First, let me start with a perspective on how big philanthropy and the nonprofit sector are. For the past three years, giving in our country has topped $300 billion. The largest foundation in the world (in assets), makes up one percent of total giving in America. Last year approximately 10 percent of all money given was given by individuals to foundations that will invest it and, over time, it will trickle down to charitable programs. While investments in foundations and advised funds has slowed a bit due to the recession, the amount of funds set aside for philanthropic purposes has steadily been growing. The nonprofit sector is today about 10 percent of our overall economy. For more information, review Giving USA at www.givingusa2010.org

If the top billionaires in our country and world committed 50 percent of their fortunes to philanthropy, the ripple effect of others giving more and the increased confidence in results could mean a significant uptick in giving, possibly even doubling in the next generation.

Here’s my perspective on the leading change elements, and I invite your ideas and welcome your counter-comments.

*  Major funders are investing in issues rather than organizations, and channeling their investments through providers with strong track records: This trend has been gaining steady momentum over the past 15 years, and has resulted in a change for federated giving programs, such as United Ways, across the country and has also been adopted for the channeling of government funds into community programs. Individual donors and grant makers have demanded accountability and have stepped up significantly to fund compelling issues with proven results. Nonprofits that are well-positioned as preferred providers, and with the willingness to enter into collaborative partnerships and be rigorous about evaluation, have been the channels for new social impact philanthropy.  The trend has enabled some lesser-known providers to grow significantly, while others with high recognition and large donor bases have been left out.

The Bill and Melinda Gates Foundation’s grantmaking has followed this direction for the past decade. They have prioritized a limited number of issues where they want to create significant and lasting change, and they are investing heavily in promising ideas and proven approaches.  Similar to both venture capital investing and scientific inquiry, they are willing to make mistakes and change course if results are not achieved.

This past week there was a gathering in New York of 400 nonprofit leaders and grantmakers, convened by the Robert Wood Johnson Foundation, to help charities with proven approaches solve social problems and get the funds they need to sharply increase the number of people they serve. Gone are the days when “doing good” or “promising results” was enough to secure significant and ongoing funding.

*  Investors are looking for both financial returns and social impact: The federal government’s Social Innovation Fund and several for-profit private equity firms are making investments to help entrepreneurial nonprofits find the capital funds they need to expand. Some nonprofits, such as Kiva, are directly connecting investors willing to make a loan with program recipients. Others are serving as the “holding entity” for investor loans, and a financial return is expected.  Last week in Seattle, Global Partnerships launched this innovative capital generation vehicle, and many others nonprofits, primarily in the global development arena, are preparing to follow suit. The National Nonprofit Finance Fund and for profit firms, such as Sea Change Capital Partners and Affinity Partners, are looking for creative ways to achieve social impact and financial returns. Gone are the days when nonprofits could get by with strong visions and a weak business plan.

*  Partnerships are essential for growth and even survival: As evidenced by the gathering this past week in New York and Bill Gates and Warren Buffett’s joint appeal to other billionaires to invest in philanthropy, significant wealth is in and will be transferred into foundations that will then have the challenge and opportunity to make smart investment with high social returns. The major foundations across our country are partnering for maximum results, and expect nonprofits to work collaboratively to do the same. Significant investments have been made in evaluating effective grantmaking and it will continue. Nonprofits working in areas identified as top community priorities and with proven results have the opportunity for growth and increased social impact. “Going to scale” can be achieved many ways and partnerships with other providers will likely occur at a faster pace than in the past. Gone are the days when funders (and even loyal individual donors) will have the willingness to invest in “boutique” organizations intent upon survival that lack capacity through their partnerships to create true social impact.

For the third year in a row, giving exceeded $300 billion even though overall giving declined 3.6 percent in current dollars. As expected, giving increased in sectors providing services to those most in need: human services, health, and international affairs.

So now that we know what happened last year, what can we anticipate moving forward?  The folks at Giving USA say that giving will recover, but it will be slow going. We can expect at least a three- to five-year period until giving returns to pre-recession levels. It was a hard year, but not as bad as we thought. The loyalty of the majority of donors should be applauded.

This year, the Giving USA Foundation is generously offering a free copy of the executive summary for anyone interested.  Click here to download it.  To order a copy of the full 2010 Giving USA report, click here.

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