By Sean Stannard-Stockton

Friday Feb 29 2008 23:10

Philanthropy is undergoing a transformational shift. While most donors continue to give in the same ways they have for 100 years, the vanguard of philanthropy is busily reforming the fabric of the charitable sector.

Often referred to as the "social capital markets" and characterised by a model of giving that mirrors the financial markets, this emerging model is still in its infancy. Since you can create only that which you imagine, I thought I would take a quick trip 25 years into the future to see what philanthropy might become.

For many donors, the year 2033 does not look a whole lot different from 2008. Many people simply write cheques to charities and devote the bulk of their giving to non-profit organisations in their community. But for some donors, the landscape is radically different. The "social stock exchanges" that became popular between 2011 and 2019 now include all but a few large non-profits and many small but ambitious start-ups.

These exchanges compete for non-profit listings. Exchanges include big national networks with some international organisations, down to small local exchanges. The business of giving money away is particularly different for large private foundations and smaller "impact-oriented" foundations. Instead of expecting non-profits to solicit them for grants, these foundations' "impact committees" and "programme analysts" spend their days looking for and researching potential grantees.

Given the considerable information disclosure required by the exchanges, much of the information required for grantee research is available online. Third-party evaluation firms provide regular reports on listed non-profits and these reports are a valuable input for the foundations. While the cost to non-profits of conforming to the exchanges' information disclosure requirements is steep, once listed they find grant dollars come looking for them rather than the other way round. Exchange-listed non-profits tend to have small fund-raising groups that focus on "donor relations". They market the non-profit by attending "road shows" where they have the chance to make their case.

In the early days of the social stock exchanges, many funders and non-profits worried that the passion and joy of giving would be swept away, given the exchanges' resemblance to financial markets. But the truth proved to be something else entirely. As funders became comfortable with the idea that sharing information with other donors provided greater social impact, a sense of community and camaraderie developed that set the social exchanges apart from the traditional financial markets. Non-profit presentations at the regular "road shows" were frequently interrupted by spontaneous conversations in the audience as funders debated the potential of each non-profit and canvassed for other people to join them in sponsoring their favourites. Working together, funders often organised big public funds that they would then direct at specific social problems. The non-profit competition for these funds was fierce but even those not funded felt the competition had helped them to improve.

Now in 2033, more and more individuals of moderate incomes are becoming interested in the social markets. Most Americans now have a donor-advised fund, since all big banks offer a zero-minimum, no-fee account that can be linked to your cheque account. A quick search on Google Finance gives individuals access to multiple third-party evaluations of exchange-listed non-profits.

International giving is even coming into vogue for the small donor now, so many "donor funds" managed by the largest foundations offer low-cost access to a basket of top-rated non-profits with particular causes. The early 2030s are a good time for funders and non-profits in the US. Funding innovations are featured by the financial press and for-profit firms are constantly working to develop products and services for the social capital markets.

But recently there has been some consolidation among the exchanges and some local non-profits fear funding will dry up for organisations without national scope. The default on a $1bn bond issued by a non-profit offering vaccines in Africa has sent shockwaves through the markets, and other non-profits have seen the availability of credit dry up.There are challenges in 2033 but it is an exciting time to be a philanthropist.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhianthropy.com.sean@ensemblecapital.com