for its nature and size? yes no

Notes:

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 CHAP T E R 9

Engaging Organizations and Developing

Relationships With Their Leadership
I n many instances, you can conduct adequate due diligence on
a nonprofit without ever communicating with the organization’s
staff—using information from its website and from third parties. Also, in
many cases—especially but not only with large national or international
groups—you will feel satisfied with monitoring work from a distance
rather than personally engaging the organization.

There are, of course, many instances when you believe that direct
engagement will provide you with valuable information and, indeed, when
your engagement can make a contribution beyond your monetary gift.

This chapter will help you answer three questions:

• When and how should I engage with a nonprofit organization
I am supporting or considering supporting?
• How should I manage relationships with the organizations that I fund?

• How can I add value beyond my dollars?

Three Fundamental Questions

About Donor Engagement

Here are three fundamental questions that can guide your engagement
with a nonprofit organization:
1. Will my engagement help the organization succeed in its
mission? If the answer is yes, then the dollar amount of your
(potential) gift is irrelevant. Just be sure the organization really wants
and has the capacity to leverage your help.
2. Will my engagement provide important information for my
due diligence before making a gift, or for monitoring to learn about
the organization’s ongoing performance and decide on future gifts?
If the answer is yes, the nature of the engagement and its burden on
the organization’s staff should be calibrated to the size of your gift—
some combination of the absolute amount and its proportion of the
organization’s annual budget.

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3. Will my engagement be personally rewarding—for learning,
interest, fun, etc.? One should have a presumption against this as a
rationale for engagement independent of the first two. But for a very
large gift, perhaps this suffices—as long as it doesn't impose too great a
burden on the organization.

It should go without saying, but it is worth emphasizing, that personal

engagement with an organization’s staff should begin with an
appreciation of their other responsibilities and should involve respectful
listening on your part. After all, chances are that they have more
knowledge about their strategies and needs for accomplishing their
mission than you do. Successful interactions with the organization build
trust and mutual respect, with both parties coming away having benefited
from the engagement.

When Should I Contact an Organization

for Further Information?

For many gifts, thorough online due diligence should give you
sufficient confidence in the organization’s leadership, strategy, and
implementation. In this case, there is no need to ask for meetings with an
organization’s leaders before making a gift.

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Nonetheless, your online due diligence may leave you with outstanding
questions. Should you contact an organization, solicit additional
documents, conduct site visits, or interview relevant staff members or
friends? Factors to consider:
• The importance of unanswered questions: Consider whether
unanswered questions are material to your decision to give.
• The size of your potential gift—both in absolute terms and
relative to the nonprofit’s budget: We recommend that you
contact a nonprofit only if you are seriously considering a large gift
or a gift that will support a significant portion of the organization’s
budget. Although the actual number will vary, a six- or seven-figure
gift, even if it supports a small fraction of a large multinational
organization’s budget, would likely justify your personal contact—with
due recognition of other demands on the staff’s time (See Chapter
8: Due Diligence for more information on contacting organizations
during the due diligence process).
• Your potential willingness to donate: If you contact an organization,
it may interpret your contact as a signal of a forthcoming gift. We suggest
that you not contact the organization unless you are prepared to make the
gift if the organization passes your due diligence process.

If you are already funding an organization and are interested in being

involved in its work, you can explore opportunities to contribute your
time or talents through volunteer opportunities (see section below).

Q. Should I take a different approach to small, community-

based organizations, especially those involved in grassroots
movements?

A. The basic approach is the same, but it’s all the more important to be
respectful of the organizations’ autonomy and limited time. Beyond this,
some funders—especially those supporting social justice movements—
may be committed to a “hands-off” approach that intentionally delegates
considerable decision-making responsibility to community groups.

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Q. As a funder, should I seek to influence an organization’s work?

A. Any nonprofit organization worthy of your support will have a formal

governance structure. In general, unless you are on its board or have been
asked for advice, it is not appropriate to try to influence an organization’s
work.

If the organization’s leadership seeks your advice, you should feel free to
offer it—with awareness that they may wish to please funders to maintain
their support. Developing an honest and mutually beneficial relationship
requires listening well, with respect for the organization’s expertise, ideas,
strategies, and needs.

Adding Value Beyond the Gift: Volunteering,

Including Board Service

Q. How can I contribute my time and talents, in addition to

money, to an organization?

A. Donors sometimes can add value beyond their gifts by lending their
time and expertise to an organization. At the same time, they may
find satisfaction in personal involvement that connects with their
philanthropic passions and deepens their understanding of their focus
areas. As long as your main objective is to help the organization fulfill its
own mission and priorities, the experience can be mutually beneficial.

Some kind of help is the kind of help that helping’s all about,
And some kind of help is the kind of help
We all can do without.
—Marlo Thomas, Helping
Free to Be You and Me (Marlo Thomas, et al.) Words by Shel Silverstein.

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Volunteering

Q. How can I learn about volunteer opportunities with a

nonprofit organization?

A. Some organizations have needs for volunteers—from serving food in a

soup kitchen to serving on the Board of Directors.

Nonprofits may post information about open volunteer positions on their

website. You can also reach out to an organization’s staff. An organization
that makes use of many volunteers may have a volunteer coordinator, or
you can inquire through its general information contacts.

You may be able to volunteer in ways that take advantage of your

particular expertise and connections. For example, you could leverage
your networks to fundraise on behalf of an organization you strongly
believe in, host fundraising events, or speak at events to advocate for the
organization.

When considering volunteer opportunities, reflect on the best ways you

can contribute to an organization. Be considerate of its staff’s time when
seeking volunteer opportunities.

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Board Service

Q. What are the roles and responsibilities of a nonprofit

organization’s Board of Directors?

A. A nonprofit organization’s board plays a role in its governance and in

meeting its fiduciary responsibilities as a public charity. The board aims
to ensure that the nonprofit achieves its social mission while maintaining
good organizational health and high ethical standards and complying
with the laws concerning its operations. A board typically oversees an
organization’s budget and finances, legal compliance, and strategic
planning. The allocation of governance responsibilities between the board
and CEO varies among organizations and may depend on the laws of its
state of incorporation as well as its charter.

Board members owe duties of care, loyalty, and obedience58 to their

organizations. Board service often entails significant preparation for
meetings and work on subcommittees, in which members review legal,
financial, investment, and strategic matters. Nonprofit board members
are usually not compensated and, indeed, are often expected to make
personal contributions and help raise funds from others.

In addition to the individual talents that board members bring to an

organization, they must be good collaborators with one another and with
senior staff members, and they should be consensus-oriented.

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Q. Why might I join a board?

A. The primary reason for serving on a board is the organization’s and

your shared belief that you can add value through the roles mentioned
above—roles that call for good judgment and collaborative problem-
solving skills as much as expertise and fundraising networks.

Board service is not an appropriate means for shepherding your

particular financial contributions to an organization.

Q. What should I consider before joining a board?

A. Learn what the organization expects of its board members—for

example, how many meetings of what length does it hold, what are the
norms regarding preparation and attendance, and what does it expect of
board members between meetings, whether on committees or otherwise?
Are you expected to donate money to the organization and, if so, at what
level? Some organizations have written description of board members’
duties.

Also, try to understand what the organization wants from you in

particular. Is it your professional expertise—for example as a lawyer,
accountant, or investor? Or perhaps is it because of your capacity to give
at a high level and your access to other donors? Think about whether
you’re comfortable playing those roles.

Also consider what you want to get out of the experience. Do you hope
to increase the organization’s impact or your knowledge about its area of
work? Do you hope to have access to certain other board members or to
benefit from the prestige of your affiliation with the organization?

As you consider board service, make sure that your and the organization’s
expectations are aligned. Also consider your own exit strategy if things
don’t work out.

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Q. How can I join a board?

A. Deciding whether to join a board requires the same degree of due

diligence you would engage in before making a significant gift to the
organization. If you’re interested in an organization but haven’t been
invited to join its board, you may wish to seek out current board members
directly or through a mutual acquaintance.

D O N O R STO RY

Finding the Right Level of Engagement with

Nonprofits—Paul and Iris Brest
We have contributed to many different organizations over the years, with our
engagement pretty much aligned with the three questions mentioned at the
beginning of this section.
We give regularly to some national organizations, such as Planned Parenthood,
without any personal engagement whatsoever. Those organizations are aligned
with our values and objectives and we are confident about the quality of their
leadership and impact based on third-party information. While they sometimes
contact us—with the not-so-hidden agenda of asking us to increase our
commitments—we have no need to engage with them either to do due diligence
or because we can provide assistance that they can’t get elsewhere.
On the other hand, we have been highly engaged with some organizations when
we needed first-hand information for due diligence or thought we could provide
assistance. For example, we were early supporters of the Classics for Kids
Foundation, which provides stringed instruments to children in disadvantaged
communities. The organization did not yet have a track record, and we engaged
with its founder to learn about its strategies, budget, and operations in detail—
and to provide advice on some of these matters. And Paul was a founding
board member of the Climate Policy Initiative, where he has contributed to the
governance of a multifaceted organization with a large and complex budget.

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 We have joined boards of organizations—large and small, local and national—
when we thought this would contribute to their impact by helping with
governance, fundraising and, in several, instances fraught leadership transitions.
But Paul resigned from the board of a prestigious university after one term;
though it gave him fascinating insights into the faculty’s cutting-edge research,
the university did not need whatever expertise he could bring to the table.
With few exceptions, our engagement with nonprofits has been deeply
personally rewarding—indeed fun—because we believed we were making real
contributions to the organizations’ impact. But we also have gotten tremendous
satisfaction from the work of organizations in which our only engagement was
writing a check, knowing that every dollar contributes incrementally to their
impact on issues we care deeply about.

ACTIVITY REFLECT ON YOUR TIME AND TALENT

Volunteering

If you think you might like to volunteer your time for a particular organization, ask:
1. Is that organization accepting volunteers? What responsibilities do volunteers
have?
2. Do I have the skills, expertise, or connections to be helpful to the organization?
3. What is the time commitment for volunteers at the organization, and am I
able to commit the necessary time?

Board Service

Board members offer a variety of skills and expertise, often based on their
experiences and professional work, to assist with the overall functions of the
board. How you can make a difference in the organization depends on its needs.

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If you’re interested in board service, ask:
1. Do I have enough time for board service?
2. Am I willing and able to meet fundraising expectations?
3. What skills and expertise can I offer the organization’s board?

For resources on board service, see BoardSource and the Balance.59

Developing Relationships with Organizations

Takeaways

F If you’ve conducted thorough due diligence of an organization and

feel confident that it will use your gift wisely, there may be no need to
further contact the organization before making the gift.
F If you think you can add value beyond your gift or want to be
more involved in your focus area, consider volunteering with the
organization, including serving on its board.

D O N O R STO RY

The Role of the Donor—Kathy Kwan

The donor journey can be many things all at once for the individual donor:
rewarding, humbling, lonely, exhilarating, and exasperating. Having funded
more than 60 organizations over the last 14 years, I have found each experience
to be unique. Almost always, I am excited about how my grantees positively
impact their beneficiaries and am awed by their personal dedication and
commitment to make the world a better place. That said, I have found that my
personal satisfaction rests in my ability to establish an effective donor-grantee
relationship. Some rules of thumb that have worked for me:
• I have a unique set of personal responsibilities. It’s my role—as a donor—to
have a clear focus about what I want to achieve with my philanthropy. In this
capacity, it’s my job to find and partner with organizations that align with
my objectives. To be successful, I need to ensure that my partners are led by
strong leaders, are financially responsible, and are committed to meeting our
shared goals.

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• I aspire to be transparent and honest about my motivations. I’m human—if I get involved
in something, I’m personally invested, and let’s be honest, I want something out of the
relationship—whether it’s wanting to “help,” being part of something bigger than me,
bragging rights, a plaque, a sense of personal satisfaction, or whatever. It’s my money and I
want to see something come of it.
• Successes and failures are ultimately in the hands of the grantee. The organizations I
support are the primary designers and executors of their strategies. As the funder, I need
to respect them and cede day-to-day management and decision-making to the leaders of
these organizations—even and especially as it pertains to my grants.
• I am part of an ensemble. I am not a soloist. Usually, I am one of many stakeholders at
the table. Each of us brings a nuanced and personal perspective, and the grantee needs to
balance our strengths, priorities, and competing agendas.
• Money does not automatically buy influence. Beyond being a funder, a donor can play
myriad influential and valued roles: catalyst, thought-partner, trusted advisor, connector,
valued board member. These roles are earned, not granted. It takes time for both the
nonprofit and the funder to build rapport, trust, and credibility.
No one is perfect, and every so often, things go haywire: I become too emotionally involved,
a suggestion goes unheeded, I might feel slighted, or my contribution isn’t acknowledged
in a meaningful manner. In these moments, I have had to learn to lick my wounds, take a
chill pill, and objectively assess the situation. I ask, “How much of this is about me and my
expectations?” “Could we have avoided this situation?” “What is the context and what are the
competing externalities and priorities?”
I am both inspired and humbled by my philanthropic “journey.” I am addicted to the sense of
satisfaction I get six months, a year, or even two years down the line as I watch the programs
I’ve funded come to fruition and my grantees grow and evolve. And that’s what brings me back
to philanthropy year after year.

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C HAP T E R 10

Making Gifts
O nce you have developed confidence in an organization in your
focus area, you will want to consider how best to support it. This
chapter gives an overview of the basics of making gifts and answers these
common questions:
• What are the different types of gifts I can make?

• When should I make unrestricted gifts to an organization? When

should I make gifts restricted to particular projects or programs?
• Why is it important to pay actual indirect (overhead) costs?

• What size gifts should I make under what circumstances?

• How can I administer and track my giving?

• How long should my gift last?

Although there is no technical distinction between a “gift” and a “grant,”

the former term is often used to describe unrestricted donations by
individuals that typically have no reporting requirements and the latter
to describe donations by foundations that often do include reporting
requirements. We use the term “gift” for both.

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Types of Funding

Gifts fall into two main categories: unrestricted general operating support
(GOS) for the organization overall and restricted funds that are specified
for specific programs or projects.

Q. What’s the difference

between general operating Impact-Driven Philanthropy
support (GOS) and project practice: Nonprofits need funders
support? who are willing to make flexible,
multi-year investments that enable
nonprofit leaders to most readily
A. GOS, also known as
flex their management muscles and
unrestricted or core funding,
capacity for continuous improvement.
lets the organization use the
funds for any of its programs and We stick with organizations,
operations, at the discretion of its programs, or grants for a long
management. enough time period to realistically
determine whether they can achieve
Restricted funds are earmarked the set goal. We must be patient. Real
for a specific purpose within an change takes significant time.
organization—for example, the
purchase of a particular piece of
medical equipment for a health clinic or the development of a volunteer
training program.

A gift restricted to an organization’s self-defined program has the

essential characteristics of GOS. For example, a true GOS gift to a
university could be used for any of the institution’s schools or programs;
an unrestricted gift to the university’s School of Engineering can
be used only for any of the school’s purposes. In both cases, it is the
administration, rather than the donor, who decides on funding priorities.
By contrast, a gift to the university to support research on Alzheimer’s
disease would be restricted to that particular project.

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Q. What do leaders in the philanthropic community say about
these forms of support?

A. Most philanthropic organizations and sector experts strongly favor

multi-year GOS because it gives grantee organizations autonomy and
flexibility in allocating funds to best fulfill their missions. Long-term/
multi-year GOS gives them the financial stability to support their
programmatic work.

EXPERT OPINIONS
• Independent Sector—a coalition of nonprofits, foundations, and
corporate giving programs—“calls on funders to provide general
operating support over project support whenever it is appropriate,
feasible, and the goals of the foundation and nonprofit are closely
aligned.”60
• Grantmakers for Effective Organizations, a global network of over
7,000 grantmakers, endorses GOS as a means to support stronger
organizational health, allowing nonprofits “to direct their spending
where it is needed and focus on running effective programs.”61
• Center for Effective Philanthropy, a research organization focused
on producing data to support outcome-oriented funders, found that
“grantee organizations who receive large, long-term general operating
support grants perceived their foundation funders as having greater
impact on their organization than grantee organizations who received
other types of grants.”62
• The Impact-Driven Philanthropy (IDP) initiative, led by the Raikes
Foundation, encourages donors to “provide flexible, multi-year
funding” as a good practice.
• In their book Money Well Spent, Paul Brest, Former President of the
William and Flora Hewlett Foundation, and Hal Harvey, CEO of Energy
Innovation, call unrestricted support “the lifeblood of a nonprofit
organization” and note that an organization’s “ability to innovate and
its very integrity depend on having control over a substantial portion
of its budget.”63

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• Phil Buchanan, in his book Giving Done Right, says, “For those
organizations with goals and strategies that significantly overlap with
yours, provide the unrestricted, long-term, significant funding that’s
most helpful to grantees.” GOS helps organizations “get what they need
to be effective.”64

FOUNDATION PRACTICES
• Throughout its fifty-year history, a majority of the William and Flora
Hewlett Foundation’s grants have been unrestricted. The foundation
explains in its Guiding Principles that it is committed to “providing
long-term general operating support to anchor institutions in the
fields in which we work.”65
• The Ford Foundation and the Edna McConnell Clark Foundation
(EMCF) have taken up the mantle of unrestricted, multi-year grants.66
In assessing its BUILD program, the Ford Foundation found that
five-year GOS enables organizations to be more responsive to their
beneficiaries, to strengthen their capacities in a timeline that makes
sense for their own rate of growth, and to take risks to catalyze
change.67 EMCF also saw that nonprofits struggled with obtaining basic
operational support and therefore adopted multi-year grants as one of
its core principles.68
• The Whitman Institute observes that multi-year general operating
support trusts the organization to determine the most effective and
best use of resources.69

Médecins Sans Frontières (Doctors Without Borders), an international

humanitarian medical nonprofit, accepts only unrestricted gifts,
explaining that this practice allows them to “allocate our resources most
efficiently and where the needs are greatest.”70 Many other nonprofits
would love to follow their lead but fear losing their donors’ support.

Q. When should I give GOS and when should I give restricted

support?

A. GOS gifts are ideal when your philanthropic goals align with the

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organization’s overall mission and it has a proven track record of
effectiveness. If you have serious doubts about whether the organization
will use your unrestricted donations effectively, you probably should not
make a donation at all.

On the other hand, if you and the organization are mutually interested in
a particular project, a gift designated for that project may be appropriate.
For example, work on this Guide was supported by Kathy Kwan, a donor
who, together with the Stanford PACS leadership team, believed that the
book could provide valuable support for donors interested in effective
philanthropy.

Q. Does one or another form of support create greater impact?

A. Not generally. While a small GOS gift might seem like just a drop in
the bucket, consider that each drop is likely to contribute proportionally
to the organization’s outcomes. Very few effective nonprofit organizations
run out of capacity to efficiently deliver their services. So if a dollar allows
an anti-malaria organization to provide African families with bed nets,
then every additional dollar provides a bed net for another family. You
wouldn’t think of tracking the particular use of your financial investment
in a for-profit firm, and it’s no different for a nonprofit organization.

That said, there may be instances where an organization asks you to fund a
particular need, and you can have impact through a project-oriented gift.

Q. Does one or another form of support allow me to develop

confidence in the organization?

A. No. The best way to determine whether an organization deserves

your support is to look unobtrusively over the shoulders of its board
and CEO and understand how it achieves its mission. You can do this
through publicly available materials, such as annual reports, or—if your
gift is significant enough—through direct conversations with senior
management.

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Q. What if I think an organization should develop new areas of
work—should I offer to fund projects in those areas?

A. If the idea and request for funding originate with the nonprofit’s senior
management, you can be pretty sure that your offer of financial support is
useful to the organization and its beneficiaries. If the idea originates with
you, however, make sure that you aren’t inducing “mission creep” that
could detract from the organization’s overall effectiveness.

A good test question is whether, given additional unrestricted funds,

the organization would begin exploring your idea or use the funds for
something else.

In any event, if you and the organization agree that it will undertake
a new project, the size and duration of your commitment should be
commensurate with that undertaking.

Q. Can I make a gift to a nonprofit organization that is

earmarked for lobbying?

A. Lobbying is a subset of advocacy and one that is highly regulated by the

Internal Revenue Code as well as state laws. While private foundations are
entirely forbidden from earmarking grants for lobbying, this prohibition
does not apply to gifts from your checking account or DAF. Nonetheless,
it’s best to leave it to the organization to decide what tools to use and
what it may do consistent with the law.

Q. Where does capacity-

building support fit into these
Impact-Driven Philanthropy
categories?
practice: We fund efforts to collect,
analyze, and build the capacity within
A. Capacity-building support is
nonprofits to use relevant data, so
a form of project support that
they have a basis for understanding
enables an organization to do its
what’s working and what’s not.
work more effectively. It can include

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support for such things as strategic planning, board recruitment, staff
development, and fundraising. Sometimes a capacity-building gift can give
the organization’s CEO “cover” to meet essential needs that other donors
might regard with skepticism. But organizations often would rather have
unrestricted support and the autonomy to decide how to devote funds
between capacity building and other needs. You might ask a nonprofit
whether they would prefer GOS or a restricted grant for capacity-
building—or for any other type of project, for that matter.

Q. What about gifts for endowments?

A. Organizations that receive gifts for endowments keep the principal

amount (your gift) intact and use the investment income for charitable
activities. Endowed gifts reflect the donors’ beliefs that the institution will
remain strong for many decades, if not centuries, to come—and also help
ensure their strength.

To hedge against volatile markets, many institutions spend 5 percent or

less of an endowment annually. Although an endowment gift supports
an organization for the long term, it provides only a small fraction of an
expendable gift each year.

If an endowment fund already exists within an organization—for example,

for scholarships—consider adding to it rather than setting up a new fund,
which entails additional administrative costs.

Q. Should I be concerned if I am the main funder for a nonprofit

organization?

A. Yes. As we suggest in Chapter 8: Due Diligence, it’s healthy for an

organization to have diversified sources of revenue. Moreover, if your gift
comprises too much of a nonprofit’s funding, the organization could fail
the IRS requirement of public support and be reclassified as a private
operating foundation, with potential adverse consequences for the
organization and its donors.71

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Overhead Costs

Q. What are directs costs, indirect costs, and overhead?

A.
• The direct costs of a particular project are expenses, such as the
compensation of staff members or travel, that are attributable to the
project.
• Indirect costs are not directly tied to a specific project but rather
shared across multiple projects. They include salaries for staff who
do not work directly on the project but are necessary for running
the organization for example the organization’s CEO, CFO, and
development officer and costs like rent, electricity and heat, insurance,
back-office functions, training, and technology infrastructure that
ultimately affect the organization’s ability to execute its programming.
Indirect costs are allocated over all the organization’s activities and
projects.
• Overhead is sometimes used as a synonym for indirect costs or for a
subset of administrative costs.72

Every project depends on the payment of indirect costs. No organization,

whether a nonprofit, business, or other entity, could survive without
the contribution of funds for indirect costs. They are every bit as real as
direct costs. Funders who do not cover indirect costs contribute to what
has been aptly termed the “nonprofit starvation cycle”73 by forcing the
organization to incur expenses not covered by their gifts or grants. Yet
many donors succumb to the psychological error of “overhead aversion”
because it’s much easier to identify with the beneficiaries of a program
than with the organization’s essential needs.74

Q. How do various kinds of gifts pay for indirect costs?

A. GOS automatically includes overhead costs—an organization’s

management can allocate GOS between direct and indirect costs as

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needed. Gifts restricted to particular projects may or may not specify what
percentage of the funds can be used for indirect costs. If you’re giving
restricted funds, you should include a reasonable amount of overhead to
ensure that an organization has the resources it needs to run both the
project and the organization’s activities necessary to support it.

Q. What are best practices for including indirect costs in funding

projects?

A. Here are some suggestions from major organizations and philanthropic

experts in the field:
• Independent Sector “recommends that grantmakers pay the fair
proportion of administrative and fundraising costs when they do give
project support.”75
• Center for Effective Philanthropy notes that the “overhead myth,”
which forces nonprofits to keep their operating costs very low, is “the
most destructive” misconception in the nonprofit sector. It calls for
the philanthropy and nonprofit sector to work together to overcome
this myth.76
• The IDP principles and practices recommend that if donors give
project or program support, they “include full indirect costs (overhead)
as long as they are in line with organizations of that type.”77
• In Giving Done Right, Phil Buchanan urges donors not to “buy into
the overhead myth” but “seek real performance metrics.” A nonprofit’s
performance should be judged by its results, not its budget allocation.78

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 The Plumber
You hire a plumber to unclog your drains. He submits a bill for $100, but you
write him a check for only $75. When he asks about the other $25, you explain
that you’re paying only for his direct costs—his time on the job and any materials
used—and not for indirect costs such as maintaining his shop, advertising,
insurance, and the like. Outrageous behavior? Absolutely. Yet many philanthropists
and foundations treat their grantee organizations this way every day.… While you
can be pretty sure that the plumber won’t work for you again, most grantees suck it
up, skimping on vital systems.79

Fabulous Airline
You are about to buy low-price tickets on Fabulous Airline and notice that its
website proudly announces, “We have the lowest overhead costs of any airline,”
with a footnote explaining, “To save you money, we perform the minimum required
maintenance on our aircraft; provide minimum emergency training for our flight
attendants; and are indefinitely postponing upgrading our computer systems.”
Would you buy the tickets? Although nonprofit organizations you value may not
literally fall out of the sky, consider how a donor who withholds adequate indirect
costs impairs their effectiveness.

Q. What are reasonable overhead costs?

A. Reasonable overhead costs depend on the kind of work the

organization does. A recent study sorted nonprofits into four broad
categories: US direct-service organizations, US policy-advocacy
organizations, international networks, and research organizations. It
showed indirect costs ranging from 21 percent to 89 percent of direct
costs.80 We recommend starting with a presumption of at least 20 percent.

Donors should be as concerned if an organization’s overhead is too low as

if it is too high. If overhead is too low, the organization may be skimping
on investments in necessary infrastructure, such as computer systems

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or staff development. Or the organization might not be paying its staff
enough, which, quite apart from morale problems, may just be unfair.

Raising Up Overhead: How We Can Do Better

In Raising Up Overhead: How We Can Do Better (October 7, 2019), Lisa Eisen,
President of the U.S. Jewish Portfolio of the Charles and Lynn Schusterman
Family Foundation, and Barry Finestone, President and CEO of the Jim Joseph
Foundation, urge Jewish funders to adopt best practice to ensure that grantees
“have the unrestricted capital they need to achieve their missions, sustain
healthy organizations, and grow their impact.” They note that this is best done by
providing GOS and next best by providing adequate indirect costs or overhead
for gifts restricted to specific projects. “At a time when the Jewish community is
hungry for change, let’s ensure that organizations can attract and retain talented
professionals. Let’s ensure they can be healthy, resilient, and able to integrate the
best tools and technology into their work. Let’s ensure they can cover the real cost
of their mission-driven work. Let’s ensure they feel empowered to try, fail, learn,
and succeed in their quest to shape a vibrant Jewish future.” ejewishphilanthropy.
com/raising-up-overhead-how-we-can-do-better

Administration and Reporting

Q. Do I need a contract to make a gift or grant?

A. No. You don’t need a contract for giving GOS. Even for restricted
funds, a short letter agreement—or even an email exchange—will usually
suffice. If you’re making a large restricted gift and feel it’s important
to specify the details of its use and how you would like it reported, you
might consider drafting a simple letter outlining the terms of your gift. If
a gift for a project includes a budget, we suggest that it allow the recipient
organization to use at least 20 percent of the gift for indirect costs. (Note
that if you are giving through a DAF, private foundation, or LLC, the
institution will typically provide a grant award letter with every grant.)

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Q. What kinds of reporting should I ask for?

A. When thinking about monitoring your gifts, be sure you strike a

balance between feeling well informed as a donor and overburdening
an organization. You have already vetted the organization, so the most
important question is whether the organization continues to do valuable
work. You can often answer this question via information published
by the organization itself, such as newsletters, press releases, and
annual reports. If you’ve made a very large gift, it’s reasonable to ask for
occasional meetings with the organization’s senior staff. (If you are giving
through a private foundation or LLC, you may wish to establish a policy
about reporting.)

Q. How can I track my own giving?

A. In addition to keeping a record for tax purposes, you may find it useful
to keep records of your giving and to note what seems to be working and
what not. The tracking software can range from an Excel spreadsheet to
off-the-shelf grants management programs. If you give through a DAF, a
staffed private foundation, or an LLC, staff members will likely track this
for you.

Gift Size, Duration, and Exit

Q. When I meet with the head of an organization or development

director, they may propose a larger gift amount than I have in
mind. How should I prepare myself and respond?

A. It’s good to prepare for any negotiation—and this is a negotiation—by

having a clear idea of your terms beforehand. Although you shouldn’t
be closed to changing your mind based on new information, often the
best response is along the lines of: “That’s actually more than I had
contemplated, but let me [discuss it with my family and] give it some
thought and get back to you.”

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Q. Should I be open to making a larger gift during an
organization’s campaign or when my gift will be matched?

A. First of all, recognize that most campaigns are essentially marketing

devices—opportunities to focus donors on the organization’s mission and
increase donations and multi-year commitments for existing programs as
well as new initiatives. Matching gifts have the added allure of multiplying
your individual donation. There’s nothing at all wrong with these
fundraising strategies. Just keep in mind your own strategic budgeting
decisions when responding to them.

Saying "No" to Requests

Many people begin their philanthropy by responding to unsolicited requests—for
instance, from their children’s schools, their religious institutions, or their alma
maters. You have likely developed your own way to decline requests that fall
outside of your focus areas and discretionary budgets. In general, it helps to be
direct: “Thank you for the opportunity to support education in Chicago, but this
is not among my philanthropic priorities.” Where appropriate, offer to pass the
request to others: “I know someone whose interests may be aligned with your
work. Please give me the information and I can try to make connections.”

Your family foundation may have a broad mission statement, such as “improving
the lives of our city’s most disadvantaged people,” but your grantmaking may be
focused on a particular group of disadvantaged people, such as run-away homeless
teens. Organizations seeking your grants may latch onto the mission statement. Be
prepared to explain your particular focus at this time.

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Q. Suppose I have budgeted $100,000 per year for a particular
focus area (as suggested in Chapter 1). How large a gift should I
make out of that budget to a particular organization and what
should its duration be?

A. Suppose that you are new to a focus area. You have done research into
it, and you have identified a number of promising organizations. One
of them has a long and strong record of effectively achieving your goals;
several other organizations have passed your initial due diligence process,
but you are less certain about them.

In these circumstances you might make a substantial multi-year general

operating support grant—perhaps $70,000 over three years—to the
known strong organization and dedicate the remaining funds to one-year
GOS gifts to several of the others. This will allow you to monitor their
progress to help decide on gifts in future years and, at the same time,
learn more about the area. This approach can be useful for experienced
philanthropist exploring a new area as well as new donors who want to
put their toes in the water before jumping in.

You may sometimes be pressed to make an especially large commitment—

for example, during an organization’s campaign. But the occasion of a
campaign—even with matching pledges—shouldn’t short circuit your due
diligence processes.

Q. In general, what should be the duration of my gift?

A. Relatively small GOS gifts typically have no specific duration, but they
are often assumed to be expended within about a year. The recipient
organization usually hopes that the gift will be renewed annually. As
mentioned earlier, the duration of a project gift should be commensurate
with the nature of the project.

If you intend to make a substantial GOS gift or a project gift to be spent

over a period of several years, you can either give the full amount now or
give the first installment now and state your intention, or pledge, to give

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 D O N O R STO RY

What's the right sized-gift for me?

Determining the Right Gift Level Early In a Philanthropy
Journey—Jane Lerner
I’m relatively new to philanthropy (for about the last three years), so the biggest check
I’ve ever written is that $15,000 check to Solidaire. I’ve given some $10,000 gifts and
those came because that was the number that was given to me. I don’t know if that’s
a number that I would necessarily come up with myself, honestly. I’m still very much
struggling with that hoarding mentality even while I’m working so hard to be as generous
as possible. I’m doing donor organizing to fund electoral work and I’m constantly trying
to get people to give more than they’re willing to give. Then I turn it back on myself and
I’m like, aww man, I should be writing that check too! You know it’s funny, I’ve hit on a
sweet spot of $2,000 to 3,000 as a grant I’m quite comfortable with. It’s what feels right
to me right now. I wonder as I get older and see my bank account change either up or
down how I might shift that. It raises more questions for me than answers.

the remainder later. Organizations value multi-year commitments because

they permit longer-range planning.

Q. How should I account for an intended multi-year gift in terms

of my philanthropic budget? Suppose that I’ve earmarked
$100,000 for a particular focus area this year and decide to make
three annual grants of $25,000 to an organization in that area.

A. If, for example, you track your gifts through Excel, it’s easy to keep note
of your intentions or commitments to make multi-year gifts. You just need
to ensure that the earmarked funds will be available in the future years. If
you give through a DAF, private foundation, or LLC, they will likely have
processes for documenting multi-year commitments and sequestering the
future-year funds.

Organizations will appreciate knowing your intentions about multi-year

gifts. If you accede to an organization’s request to sign a pledge for future

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amounts, however, be explicit that the pledge is not legally binding.
This will save you a great deal of hassle if your relationship with the
organization goes south. It’s worth a reminder that the gifts are only
tax-deductible when made. If using a DAF, you will already have received
the tax deduction when you gave to the DAF. (Although a DAF may make
grants that fulfill a pledge, the grant award may not refer to the pledge.)

Q. How can I cease funding an organization without harming its

work?

A. Your giving interests and activities may change over time, and this may
lead to parting ways with an organization you have supported in the past.

This is not an issue for smaller donations, where an appropriate exit

may be as simple as deciding not to give again. But if an organization is
reasonably relying on your regular large gifts, we advise giving it as much
advance notice as possible. Explain your decision and offer a parting
gift. If your exit is based on a change of interests rather than concerns
about the organization, consider making a transitional gift to help the
organization bridge the gap.

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Seven Habits of Excellent Work with Grantees:
A Snapshot81
In early 2020, the Hewlett Foundation launched a Guide for Program Staff at
Foundations with recommendations on what staff members should consider
as they work with grantees. Many of these tips can apply to individual
donors as well.
1. Respond in a timely and courteous manner to all grantees and potential
grantees.
2. Show curiosity about a grantee’s whole organization, not only the parts
that relate to your strategy and goals.
3. Set time and process expectations. Make your expectations and
commitments explicit when inviting a proposal and throughout the life
cycle of each grant.
4. Results matter. Have a conversation with each grantee about how they
plan to measure results from the grant.
5. Flexible and true cost funding. Provide flexible, multiyear support where
possible. When making project grants, understand and support the true
cost of the work.
6. Be clear and consistent about strategy and criteria for decision making
in verbal and written communications with grantees.
7. Listen as much as you talk in conversations with grantees.

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Making Gifts Takeaways

F Funders’ primary goal should be to advance the effectiveness of the

organizations to which they give.
F If your goals align with the organization’s, give long-term, general
operating support (GOS).
F To support effective organizations, pay adequate overhead when you
make restricted gifts.
F Making a gift requires little or no paperwork. Usually a simple
donation letter or email will suffice.
F If you have been making significant gifts to an organization and wish
to stop your funding, give as much notice as possible to avoid harming
its work.

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 D O N O R STO RY

Giving Gifts Through Long-term General

Operating Support82
I was 21 when my parents created a family foundation so their five children could learn
about philanthropy. (They called it the French American Charitable Trust, or FACT,
because my mother was French and we did some funding in France.) Over the next few
years they endowed it with $40 million.... Over time, FACT’s board and staff adopted
[these] guiding principles:
• Focus: We focused exclusively on supporting community organizing to address
poverty and inequality. We accepted no unsolicited proposals so staff time could be
devoted to building relationships rather than to wading through mountains of paper.
• Offer long-term unrestricted support: Nearly half the 60 organizations we funded
received general operating support for ten years or longer.
• Build grantee’s capacity: Because our groups needed help with organizational issues
such as management, administration, finance, and board development, we created
an innovative capacity-building program that gave grantees this non-monetary help.
We also acted as their advocates, connecting them to other funders and educating
the philanthropists about the value of community organizing.
For FACT, following these … principles produced profound rewards. Here’s one example:
In 1996, we gave $30,000 to the Los Angeles Alliance for a New Economy (LAANE).
The group was three years old with a budget of $250,000, and we were one of their
first funders. By 1999, our annual grant to LAANE was up to $100,000, and today the
group has a budget of $4 million and a staff of 44. Through an unusual combination
of community organizing, research, economic analysis, and policy advocacy, they
have been able to successfully tackle many job issues affecting poor communities.
We’ve cheered as they won city-wide victories that benefitted hundreds of thousands
of people, including legally binding living wage ordinances and community benefits
agreements with developers.

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 D O N O R STO RY

How To Think About Making Gifts—Jaan Tallinn

I have learned a lot about philanthropy in the last 11 years. I started out giving maybe
$5,000 each year and have increased my annual giving to around $3M by now. One
really big problem that plagues philanthropy compared to investments—which I’m
also doing—is that it’s very hard to measure outcomes. More precisely, it’s very hard
to know what would have happened if you didn’t make that donation. So, I tried three
approaches to this. One is just donating to support the creation of something. For
example, I’m very enthusiastic about supporting software development. If there’s
somebody who’s developing software for public consumption that wouldn’t otherwise
get funded, that is very concrete: you can see the result. And it’s easy to know what
would happen if you didn’t make the donation: the software wouldn’t get built. Second,
I look at the track record of organizations and donate to them to continue what they’re
doing. The hope is that based on their track record, the organization can demonstrate
that they’re making a difference. The third one is that I take an angel investor-approach
to philanthropy, where I gave multiple small donations to causes, even if I am unsure
of their value, and then have quarterly updates with them. Every quarter I can check to
see if the donations are making a difference: are they expanding, do they need more
resources, etc. In the beginning, these small quarterly donations were divided across
about a $10,000 annual minimum. And if the organization continued to deliver, my
maximum was $100,000 per year, and that might last for six or seven years.

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 CHAPTER 1 1

Funding with Others: Collaboration and Pooled

Funding
T he growing practices of collaborative and pooled funding allow you
to increase the impact and scale of your giving. This chapter pro-
vides answers to the following questions:
• How can I collaborate with others in making gifts?

• What is pooled funding and how does it work?

DEFINITIONS

Collaboration: A broad set of practices, ranging from sharing

information and knowledge to co-funding and co-creating new
projects with other donors.

Pooled funds: Aggregated funds aimed at creating large-scale

impact in particular areas.

The simplest way to engage in collective funding is to provide general

operating support to an organization, which then aggregates your
gifts with those from others. Beyond this, you may also participate in
intentional collaboration and pooled funding initiatives. You might
donate to funds that are curated by an intermediary, where you have
little or no control over particular grants; or you might contribute to
a grantmaking collective where all donors, or at least major donors,
participate in decision-making. This chapter discusses the various
approaches to collaboration and collective funding.

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There are five main ways to collaborate with other donors:
• learn with others

• fund a foundation

• coordinate funding with other donors

• pool funds

• participatory grantmaking

LEARN WITH OTHERS

The exchange of knowledge among donors (discussed in
Chapter 3) is the most common form of collaboration.
Examples include joining an affinity group and sharing
“lessons learned” with other donors.

FUND A TRUSTED STAFFED FOUNDATION

You can entrust your funds to another well-established
funder, usually a private or community foundation, that
has full control over its grantmaking. Perhaps the best
known example to date is Warren Buffett’s unrestricted
gift of $30 billion to the Bill and Melinda Gates Foundation in 2006.83
Since then, while indicating its preference that people give directly to
their grantees, the Gates Foundation has accepted contributions from
others, which it disburses according to the foundation’s programmatic
objectives.84

Though you may wonder whether the Gates Foundation needs your
money, there are other foundations that operate as intermediaries
and thus depend heavily on contributions—for example Tipping Point
Community and GreenLight Fund, which respectively address poverty and
inequality.

COORDINATE FUNDING WITH OTHER DONORS

Donors may choose to coordinate funding strategies
within their focus areas. They can identify opportunities
to support one another’s work, reduce areas of

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unnecessary overlap, and strategize together about how to address a
specific problem. Having agreed on a strategy, each funder can implement
his or her own grantmaking and have full control over those grants.

ClimateWorks Foundation, a nonprofit organization formed in 2008

to mitigate climate change, is an example of such a coordination
mechanism. ClimateWorks brings together its core partners—the William
and Flora Hewlett Foundation, the KR Foundation, the John D. and
Catherine T. MacArthur Foundation, the Oak Foundation, and the David
and Lucile Packard Foundation—to strategize and fund collective actions.
In its view, when these foundations work together, they are better able to
respond to climate change.85

POOL FUNDS WITH OTHER DONORS

Donors can aggregate, or pool, funds with one another to
create larger-scale impact in a shared focus area. Entities
that have a thematic focus are known as issue funds.
Hundreds of issue funds exist, covering a wide range
of topics such as animal welfare, movement building,
alleviating poverty, upholding human rights, providing
clean water, hunger relief, youth homelessness, and many more.

DEFINITION

Issue funds: Entities that aggregate contributions with a

specific thematic focus and grant them to the corresponding
nonprofit organizations.

Governance of Pooled Funds

Pooled funds accord donors varying levels of influence and control.
In some, each donor has a voice in decision-making. For example, the
Oceans 5 collaborative is comprised of donors concerned with marine
conservation. It makes grants and provides strategic guidance for
recipient organizations. Oceans 5 has two levels of engagement: partners

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and members. “Partners” donate $1 million or more per year and have a
seat on the Board of Directors. They are responsible for guiding projects
through the design and approval process. “Members” are generally donors
who give more than $200,000 per year and participate in board meetings
and discussions but have no governance role.86

Co-Impact provides another example of a two-tier structure. Formed in

2017, Co-Impact is a philanthropic fund that aims to catalyze systems
change in areas such as education, health, and economic opportunity.
The collaborative has six core partners who define strategy and select
grant opportunities.87 Other donors contribute to those projects but do
not have the same decision-making power as the core partners.

Blue Meridian Partners is the largest issue fund in the world. With
aggregated funds of $1.7 billion, it aims to transform the “lives of young
people and families in poverty, to change the current funding paradigm …
and embrace a new model of philanthropy.”88 It has two tiers of partners:
general and impact. General partners contribute at least $50 million
over five years; each general partner has one vote in decisions related
to investments and ongoing payments. Impact partners contribute at
least $15 million, divided between Blue Meridian’s pooled fund for all
investments and particular organizations within Blue Meridian’s portfolio
specified by the partners.

PARTICIPATORY GRANTMAKING
Participatory grantmaking aims to
democratize philanthropy by shifting
decision-making power from donors to the
communities being served. It empowers
community members by recognizing the unique importance of their lived
experiences in making good decisions about how the community should
be served.89

The grantmaking process itself is a key element of participatory

grantmaking. The process is often led by community members, with

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varying degrees of participation by donors or professional staff.90
Participatory grantmaking promotes diversity, equity, and inclusion,
and provides participants with an opportunity to network and increase
community engagement.91 Proponents of participatory grantmaking
believe this process leads to better decisions.

For all of these potential benefits, participatory grantmaking is not

inevitably the best approach to solving social problems. Some problems
require regional, national, or even global coordination that can only be
accomplished by large organizations or by funders implementing their
own theories of change (as described in Chapter 6.) Community decision-
making is often time-consuming, and ensuring representativeness can
be a challenge. Moreover, even within a particular locale, there are many
communities, defined by race, ethnicity, sexual orientation, religion,
culture, and other characteristics. A donor cannot avoid deciding which
ones to support. What may seem at first glance to be a single “community”
often turns out to be a number of sub-communities with contending
factions. Donors can’t avoid the responsibility of making choices.

The Complexities of Collaborative Funding

Collaborative funding requires donors’ agreement on goals, funding

criteria, and decision-making processes. It almost inevitably requires
donors with different working styles and cultures to make some
compromises. For a collaborative venture to be successful, its funders
must build trust with one another and be comfortable sharing or
delegating responsibilities.

At its best, collective funding can create tremendous impact on social

problems. But the concentration of funds and decision-making authority
may have negative consequences as well by enshrining parochial strategies
and cozy relationships with particular grantees. It is important that
pooled funders seek input from their intended beneficiaries, potential
grantees, and a diverse group of experts. When done thoughtfully and
responsively, collective funding can significantly increase positive impact
in your focus areas.

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 An Example of Impact Through Collaborative Funding: Civil Marriage
Collaborative (CMC) and Marriage Equality92
In Obergefell v. Hodges, decided in 2015, the US Supreme Court established
marriage equality for same-sex couples as a constitutional right. The pooled
resources of the funders of the Civil Marriage Collaborative (CMC) contributed
greatly to this outcome. During the preceding 11 years, CMC spent $153 million
to support organizations advancing the marriage equality agenda at the state
and national levels. In 2004, CMC funders met with LGBT leaders to develop
a “10/10/10/20” strategy, which aimed to reach a “tipping point” for marriage
equality by achieving equality in 10 states, getting 10 more to adopt civil unions
and another 10 to adopt some form of legal recognition for same-sex couples,
and shifting public opinion to support marriage equality in the remaining 20
states. This strategy focused on state-level legal policies and strategic litigation.
As it turned out, the strategy succeeded sooner and more widely than had been
anticipated.

Funding With Others Takeaways

F Participating in collaboration and pooled funding initiatives can

increase the impact and scale of your giving.
F Collaboration and pooled funding are growing and evolving practices,
with various models for donor engagement.
F Although collaborative efforts can be time-consuming and often
require compromises, they have the potential for great impact.

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 CHAP T E R 12

93
Socially Motivated Investing
T o the extent that it does not sacrifice risk-adjusted financial
returns, many readers of this Guide probably would prefer to place
their investment assets in companies whose products and processes are
aligned with their values. These are often called socially responsible
investments. Indeed—though the jury is out—you may believe that
investments in companies and funds that meet certain Environmental,
Social, and Governance (ESG) criteria are likely to maximize financial
returns in the long run.

There’s nothing at all wrong with this. But if your only goals are value
alignment plus good financial returns, you can skip this chapter. Your
investment advisors know far more than we do about how to achieve
those goals. However, if your goals include having impact by enabling an
investee company to do more of whatever socially or environmentally
(hereafter, simply “socially”) beneficial thing it is doing, then read on.

To make the same point a little differently: All businesses have social
impact, whether positive, negative, or both. They can, for example, deliver
financial returns for investors, create jobs, and expand the provision of
goods and services and also pollute the environment. The question for
this chapter is when your investments can affect the behavior of those
businesses for better or worse.

To anticipate the conclusion of this chapter, here’s a spoiler:

• It is possible, though by no means easy, to achieve social impact
through concessionary investments—investments that expect to have
below-market returns. Some foundations do this through program
related investments (PRIs).
• It is impossible to achieve social impact through investments in large
cap, publicly traded companies.
• It is possible, but very difficult, to achieve social impact through non-
concessionary (market-rate), private equity investments.

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Even compared to Chapter 6 on theories of change, this is the most
complex and theoretical chapter in the Guide—because the ways in which
investors can (and can’t) achieve social impact comprise a complex subject
that can only be understood in a theoretical framework.

This chapter is also a downer. How can it be that when there’s so much
excitement about impact investing, so little of it actually has impact? The
answer is that much, if not most, of what falls under the name impact
investing turns out to be value-aligned investing without impact. We’re
not interested in quibbling about definitions—about who is and who is
not an impact investor. What we do care about, and hope you do too, is
when your investment can actually have impact—when it results in the
investee doing more things better.

We are not opponents of impact investing. Far from it: we have great
aspirations for the field. But we have the same sort of concerns about
false and misleading claims that those trying to advance medicine in the
nineteenth century had with the patent medicine industry. And, as in
the preceding chapters, we wish to help readers put their resources where
they can actually improve society.

Value-Aligned Investing

To recapitulate, investors who seek value alignment would prefer to own

stocks only in companies that act in accordance with their moral or social
values. The term “value-aligned investing” encompasses both “mission-
related investing” (MRI)—investments that are made by foundations in
pursuit of their charitable mission—and “socially responsible investing”
(SRI).

Independent of having any effect on the company’s behavior, value-

aligned investors may wish to own stock in what they deem to be a good
company or to avoid “dirty hands” or complicity by refusing to own stock
in what they deem to be a bad company.

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Value-aligned investors may be concerned with a firm’s outputs—its
products and services. They might want to own stock in a solar power
company or avoid owning shares in a cigarette company. Or they may be
concerned with a firm’s practices—the way it produces those products
and services. They might want to own stock in companies that meet
high ESG standards and eschew companies with poor ESG ratings. Good
ESG ratings sometimes predict good financial returns—perhaps because
they signal that management is good at managing risks in general—but
the evidence is mixed about whether ESG-oriented funds outperform or
under-perform the market, net of management fees.

D O N O R STO RY

Aligning Values with Investing—Janine Firpo

Research from Morgan Stanley suggests that 86% of women and 95% of
millennials want to invest all their money with their values. All of it—regardless
of whether it has impact. Whenever we talk about women and their money, we
should be talking about investing their money in a way that matters to them and
that is aligned with their values. I was talking to a friend of mine the other day.
She said, you know Janine, it’s like fashion. In her view, we get up every day, we
get dressed. In that moment, we can choose to just put on completely functional
clothes—we don’t! As women, most of us love clothes; we love to shop for them;
we love to think about them; we think about what colors go together, what styles,
we think about the jewelry we wear. For us, clothes are fun. They give many of us
joy and they are really an expression of who we are.
What I call values-aligned investing is like that. Traditional investing equates to
just putting on a utilitarian outfit and walking out the door. But if you really want
to feel good about your money, you invest it in a way that shows who you are.
Getting dressed is fun. Why can’t our money be fun? Philanthropy shouldn’t be
the only place we have fun and feel good about our money—particularly if so
many of us want more.

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Investing for Impact

Investors who seek impact begin by identifying enterprises that are

aligned with their values and whose goods, services, or production
processes create social impact. But impact investors then go on to ask
whether their investments are likely to increase those enterprises’ impact.

The fundamental distinction between value-aligned investing and impact

investing lies in the term impact. While value-aligned investors need only
learn whether a company’s behavior is consistent with their personal
values, impact investors must also predict whether their investment in a
company will actually improve the company’s performance.

Impact investors’ goals can be as varied as those of philanthropists. They

may include:
• Achieving the UN Sustainable Development Goals (SDGs), including
reducing poverty and adapting to climate change. For example, the
Gates Foundation made an impact investment in the company bKash
to reduce poverty by providing financial services to the unbanked poor
in Bangladesh.
• Improving outcomes for disadvantaged communities in developed
countries. For example, the MacArthur Foundation’s Benefit Chicago
Program makes impact investments in job creation and job readiness
programs; Bridges Fund Management makes impact investments to
improve the lives of working people in the United Kingdom.

Impact investors typically achieve their goals through investments

in for-profit companies rather than nonprofit organizations. Impact
investments are transitory by nature. Their overarching goals are to
create markets and opportunities that will eventually attract ordinary
commercial investors as well as change companies’ management practices
in enduring ways.

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Impact investments can achieve social impact by:
• increasing or improving a firm’s delivery of products or services—
for example, an investment in a firm that provides health services to
underserved communities.
• improving the processes or practices by which the firm produces
those products or services—for example, an investment, perhaps
coupled with technical assistance, to reduce a firm’s environmental
pollution or ensure the fair treatment of workers in its supply chain.

The Two Requisites of Impact

There are two requisites for an investment to have “impact:”

• enterprise impact—the impact of the investee firm itself

• investment impact (sometimes called additionality or social value

added)—the impact the investment has on the firm’s activities and
outputs

ENTERPRISE IMPACT
Enterprise impact is the impact of the investee firm in achieving its
beneficial outcomes. It is precisely the same for a for-profit investee as
it is for a nonprofit grantee. Consider our earlier example of a program
designed to reduce recidivism among young men released from prison.
Suppose that before the program started, the recidivism rate in a
particular city was 45%. And suppose that two years later, ex-offenders
who participate in the program return to prison at a rate of 35%.

This sounds like a good outcome. But what if it turns out that, say, the
program was cherry-picking participants who (perhaps because they
had highly marketable skills) were unlikely to commit crimes again in
any event? All things considered, the program does not have any impact
because its outcome would have happened anyway.

If you are a philanthropist, you would think twice before making a

grant to a nonprofit anti-recidivism program that didn’t improve its

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participants’ outcomes. For the same reason, if you were an impact
investor, you would be hesitant to invest money in a for-profit program
whose apparent impact was based on its skewed selection criteria.

INVESTMENT IMPACT
Investment impact is the positive impact your investment has in enabling
the investee company to increase its socially valuable products or
processes. In this respect, impact investments in for-profit companies
present a question about impact that doesn’t occur when making
philanthropic donations to nonprofit organizations.

Consider that philanthropic resources are almost always scarce. Very

few, if any, effective nonprofit organizations get as much philanthropic
support as they could productively use to increase or improve their
outcomes. Thus every philanthropic dollar usually contributes
incrementally to the nonprofit’s outcome.

By contrast, for every impact investor in a for-profit company there are

hundreds or thousands of ordinary commercial investors who care only
about good financial returns. Having investment impact requires that
your investment provides additional resources, beyond those supplied by
commercial investors, that increase or improve a firm’s socially valuable
products or processes.

We will spend the remainder of the chapter discussing how an investor

can create investment impact. There are essentially two ways: (1) through
purely financial mechanisms just the money; and (2) through non-
financial mechanisms, such as providing expertise and influence.

Purely Financial Mechanisms

The expected returns of impact investments range from at or above

market (non-concessionary) to below market (concessionary)—with
investors making a financial sacrifice to achieve their social goals. Impact

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investments can fall into virtually every asset class, including equity stakes
in conventional and benefit corporations; corporate, municipal, green,
and social bonds and other forms of debt; mutual funds; hedge funds; and
real estate.

To help guide our exploration of the purely financial mechanisms that

might create investment impact, we refer to the Omidyar Network’s
“continuum of returns,” ranging from grants to commercial investments.*

Expected Financial Return Expected Market Impact

A B C
COMMERCIAL SUBCOMMERCIAL GRANT

A1 A2 B1 B2 C1 C2 C3
Market- Not market- Positive Capital 80%–100% 20%–80% 0%–20%
validated validated absolute preservation cost cost cost
returns coverage coverage coverage

Expected Direct Impact

GRANTS
Grants are not investments since they expect zero financial returns and a
total loss of capital. Grants may nonetheless play an important role in the
impact investing ecosystem. For example, the Global Investment Impact

* Omidyar Network was established by Pierre Omidyar, the founder of eBay, and his wife Pam to conduct
both impact investing and philanthropy.

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Network (GIIN) and the Impact Management Project (IMP), two major
infrastructure organizations, are supported by grants.

CONCESSIONARY (SUBCOMMERCIAL) INVESTMENTS

A concessionary, or subcommercial, investment is one in which the
investor expects to receive below risk-adjusted market returns. (Of course,
many investments intended to receive market-rate returns don’t succeed;
but it’s the expectation that matters.)

Why would an impact investor make a concessionary investment? Typically,

to enable businesses to test products or services in unknown markets,
where the likelihood of commercial success is too low to attract ordinary
investors until and unless the business succeeds. This was the Gates
Foundation’s rationale for its concessionary investment in bKash, the
mobile money company aimed at the poorest residents of Bangladesh,
which several years later attracted non-concessionary private equity capital.

The Gates Foundation’s investment in bKash was what the Internal

Revenue Code characterizes as a program related investment, or PRI. The
Code defines a PRI as an investment whose primary purpose is to further
the foundation’s charitable purposes rather than generate financial
returns. For this reason, PRIs are almost always concessionary—though
non-concessionary investments that are not market-validated also can
qualify. Conceptually, you can consider the expected concession as the
functional equivalent of a grant. Indeed, the US Internal Revenue Code
treats PRIs like grants in some (but not all) respects, including counting
toward a private foundation’s required 5 percent annual payout.*

Making a PRI is far more complex than making a grant because of

the need for financial due diligence and investment documents. The
foundations with good reputations for PRIs tend to have dedicated PRI
staff as well as legal expertise.

* Capital returned to the foundation must, however, be regranted or reinvested as a PRI.

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It’s worth noting that although only foundations can treat investments
as PRIs, an increasing number of individuals and families are making
concessionary investments mainly through family offices. Some donor
advised funds are getting into the game as well.

NON-CONCESSIONARY INVESTMENTS IN PUBLIC MARKETS

Investors cannot have any social impact merely by trading securities in
large cap secondary public markets.

For better or worse, the vast majority of investors in public markets care
only about financial returns and are indifferent to a firm’s social value.
If impact investors buy stock in a publicly traded company because
it provides socially valuable products, these myriad socially neutral
shareholders will happily sell their shares and the stock price won’t
change. For example, a publicly traded telecommunications company in a
developing country may be of great value to smallholder farmers and poor
urban residents, but no matter much of its stock you purchase, you will
not lower the cost of service to your intended beneficiaries.

By the same token, investors may care about a company’s environmental

and employment practices and therefore invest in a publicly traded
company with good ESG ratings, believing that they may also increase the
company’s long-term shareholder value. Because socially neutral investors
have the same information, however, impact investors have no advantage
in moving the needle here.

In short, it’s virtually impossible to have both investment impact and

financial returns for investments in public markets.

NON-CONCESSIONARY INVESTMENTS IN PRIVATE MARKETS

Unlike in public markets, it’s at least possible to have impact in non-
market-validated investments—investments that have attracted few if any
ordinary commercial investors, either because they regard the investment
as too risky or because they haven’t yet discovered the market.

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The reason that it’s possible for impact investors to have impact through
non-market-validated investments is that private markets thrive on
private information; impact investors’ advantage lies in their expertise
in assessing the financial potential of companies whose outputs fit their
social values.

Just as a successful venture capitalist may possess expertise in, say,

biotech, an impact investor may develop expertise in markets with the
potential for socially valuable outcomes. For example, Omidyar Network
(ON) argues that they are better able to assess the risks of some of these
markets than are ordinary commercial investors because ON “may have
greater familiarity with a given geography (such as Africa) or sector (such
as financial inclusion) or more confidence in a particular entrepreneur.”94

It’s far more difficult to create social value through market-validated

investments—investments that are already attracting commercial capital.
When you’re making market-validated investments, the critical question
is whether you are providing capital on more favorable terms than the
company can obtain from ordinary commercial investors. For example,
you may hope that your investments in emerging markets in developing
countries will have “additionality”—but they can’t if their investee
companies are already attracting ample commercial capital.

Investment Impact Through

Non-Financial Mechanisms

The main non-financial mechanisms that can create investment impact

are (1) providing the investee with knowledge and assistance that promote
its social goals, and (2) influencing management decisions that affect the
company’s social goals through shareholder engagement and action.

PROVIDING INVESTEES WITH KNOWLEDGE AND ASSISTANCE

Venture capital and private equity firms provide their investees
with various forms of knowledge and assistance—for networking

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and fundraising as well as addressing internal management and
organizational needs. Impact investors in private markets can provide
similar assistance to their investees, increasing their social impact as well
as their financial sustainability.

When financial returns and social impact are highly aligned, the investor
need not make a financial sacrifice in providing assistance to achieve
social goals. When the investee’s financial returns are not necessarily
correlated with its social impact, the fund manager must devote extra
resources to assist with the latter.

Readers may wonder how they can know whether a self-identified impact
fund manager offering commercial returns is providing its investees
with knowledge and assistance that will promote their social goals.
This requires that the fund manager be transparent and forthcoming
about how it is adding such value. Ideally, although we haven’t seen any
examples to date, the fund manager would be compensated based on
social impact as well as financial returns.

INFLUENCING MANAGEMENT DECISIONS

There is a long history of shareholder efforts to improve corporations’
practices, particularly relating to ESG criteria. The Impact Management
Project describes how impact investors can “engage actively,” using their
“expertise, networks, and influence to improve the environmental/societal
performance of businesses. Engagement can include a wide spectrum
of approaches—from dialogue with companies to creation of industry
standards to investors’ taking board seats and using their own team or
consultants to provide hands-on management support (as often seen in
private equity). This strategy should involve, at a minimum, significant
proactive efforts to improve impact.”95

There are some recent examples of major fund managers, including

BlackRock, Inc., exercising shareholder power to influence its investees’
environmental and social behavior. It remains to be seen whether this
practice becomes more pervasive.

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 BENEFIT CORPORATIONS AND B CORPORATIONS
Almost all impact investments are made in traditional corporations. But
philanthropist-investors who wish to promote a company’s social mission can also
invest in benefit corporations or certified B Corporations.
The charters of benefit corporations obligate management to consider interests
beyond those of shareholders, including other stakeholders who may be materially
affected by the business: workers, customers, suppliers, the communities in which
the firm operates, and the environment.
Along similar lines, the nonprofit organization B Lab certifies companies, whether
or not chartered as benefit corporations, as “B Corporations” if they meet certain
“standards of verified social and environmental performance, public transparency,
and legal accountability to balance profit and purpose.”96

Socially Motivated Investing Takeaways

F Value-aligned investing refers to owning shares only in companies—

whether publicly or privately traded—whose products and activities
comport with the investors’ moral or social values or their
foundations’ missions.
F Having impact goes beyond value alignment by enabling an investee
company to do more of whatever socially beneficial thing it is doing.
F It is possible to achieve impact through concessionary investments—
investments that sacrifice risk-adjusted returns for social or
environmental goals. It is also possible, but difficult, to achieve impact
through non-concessionary investments in private markets. But it is
not possible to achieve impact through investments in public markets.
F An “impact fund” that is serious about impact are is transparent about
how and to what extent it is achieving both enterprise and investment
impact.

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Conclusion
Keeping Track of Your Journey

I n the introduction, we referred to philanthropy as a journey—a

journey with both anticipated and unexpected experiences and great
opportunities for learning. You will almost surely explore new focus areas
and find new opportunities within existing ones. More fundamentally,
you will develop new skills, more confidence, and greater courage as a
philanthropic traveler. Expeditions that once were unthinkably remote
and daunting will seem within reach.

In Chapter 10 on Making Gifts, we mentioned some easy ways to keep

track of your gifts. Here we suggest that you put your gifts in a broader
perspective by keeping a journal of your philanthropic journey, noting
things such as:
• What is the current composition of my collection or portfolio of
grants with respect to:
» focus areas

» unforeseen emergencies, opportunities, and requests

» size of grant

» duration of grants (i.e., multiyear)

» geographies covered

» innovative initiatives

• Does my giving have some patterns or themes? What strategies can be

discerned from my grants? For example, how much of my portfolio can
be described in terms of providing support or moving the needle for
effective organizations involved in:
» direct services

» research

» policy advocacy

» seeking to create social change through shifts in mindset, behavior,

and systems

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• For the past year, what were the results of my giving? Looking both at
individual grants and my portfolios of grants, how do I feel about:
» impact (Did I make the world a better place?)

» progress toward my intended goals

» any unintended positive or negative effects

• What did I learn this year about grantmaking and philanthropy more
generally?
» What particular moments of joy or satisfaction did I have and why?

» What problems have I encountered and why?

» What skills or knowledge did I acquire or improve?

• Were there any external changes that might lead me to change

direction, expand my reach, or retreat from my giving? Consider:
» larger political, economic, health, or environmental trends

» new relationships, obligations, or introduction to networks

» emerging opportunities to create greater change or experiment in

new areas
» changes in my personal view of the world

• Going forward, what would I do differently?

» Adjust current goals?

» Seize new opportunities?

» Adjust the mix of my grants to reflect changes in the external

environment?
» Re-invest in existing organizations, programs, and activities?

» Try new approaches or fund new organizations?

» Change my grant strategy/structure?

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You might consider writing in this journal annually. This will give you an
opportunity to reflect on your past giving and consider what, if anything,
you would like to do differently in the coming years. Depending on how
you would like to involve your family now and in the future, the journal
can provide both a record of your work and an opportunity for a family
conversation.

Arguments About the Ends and

Means of Philanthropy

You are undertaking this journey at a time when philanthropy is the object
of scrutiny and criticism and when commentators are moralizing both
about which goals you should pursue and how you may pursue them.

Earlier, we mentioned William MacAskill’s Doing Good Better: How

Effective Altruism Can Help You Make a Difference (2015), which like
Peter Singer’s The Most Good You Can Do: How Effective Altruism Is
Changing Ideas About Living Ethically (2016) exhorts philanthropists
to devote their resources to helping the world’s poorest people—most of
whom reside in developing countries—and averting global catastrophes
such as climate change, nuclear war, and pandemics.

Counterbalancing this are arguments, for example by Alexa Culwell

and Heather McLeod Grant in The Giving Code: Silicon Valley
Nonprofits and Philanthropy, that you should support local community
organizations. And, of course, we all have heard persuasive cases for
funding universities and other institutions that promote research, the
arts, and humanities. It is beyond the scope of this Guide to mediate
among these positions, all of which have merit.

We do, however, have views about the restrictions that commentators

would impose on how you pursue your goals. William Schambra,97
Bill Somerville,98 and, more recently, some social justice advocates99
assert that philanthropists should get out of the way and leave funding

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decisions to the communities themselves. To the extent that this reflects
the importance of listening to the voices of beneficiaries and other
stakeholders, we entirely agree. But if it means abdicating choice, it is
irresponsible and self-deluding.

We also have views about two broad-ranging critiques of philanthropy:

Rob Reich’s Just Giving: Why Philanthropy Is Failing Democracy and
How It Can Do Better and Anand Giridharadas’ Winners Take All: The
Elite Charade of Changing the World, both published in 2018. Reich, a
political philosopher and our colleague at Stanford PACS, makes reasoned
arguments against the current charitable contributions deduction and the
plutocratic power that wealthy donors exercise. He argues for tax policy
reform that would replace the deduction with a flat capped tax credit, and
he would increase the scrutiny of donors’ projects and restrict their scope.
Giridharadas, a writer and polemicist, asserts that these same plutocrats
support incremental solutions but are unwilling to advocate for significant
reforms of the core structures that sustain their wealth and power.

Ironically, Reich and Giridharadas come to the same conclusion about

philanthropic support for ongoing social programs, say, to reduce drug
addiction, homelessness, or recidivism. Giridharadas dismisses these as
Band Aids. Although Reich encourages philanthropists to pilot novel
approaches to social problem-solving, he would not allow them to scale
successful experiments—say, along the lines of Blue Meridian Partners100—
if governments are unable or unwilling to do so. He argues that deciding
which programs to support at which scale is a decision that should be
made democratically, not plutocratically.

Also ironically, Reich and Giridharadas end up in the same place about
advocacy. Giridharadas’ quotation of Audre Lord’s insight that “the
master’s tools will never dismantle the master’s house” reflects his
understandable skepticism that plutocrats will press for fundamental
system change. For his part, Reich prohibits philanthropists from
advocating for policy change because their exercise of plutocratic power
undermines the value of political equality at the heart of democracy.

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The authors of this Guide would not remove support for successful
programs or advocacy from the philanthropist’s toolkit. There are many
reasons—ranging from budgetary constraints to indifference to the
wellbeing of some groups—that governments may not scale even highly
successful programs.

With respect to advocacy, consider the crucial roles that philanthropy

has played in the adoption of the Affordable Care Act; obtaining equal
treatment of people of color, women, and LGBT people; and the beginnings
of criminal justice reform. We appreciate Reich’s concerns about plutocratic
power. But one cannot view the exercise of this power abstracted from its
actual history or independently of other actors in society. Imagine, for
example, if philanthropists were prohibited from advocating policies to
mitigate climate change, while oil companies were free to continue to use
corporate earnings to advocate against such policies.

Philanthropy in the Current Crisis

We are putting the finishing touches on this Guide at a time when the
world is in the early stages of a global crisis of unprecedented magnitude.
No one has been spared from the dire consequences of the covid-19
pandemic—least of all the world’s most vulnerable populations who
already are afflicted by poverty, abuse, discrimination, forced migration,
and disease.

Many of us feel the imperative to act—but how and where? Among other
things, we want to know how best to support our current grantees and
beneficiaries, whether to postpone long term philanthropic goals to
address immediate problems, and whether to increase our charitable
giving even if this requires “borrowing” against future years’ philanthropic
budgets. We found helpful guidance on some of these and other issues
in the Council on Foundations’ Pledge, which at the time of publication,
almost 600 foundations had signed in support.
cof.org/news/call-action-philanthropys-commitment-during-covid-19

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Over the days, weeks, and months ahead, each of our foundations
pledges to:
• Loosen or eliminate the restrictions on current grants. This
can include: converting project-based grants to unrestricted
support; accelerating payment schedules; and not holding
grantees responsible if conferences, events, and other project
deliverables must be postponed or canceled.
• Make new grants as unrestricted as possible, so nonprofit
partners have maximum flexibility to respond to this crisis.
We will also support organizations created and led by the
communities most affected that we may not fund currently.
• Reduce what we ask of our nonprofit partners, postponing
reporting requirements, site visits, and other demands on
their time during this challenging period.
• Contribute to community-based emergency response funds
and other efforts to address the health and economic impact
on those most affected by this pandemic.
• Communicate proactively and regularly about our decision-
making and response to provide helpful information while
not asking more of grantee partners.
• Commit to listening to our partners and especially to
those communities least heard, lifting up their voices and
experiences to inform public discourse and our own decision-
making so we can act on their feedback. We recognize that
the best solutions to the manifold crises caused by covid-19
are not found within foundations.
• Support, as appropriate, grantee partners advocating for
important public policy changes to fight the pandemic and
deliver an equitable and just emergency response for all.
This may include its economic impact on workers, such as
expanded paid sick leave; increasing civic participation; access
to affordable health care; and expanded income and rental

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 assistance. It should also include lending our voices to calls to
action led by grantee partners, at their direction and request.
• Learn from these emergency practices and share what they
teach us about effective partnership and philanthropic
support, so we may consider adjusting our practices more
fundamentally in the future, in more stable times, based on
all we learn.

Parting Advice

Governments are making valiant efforts to respond to the covid-19 crisis.

But, to quote a recent study, “despite the clear efficiency of investing in
preparation rather than response, prevention spending has decreased
over the decades—while response spending has increased.”101 While
prevention is clearly a government responsibility, the authors note that
voters do not reward politicians for prevention measures. But what about
philanthropists and their foundations, who do not stand for reelection or
reauthorization every few years?102

David Callahan, a savvy observer of our sector, notes that “a value-add

of philanthropy is that it can pay attention to issues that aren’t on the
minds of voters and politicians, and also won’t be addressed by the
market. Foundations are supposed to be good at playing the long game
to make the world a better place, peering around corners and over the
horizon. But that hasn’t happened here, despite decades of warnings that
a pandemic would inevitably arrive on America’s doorsteps, with deadly
effects.”

There are several important exceptions: both the Open Philanthropy

Project and the Gates Foundation have supported work in biosecurity.103
But Callahan’s observation is essentially correct. It may be explained in
part by philanthropists’ being subject to the same myopia as the general
public—after all, being wealthy doesn’t make one less human! Also,
prevention calls for philanthropic risk-taking with rewards that are at best

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ambiguous. “Success” means that something doesn’t happen or happen
so disastrously. Whatever one’s own philanthropic goals, Cari Tuna and
Dustin Moskovitz of the Open Philanthropy Project and Bill and Melinda
Gates should be celebrated for their foresight.

For readers who lack the strategic resources or risk tolerance to undertake
measures like these, there are near-infinite needs in the immediate days
and months. Our friend and colleague, Kathy Kwan, describes her family
foundation’s values and priorities:
• Be clear about priorities: For us, the immediate focus is on the covid-19
crisis and associated economic consequences.
• Have a propensity for action: Any help is better than no help.

• Be flexible and reasonable: Don’t expect overwhelming amounts of

information, justification, and attention. Many nonprofit leaders
are slammed with increased demand for services and/or the need to
reconfigure services and core operating processes.
• Work with existing partners and honor prior commitments: Where
appropriate offer mid- to long-term options that may help with
sustainability.
• Take incremental steps: This situation is beginning to look like a 2- to
3-year marathon. Think about, plan, and execute strategies beginning
now and over this period.
• Without being presumptuous, model funding activities in the hopes of
encouraging others.

When, in the introduction to this Guide, we quoted from a poem about

Odysseus’ twenty-year journey, we had no idea that our collective journey
would be at least as perilous as his. Even when this immediate crisis is
over, its aftermath may well endure that long and the beneficiaries of your
philanthropy will need your support more than ever.

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 Endnotes

1. Raikes Foundation. “Impact-Driven Philanthropy.” Accessed July 15, 2019. raikesfoundation.org/

impact-driven-philanthropy

2. Giving Compass. “What Is Impact-Driven Philanthropy?.” Accessed July 15, 2019. givingcompass.org/
pdf/understanding-impact-driven-philanthropy

3. Gates, Bill. “The Turning Point: Our First Trip to Africa.” Accessed June 19, 2019. gatesnotes.com/
About-Bill-Gates/The-Turning-Point-Our-First-Trip-to-Africa; see also Gates, Melinda. “The Vacation
That Changed Everything.” Accessed June 19, 2019.
aarp.org/politics-society/advocacy/info-2017/melinda-gates-trip-to-africa-that-changed-
everything.html

4. Content on risk tolerance was provided by Open Road Alliance. Learn more at
openroadalliance.org.

5. The Issue Card categories were selected from the National Taxonomy of Exempt Entities developed
by the Internal Revenue Service and the National Center for Charitable Statistics for classification
of nonprofit organizations. Jones, Deondre’. “National Taxonomy of Exempt Entities (NTEE) Codes.”
Accessed June 6, 2019.
nccs.urban.org/classification/national-taxonomy-exempt-entities

6. Adapted from an interview originally conducted by Philanthropy magazine

(PhilMag.com) for their Spring, 2019 issue.
philanthropyroundtable.org/philanthropy-magazine/article/interview-with-leo-linbeck

7. See effectivealtruism.org.

8. See givewell.org.

9. Examples inspired by Rockefeller Philanthropy Advisors. Rockefeller Philanthropy Advisors. “Talking to

Your Family About Philanthropy.” Accessed June 6, 2019.
rockpa.org/guide/talking-family-philanthropy

10. For more information, see Goldseker, Sharna and Michael Moody. GENERATION IMPACT: How Next Gen
Donors are Revolutionizing Giving. Hoboken: Wiley, 2017.

11. National Philanthropic Trust. “The 2018 DAF Report.” Accessed July, 22 2019.
nptrust.org/reports/daf-report

12. Granat, Diane. “America's ‘Give While You Live’ Philanthropist.” Accessed February 28, 2020.
aliciapatterson.org/stories/americas-give-while-you-live-philanthropist

13. National Philanthropic Trust. “Giving Vehicle Comparison.” Accessed June 6, 2019. nptrust.org/donor-
advised-funds/daf-vs-foundation

14. Adapted from an interview originally conducted by Philanthropy magazine

(PhilMag.com) for their Fall, 2018 issue.
philanthropyroundtable.org/philanthropy-magazine/article/interview-with-frayda-levy

15. XPRIZE. “Removing Oil from the Sea.” Accessed June 6, 2019.
xprize.org/prizes/oil-cleanup. See also McCleland, Jacob. “Revolutionary Oil Skimmer Nets $1 Million
X Prize.” Accessed June 6, 2019.
npr.org/2011/10/19/141481055/revolutionary-oil-skimmer-nets-1-million-x-prize

226
16. Newton, Jim. “DARE Marks a Decade of Growth and Controversy: Youth: Despite critics, anti-drug
program expands nationally. But some see declining support in LAPD.” Los Angeles Times, September
9, 1993.
articles.latimes.com/1993-09-09/news/mn-33226_1_anti-drug-program; and Ingraham,
Christopher. “A brief history of DARE, the anti-drug program Jeff Sessions wants to revive.” Washington
Post, July 12, 2017.
washingtonpost.com/news/wonk/wp/2017/07/12/a-brief-history-of-d-a-r-e-the-anti-drug-
program-jeff-sessions-wants-to-revive

17. Rosenbaum, Dennis P. and Gordon S. Hanson. “Assessing the Effects of School-Based Drug Education:
A Six-Year Multilevel Analysis of Project D.A.R.E.” Journal of Research in Crime and Delinquency 35, no. 4
(November 1998): 381–412. doi:10.1177/0022427898035004002.

18. Cima, Rosie. “DARE: The Anti-Drug Program That Never Actually Worked.” Accessed June 6, 2019.
priceonomics.com/dare-the-anti-drug-program-that-never-actually

19. Wadhams, Nick. “Bad Charity? All I Got Was This Lousy T-shirt!” Accessed June 6, 2019.
content.time.com/time/world/article/0,8599,1987628,00.html

20. Twersky, Fay, Phil Buchanan, and Valerie Threlfall. “Listening to Those Who Matter Most, the
Beneficiaries.” Stanford Social Innovation Review (Spring 2013).
ssir.org/articles/entry/listening_to_those_who_matter_most_the_beneficiaries; see also Stanford
Social Innovation Review. “A New Paradigm for Nonprofit Measurement.” Accessed June 6, 2019.
ssir.org/videos/entry/a_new_paradigm_for_nonprofit_measurement

21. These definitions are derived from Padamsee, Xiomara and Becky Crow. Unrealized Impact: The Case for
Diversity, Equity, and Inclusion. Accessed February 28, 2020.
unrealizedimpact.org/resources

22. William and Flora Hewlett Foundation. “Diversity, equity and inclusion.” Accessed February 28, 2020.
hewlett.org/diversity-equity-inclusion

23. Phillips, Katherine W. “How Diversity Works,” Scientific American 311, 4, 42-47 (October 2014); Clover
Pop. “White Paper: Hacking Diversity with Inclusive Decision-Making.” Accessed November 2019.
cloverpop.com/hacking-diversity-with-inclusive-decision-making-white- paper?utm_
campaign=Forbes&utm_source=Forbes&utm_medium=Forbes%20Hacking%20Diversity%20
White%20Paper; Fernandez, Idalia and Allison Brown. “The State of Diversity in the Nonprofit Sector.”
Accessed February 28, 2020.
communitywealth.com/the-state-of-diversity-in-the-nonprofit-sector; BattaliaWinston. “The State
of Diversity in Nonprofit and Foundation Leadership.” Accessed February 28, 2020.
battaliawinston.com/wp-content/uploads/2017/05/nonprofit_white_paper.pdf

24. See Daniel, Vanessa. “Opinion: Philanthropists Bench Women of Color, the M.V.Ps. of Social Change.
And We All Lose Out.” The New York Times, November 19, 2019. nytimes.com/2019/11/19/opinion/
philanthropy-black-women.html?action=click&module=Opinion&pgtype=Homepage

25. Nurse-Family Partnership. “Proven Effective through Extensive Research.” Accessed June 6, 2019.
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26. Threlfall and Associates. “Landscape analysis of youth-serving funding and nonprofit communities in
the San Francisco Bay Area.” Accessed July 22, 2019.
hewlett.org/library/landscape-analysis-of-youth-serving-funding-and-nonprofit-communities-in-
the-san-francisco-bay-area

227
27. Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma
counties.

28. Magnify Community. “Nonprofit Search.” Accessed February 29, 2020.

magnifycommunity.com/nonprofit-search

29. Grapevine. “Explore” Accessed February 29, 2020.

grapevine.org/explore

30. The Do One Better! Podcast with Alberto Lidji. “Craig Silverstein & Mary Obelnicki
Co-Founders, echidna giving.” Accessed February 29, 2020.
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31. Bolder Giving. “Şerafettin Erbayram.” Accessed February 29, 2020.

boldergiving.org/stories.php?story=%C5%9Eerafettin-Erbayram

32. Most of these questions are modified from a joint project called “Charting Impact” by BBB Wise Giving
Alliance, GuideStar, and Independent Sector. Independent Sector. “Completing Your Charting Impact
Report: Discussion Materials.” Accessed June 17, 2019.
independentsector.org/wp-content/uploads/2017/03/charting-impact-guide.pdf

33. The Bridgespan Group. “How to Research a Nonprofit—Deep-Dive Approach.” Accessed June 17, 2019.
bridgespan.org/insights/library/philanthropy/nonprofit-due-diligence-donor-decision-tool/how-
to-research-a-nonprofit%E2%80%94deep-dive-approach

34. GiveWell. “Malaria Consortium—Seasonal Malaria Chemoprevention.” Accessed June 18, 2019.
givewell.org/charities/malaria-consortium

35. Ibid.

36. ImpactMatters. “Frequently Asked Questions.” Accessed June 18, 2019.

impactmatters.org/about/faq

37. Charity Navigator. “Accountability and Transparency Ratings Table.” Accessed June 17, 2019.
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38. Bill and Melinda Gates Foundation. “Awarded Grants.” Accessed June 17, 2019.
gatesfoundation.org/How-We-Work/Quick-Links/Grants-Database

39. Ford Foundation. “Grants Database.” Accessed June 17, 2019.

fordfoundation.org/work/our-grants/grants-database/grants-all

40. See fconline.foundationcenter.org.

41. Foundation Group. “What is a 501(c)(3)?” Accessed June 17, 2019.

501c3.org/what-is-a-501c3

42. Internal Revenue Service. “Tax Exempt Organization Search.” Accessed February 29, 2020.
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43. US Department of the Treasury. “Resource Center.” Accessed February 29, 2020.
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44. Office of Foreign Assets Control. “Sanctions List Search. Accessed February 29, 2020.
sanctionssearch.ofac.treas.gov

228
45. US Department of Justice. “FARA Quick Search. Accessed February 29, 2020.
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46. GuideStar, “DC Central Kitchen, Inc.” Accessed June 17, 2019.
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47. BBB Wise Giving Alliance. “Which charity report are you looking for?” Accessed February 29, 2020.
give.org

48. The Bridgespan Group. “Nonprofit Due Diligence: Donor Decision Tool.” Accessed February 29, 2020.
bridgespan.org/insights/library/philanthropy/nonprofit-due-diligence-donor-decision-tool

49. The questions were developed by BoardSource, an organization that helps nonprofits strengthen their
boards and missions. BoardSource. “About BoardSource.” Accessed June 17, 2019.
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50. The Bridgespan Group. “How to Research a Nonprofit—Deep-Dive Approach.” Accessed June 17, 2019.
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to-research-a-nonprofit%E2%80%94deep-dive-approach

51. Welch, Erin. “Speed Reading Nonprofit Financial Statements.” Accessed February 29, 2020.
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53. The Center for Effective Philanthropy. “Nonprofit Diversity Efforts: Current Practices and the Role of
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54. dccentralkitchen.org/about-us

55. Twersky, Fay. “Time for a Three-Legged Measurement Stool.” Stanford Social Innovation Review (Winter
2019).
ssir.org/articles/entry/time_for_a_three_legged_measurement_stool

56. See “Charting Impact” project by the Independent Sector, GuideStar, and the BBB Wise Giving
Alliance. “Completing Your Charting Impact Report: Discussion Materials,” BBB Wise Giving Alliance,
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independentsector.org/wp-content/uploads/2017/03/charting-impact-guide.pdf

57. The Bridgespan Group and Give Smart, “Guide to Interviewing a Nonprofit CEO,” accessed
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nonprofit%E2%80%99s-ceo/Due-Diligence_Guide-to-Interviewing-a-Nonprofit-CEO.pdf; See also
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59. BoardSource. “Support for Boards.” Accessed February 29, 2020.
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10, 2019.
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61. Grantmakers for Effective Organizations. “What is General Operating Support and Why is It
Important?” Accessed February 29, 2020.
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62. The Center for Effective Philanthropy. “General Operating Support Remains the Exception.” Accessed
February 29, 2020.
cep.org/general-operating-support-remains-the-exception

63. Brest, Paul and Hal Harvey. Money Well Spent: A Strategic Plan for Smart Philanthropy, 2nd ed. Stanford:
Stanford University Press, 2018.

64. Buchanan, Phil. Giving Done Right: Effective Philanthropy and Making Every Dollar Count. New York:
Hachette Book Group, 2019.

65. William and Flora Hewlett Foundation. “Guiding Principles.” Accessed June 10, 2019.
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66. Bell, Jeanne and Ruth McCambridge. “Democracy in Practice: How the Ford Foundation and Its BUILD
Grantees Are Changing Philanthropy.” Accessed June 10, 2019.
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grantees-are-changing-philanthropy; McCambridge, Ruth. “The Edna McConnell Clark Foundation’s
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67. Bell, Jeanne and Ruth McCambridge. “Democracy in Practice: How the Ford Foundation and Its BUILD
Grantees Are Changing Philanthropy.” Accessed June 10, 2019.
nonprofitquarterly.org/2019/01/16/democracy-in-practice-how-the-ford-foundation-and-its-build-
grantees-are-changing-philanthropy; see also Reich, Kathy. “Changing Grant Making to Change the
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68. McCambridge, Ruth. “The Edna McConnell Clark Foundation’s Bigger and Better Capital Flow Creates
Its Own Course.” Accessed June 10, 2019.
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69. The Whitman Institute. “Trust-Based Philanthropy.” Accessed June 10, 2019.
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70. Doctors without Borders. “Help save lives. Donate now.” Accessed June 10, 2019. donate.
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72. Eckhard-Queenan, Jeri, Michael Etzel, and Julia Silverman. “Five Foundations Address the ‘Starvation
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74. Gneezy, Uri, Elizabeth A. Keenan, and Ayelet Gneezy. “Avoiding overhead aversion in charity.” Science
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75. PND by Candid. “Independent Sector Releases Guidelines for Funding of Nonprofits.” Accessed June
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nonprofits

76. Edgington, Nell. “How Funders Can Help Overcome the Overhead Myth.” Accessed June 10, 2019.
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77. Giving Compass. “Understanding Impact-Driven Philanthropy.” Accessed June 10, 2019.
cdn.givingcompass.org/wp-content/uploads/2017/10/21160854/Impact-driven-Philanthropy.pdf

78. Buchanan, Phil. Giving Done Right: Effective Philanthropy and Making Every Dollar Count. New York:
Hachette Book Group, 2019.

79. Brest, Paul and Hal Harvey. Money Well Spent: A Strategic Plan for Smart Philanthropy, 2nd ed. Stanford:
Stanford University Press, 2018.

80. Eckhart-Queenan, Jeri, Michael Etzel, and Sridhar Prasad. “Pay-What-It-Takes Philanthropy.” Stanford
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81. hewlett.org/library/seven-habits-of-excellent-work-with-grantees-guide

82. Bolder Giving. “Diane Feeney.” Accessed February 29, 2020.

boldergiving.org/stories.php?story=Diane-Feeney

83. Gates, Bill and Melinda Gates. “Warren Buffett’s Best Investment.” Accessed June 20, 2019.
gatesnotes.com/2017-Annual-Letter Buffett donated another $13.5 million to Gates in 2018. Bach,
Natasha. “Warren Buffett Just Made His Largest Donation to Date.” Accessed June 20, 2019.
fortune.com/2018/07/17/warren-buffett-giving-pledge-donation-2018

84. Bill and Melinda Gates Foundation. “Who We Are: Foundation FAQ.” Accessed July 22, 2019.
gatesfoundation.org/who-we-are/general-information/foundation-faq

231
85. ClimateWorks Foundation. “History.” Accessed June 20, 2019.
climateworks.org/about-us/our-history; ClimateWorks Foundation. “Foundation Partners.” Accessed
June 20, 2019.
climateworks.org/about-us/partners/foundation-partners

86. Oceans 5. “What We Do.” Accessed June 17, 2019.

oceans5.org/explore

87. The six core partners are Richard Chandler, Bill and Melinda Gates, Jeff Skoll, Rohini and Nandan
Nilekani, the Rockefeller Foundation, and the ELMA Foundation. Co-Impact. “Funding Partners.”
Accessed February 29, 2020.
co-impact.org/partners

88. Blue Meridian Partners. “Our Approach.” Accessed June 20, 2019.
bluemeridian.org/our-approach/#approach-2

89. Gibson, Cynthia. “Deciding Together: Shifting Power and Resources Through Participatory
Grantmaking.” Accessed February 29, 2020.
grantcraft.org/wp-content/uploads/sites/2/2018/12/DecidingTogether_Final_20181002.pdf

90. Gibson, Cynthia. “Moving Beyond Feedback: The Promise of Participatory Grantmaking.” Nonprofit
Quarterly, August 28, 2019.
nonprofitquarterly.org/moving-beyond-feedback-the-promise-of-participatory-grantmaking

91. Gibson, Cynthia. “Deciding Together: Shifting Power and Resources Through Participatory
Grantmaking.” Accessed February 29, 2020.
grantcraft.org/wp-content/uploads/sites/2/2018/12/DecidingTogether_Final_20181002.pdf

92. For more information, please see the in-depth case study from the Proteus Fund: “Hearts and Minds:
The Story of the Civil Marriage Collaborative.” Accessed February 29, 2020.
haasjr.org/resources/hearts-and-minds

93. This chapter draws on the following articles co-authored by Paul Brest: International Finance
Corporation. “Creating Impact—The Promise of Impact Investing.” Accessed February 29, 2020. ifc.
org/wps/wcm/connect/66e30dce-0cdd-4490-93e4-d5f895c5e3fc/The-Promise-of-Impact-
Investing.pdf?MOD=AJPERES&CVID=mHZTSds; Brest, Paul, Ronald Gilson, and Mark Wolfson.
“How Investors Can (and Can’t) Create Social Value.” Stanford Social Innovation Review (Winter 2016);
Brest, Paul. “Investing for Impact with Program-Related Investments: A report on strategic investing at
the Bill & Melinda Gates Foundation.” Stanford Social Innovation Review (Summer 2016); Brest, Paul and
Kelly Born. “When Can Impact Investing Create Real Impact?” Stanford Social Innovation Review (Fall,
2013).

94. Bannick, Matt, Paul Goldman, Michael Kubzansky, and Yasemin Saltuk. “Across the Returns
Continuum.” Stanford Social Innovation Review (Winter 2017).
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95. Impact Management. “What Is Impact Management?” Accessed February 28, 2020.
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96. B Lab. “About B Lab.” Accessed February 28, 2020.

bcorporation.net/about-b-lab

97. Schambra, William A. “The coming showdown between philanthrolocalism and effective altruism.”
Philanthropy Daily, May 22, 2014.
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98. Somerville, Bill and Fred Setterberg. Grassroots Philanthropy: Field Notes of a Maverick Grantmaker.
Berkeley: Heyday, 2011

99. For example: Williams, Tate. “Power in Letting Go: How Participatory Grantmakers are Democratizing
Philanthropy.” Accessed February 28, 2020.
insidephilanthropy.com/home/2018/11/9/power-in-letting-go-how-participatory-grantmakers-are-
democratizing-philanthropy

100. Blue Meridian Partners. “Our Approach.” Accessed June 20, 2019.
bluemeridian.org/our-approach/#approach-2

101. Malhotra, Neil. “Why isn’t the U.S. ready for a pandemic? For politicians, investing in a pandemic
doesn’t pay off.” The Washington Post, March 12, 2020.
washingtonpost.com/politics/2020/03/12/why-isnt-us-ready-pandemic-politicians-investing-
prevention-doesnt-pay-off/?utm_campaign=wp_the_monkey_cage&utm_medium=email&utm_
source=newsletter&wpisrc=nl_cage

102. Callahan, David. “Experts Have Long Warned About a Pandemic. Why Wasn’t Anyone Paying
Attention?” Inside Philanthropy, March 11, 2020.
insidephilanthropy.com/home/2020/3/11/experts-have-warned-about-a-pandemic-for-decades-
why-wasnt-philanthropy-paying-attention?utm_source=Funding+News+%26+Tips&utm_
campaign=2e6b455af8-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_c776dbf0df-
2e6b455af8-94991069

103. “Open Philanthropy Project’s $6 Million Grant to Transform NTI’s Biosecurity Mission.” January 9,
2018.
nti.org/newsroom/news/open-philanthropy-projects-6-million-grant-transform-ntis-biosecurity-
mission

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The Stanford PACS Guide to Effective Philanthropy is meant to help
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