In 1889 Andrew Carnegie penned “The Gospel of Wealth,” perhaps one of the most influential essays on philanthropy ever written. In it, he challenges his fellow industrialists to consider the most appropriate use of their newly-established wealth: “To provide moderately for the legitimate wants of those dependent upon him; and, after doing so, to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community.”
More than a century later, this essay is more relevant than ever as we continue to see wealth created at a record rate and the philanthropic sector changing to meet the demands. Much like the conversation Carnegie and John Rockefeller began in the late 19th century, the merits and moral obligation of philanthropy are again being bandied about in communities across the globe.
This is felt no more mightily than in Northern California where entrepreneurs are incubating some of the most successful companies in the world and at the same time heeding the call to give back for the common good. However, true to its reputation as a community of disruptors — filled with energetic industrialists who have made their fortunes and marks with a willingness to take risks and look at old problems in new ways — California is shaping a new generation of philanthropists, and setting an example for the rest of the world.
We are witnessing the development of a new and radically different philanthropic archetype: They are young, eager to solve the intractable problems that continue to plague our society and willing to chart a new course in how to achieve those goals. These new donors are nimble, collaborative and searching for opportunities to deploy record amounts of philanthropic capital in an effort to maximize a return on investment.
There are a number of trends that are worth noting among this new guild of philanthropists:
They are living donors
Where historically the model has favored multi-generational giving through posthumous foundations capable of perpetuating a family legacy, the new breed are taking a more immediate and hands-on approach. According to a study from the National Center for Family Philanthropy — sponsored by J.P. Morgan — 86 percent of foundations established after 2010 have donors actively engaged in their activities. That compares to just 21 percent with active donors for those established prior to 1970. This study underscores an important point — that emerging donors, particularly in the tech sector, understand the importance of deploying capital early when it can best be controlled and witnessed.
Who are willing to make “big bets”
It is not simply the timing of gifts that has changed dramatically over the last few years but also the size. There is a growing recognition among high-capacity entrepreneurial philanthropists that existing methods — of supporting interventions disparately and on a relatively small scale — are simply not working. They’re learning that in order to create systemic change, there must be a substantial increase in the amount of funding allocated to solve for large intractable issues. This idea of “big bets” has emerged and changed the dialogue around giving. It serves as a challenge to philanthropists to think big and assume risk.
With an increased focus on collaboration
With the understanding that complex problems require large sums of capital, there is an intense effort underway by leading philanthropists to aggregate capital in effort to maximize impact. Collaboration has become the new buzzword. This is a dramatic shift from previous generations where philanthropy was often isolated and without consideration of other stakeholders. In the last few years we have seen the emergence of a number of high profile funding collaborations. To this new generation of donors, working together will pave a pathway to success.
And a lean infrastructure
To keep their focus and maintain cost-effectiveness, emerging philanthropists are also purposefully keeping their infrastructure lean. With funding deployed over a shorter period of time in a smaller number of gifts of greater value, the oftentimes baroque structure of a traditional foundation has become increasingly unnecessary. Moreover, many emerging philanthropists are outsourcing the strategy and administration of their philanthropic initiatives, relying on the advice of consultants rather than building a large and robust staff.
To be a pioneer means creating new pathways and this is not without its challenges. Many, if not all, of the emerging philanthropists throughout California maintain leadership positions in their for-profit enterprises, creating a substantial issue of capacity. In addition, these avant-garde thinkers are navigating in large part without a predefined road map. How does one successfully deploy billions of dollars to solve pervasive and complex problems? And where does one find financially and strategically sound initiatives ready to absorb substantial amounts of capital?
These entrepreneurs — much like their industrialist forefathers — have never shied away from a challenge and are no stranger to carving a path where this is none. And it will be no different with their giving. The world is watching and there is very little doubt that the philanthropists of today could make their mark in the likeness of Carnegie and Rockefeller.
It’s important for business owners to work with their financial planners to develop plans that align with their passions, and how they can achieve their company’s philanthropic goals. Some strategies include:
For more and more investors and would-be funders, nonprofits need to have more than a worthy cause and a compelling mission: They need a plan. Specifically, they’re now being asked to showcase the same mindset that’s required of for-profit organizations, meaning that spreadsheets, metrics and core competencies can matter just as much as pulling the heartstrings.