Making philanthropy work

In the past year, we’ve heard a lot about people falling through the net… and with the coming squeeze on government budgets (no matter who is elected), we will no doubt hear about a lot more in the months and years to come.

The truth is, many people feel as though they’re walking an economic tightrope these days, with a much smaller personal safety net than ever before. Will we continue to have jobs, and if not, will we lose our houses? Will our pensions be enough or will we have to delay retirement? Will universities become unaffordable for our children?

While we know that statistics tell us the gap is widening between the haves and the have-nots, I suspect that in the last 18 months (since the fall of Lehman) a surprising number of people in what could be termed “the comfortable middle” have experienced an unsettling pull in the direction of the have-nots. Suddenly, the fear that comes with a too-small safety net feels a bit more familiar.

More support is needed for the 13 million poor people in the UK. If we are to make serious headway on some of the UK’s intractable social problems, we all need to find more ways to help effective, high-potential charities and social enterprises to scale up, become more efficient, deliver more. Government and business of course need to play their parts. I would like to focus, however, on where concerned individuals can help, on what the “haves” in civil society can do.

To that end, philanthropists (perhaps that sounds too grand. I really mean donors of all sizes) need to get even cannier and more strategic about how they invest in social change.

Picking the winners

Identifying and backing only the organisations best positioned to achieve social impact is the first step. As in the commercial sector (or possibly even more so), picking winners can be a tricky business. Look for ones with clarity of purpose, ambitious chief executives and a focus on delivering measurable results.

Many voluntary sector organisations start with a clear vision and purpose, but the need to feed the funding machine can contort them and push them to deliver programmes that are either not financially sustainable or not true to their core purpose. One organisation we invested in, founded as a soup kitchen 40 years earlier, was providing day centres and housing services in Camberwell to help ex-offenders and others to find accommodation and jobs. They were eager to increase their impact, but there were already 200 similar centres in the region, and a dwindling funding base.

So why did we choose to invest in them? In order to provide extra support to the ex-offenders they were serving, they had developed an innovative peer advice programme, training serving prisoners in Information, Advice and Guidance (to an A-level equivalent), so they could help their fellow prisoners to find housing and employment. It was running in two prisons in the area, and getting impressive results in reducing re-offending.

The bold strategy we developed with the ambitious chief executive and senior management team of St Giles Trust was to phase out the day centres, build their infrastructure and scale up the peer advice programme, so they could deliver on their core mission of getting more people into jobs and housing, leading independent lives.

Five years later, that degree of focus has allowed the St Giles team to achieve a 20-fold increase in the number of people they are able to help into employment, and the re-offending rate of the people in their programme is a fraction of the norm. They have gone from working in two prisons to working in 24, and perhaps one day will reach the tipping point where every prison in England is offering a peer advice programme to help cut re-offending rates and reduce crime.

Making VP work

Good venture philanthropy (VP) organisations around the world are proving that an injection of strategic funding combined with premium expertise can indeed accelerate the growth of social enterprises and lead to the sweeping social progress we all dream of.

Wise donors will look to make investment where it will have the greatest impact on society. The best venture philanthropy involves

• rigorous due diligence

• long-term capacity building funding (not funding just for individual projects that often fragment an organisation)

• very engaged, hands-on intervention (not just “air brushing”)

• leverage – every £ should, at a minimum, be doubled in value by co-investment and pro bono expertise

• regular measurement of social return on investment

• proven results.

This is of course very similar to venture capital and private equity practices. In coming years, we will definitely see charities and social enterprises becoming more businesslike, and business becoming more socially minded.

Jeffrey Solomon, the co-author of a new book called The Art of Giving, says: “If people tried to make their money the way they gave it away, we’d have very poor economies. And if the same due diligence principles of business were applied to charitable giving, we’d see far greater results coming out of the non-profit sectors.”

There is a great deal of talk about the constraints on public funding and the urgent need to deliver more for less. Exactly the same applies to individual and corporate donors, and a venture philanthropy approach may be just what’s needed for 2010 and beyond.