Thursday, May 19, 2011

Endorsement philanthropy and sidecar funds

I've long encouraged donors who do good due diligence to share what they support. I was delighted to spend some time this week at the Omidyar Network Executive Forum (#ONEF on Twitter) - a 3 day, mini business school networking retreat for the many organizations (both nonprofit and commercial) funded by the Omidyar Network.

If you're interested in government transparency, for example, the ON portfolio of organizations is a one-stop Yellow Pages of potential partners. I heard, but haven't verified, that ON's portfolio on this issue is the largest and most global of any funder's. I counted 21 organizations on the website and met individuals from at least 8 of them at the meeting. These organizations, and the ON itself, are working hard understanding both the the costs and reach of the individual organizations as well as their collective potential.*

There are several names for the tactics associated with funding alongside others. A fund of pre-vetted organizations is called a Sidecar Fund - (a 2009 buzzword). In addition to the field of interest funds that community foundations have long offered, there are opportunities such as the Proven Impact Fund at Innovations in Poverty Action and the funds at Philanthropedia. Impact investors are also off to a fast start in this regard, with several "mutual" or sidecar funds being designed as we speak.

The other side of the process is endorsement philanthropy (Buzzword, 2007) Besides offering an actual portfolio of organizations to fund, those who've done the due diligence and research, who've put their own money on the line need to step up and encourage others to look at what they've found.

The human psychology of giving comes into play here as much as anything else - we all look at museum's walls of donors to know who gave, most of us scan the playbill for supporters, we ask for information on board members before we give, etc - we want to know who else gave. This is by no means surefire assurance of anything (see CAI scandal for proof) but it is human nature to want to know who gives to what.

This behavioral trait is the stock in trade of emerging social networks for giving from Craigconnects to Jumo. In their nascent stages both of these networks are "relationship and reputation heavy" and "data light." Note that they both offer open platforms onto which independent, credible data can be loaded, shared (and, yes, also challenged, debunked or verified).

Given our desire to know what others think, it would be great if those who do research, due diligence, and follow up would actively promote what they know and endorse the organizations they support. Sharing good data in and through the many relationship channels that donors and investors use is what is really going on here. As I wrote in Disrupting Philanthropy, "Data are the new platform for change." Those data need to be made accessible, usable, mixable, and verifiable through our proliferating networks.

By linking to the examples above I am endorsing them as examples of the phenomenon of endorsement philanthropy and sidecar funds. There are other examples as well. The point is to look at the reality that donors care about what other donors do. Let's get some good data and information into those discussion.

*I'll be back with a longer post about #ONEF


NPOwriter - Melissa Brown said...

Lucy, love the idea of "pre-vetted" philanthropic organizations to save folks who want to give hassle (and maybe promote more giving). But who vets the vetters? There are some I trust and some I'd have to research before trusting. Don't we end up in the same place if ther e is a proliferation of side-car funds, etc.?

Lucy Bernholz said...

That is exactly right. Philanthropedia provides a lot of information on how they pick their "vetters." In other cases, you're going on the reputation of the funder (Buffett's gift to Gates Foundation, for example) or the association of funders that would be providing the expertise.

It might unleash a new market of information about the "selection capacity" of certain funders - they'd be encouraged to share their due diligence, their evaluations and site visit notes, etc. It potentially creates a marketplace for "vetters" the same way brokerages and individual investment advisors operate on the basis of their "stock picks"


John said...

We're working on a Sidecar Fund pilot at GlobalGiving in cooperation with Monitor Institute. We're sorting through these issues and will have a giving vehicle ready in the coming months. We find that many donors, like many investors, find the idea of giving to "funds" attractive.

Lucy Bernholz said...

Hi John
That's great - we'll keep an eye out for the fund.