Innovations in Philanthropy: Exploring New Models for Grant Distribution

June 24, 2024

The traditional forms of grantmaking and fund distribution are not necessarily the default approaches anymore. In order to better respond to societal challenges, funders are exploring new avenues to allocate resources effectively and drive meaningful change.

As such, new models of funding are becoming more prevalent that inspire innovation, directly involve the communities affected, and cast the net wide in terms of attracting donations and investment.

This article explores several emerging and growing models that are redefining philanthropy.

Crowdfunding for Social Good

Crowdfunding has transformed the way funds are raised for various causes, enabling individuals and organisations to solicit small contributions from a large number of people through platforms such as GoFundMe and JustGiving.

(Peer-to-peer fundraising is similar, giving nonprofits a broad reach. Under this method, organisations recruit volunteer fundraisers to set up campaigns and collect donations on their behalf, leveraging their networks.)

In some cases, grant funders refer unsuccessful applicants to crowdfunding platforms in order to support their cause, despite not providing funds themselves.

Crowdfunding also forms part of so-called match funding models. In this case, the organisation matches the amount donated by the public, or they may offer to top up the remainder of the required funds if a certain percentage is raised.

Benefits

Crowdfunding offers several key advantages:

  • It democratises the fundraising process, allowing anyone with an internet connection to easily contribute to causes they care about.
  • It provides a platform for innovative and niche projects that might not attract traditional grant funding.
  • It has the potential to generate significant public awareness and engagement about a cause.

Challenges

The success of a campaign often depends on effective marketing and outreach, which can be resource intensive. In addition, the competitive nature of crowdfunding platforms means that many worthy projects from less well-known organisations may struggle to gain visibility.

With that said, here are a few data points from Nonprofits Source about the ingredients of successful crowdfunding marketing:

  • Social media is a crucial driver of crowdfunding success and the probability of success grows significantly as the order of magnitude of friends/followers increases (i.e., with just 100 followers, there is a 20% chance of success while for 1,000 followers, this doubles). 
  • Email marketing is another vital channel, as more than 50% of people that receive an email about a campaign make a donation.
  • Gaining 30% of the required funds within the first week of the campaign is another predictor of success.
  • Campaign pages that display a thermometer/progress bar lead to an average increase in giving by 35%.
  • Updating supporters on your progress is vital, potentially leading to 126% more donations compared to campaign where owners give no updates. In addition, updating supporters every five days has shown to increase the amount raised by 300%.

Impact Investing

Impact investing has been another paradigm shift, enabling investors to create positive change while also achieving a financial return. It can take various forms, including direct investments in social enterprises, venture capital for startups with a social mission, green bonds, and community development financial institution (CDFI) instruments.

A 2023 study by the Bank of America showed that between 2017-2020, impact investing among affluent individuals rose from 7% to 13%. It fell to 9% again in 2022, but this could indicate an upward trend overall.

The growth of impact investing is also reflected in the sudden increase in the number of social enterprises in the UK, as we discussed in a recent article. Of the total 131,000 social enterprises in the country, 33% were established between 2020-2023. 

Benefits

There are numerous benefits of impact investing, including the following:

  • It attracts a diverse range of capital from investors who are motivated by both profit and purpose.
  • It encourages sustainable development by aligning the interests of investors with those of the communities and projects they support.
  • It promotes accountability, as investors expect measurable outcomes.
  • Some investors may be more willing to take the risk given the social benefits, while for others, impact is central to their approach. For example, Rinke Zonneveld, CEO of the investment agency Invest-NL, has been quoted saying, “For some of these investors, impact is in the core of their investment thesis and/or their daily operations.”

Challenges

Balancing financial returns with social objectives can be difficult, and it can be hard to measure the impact of such investments. There’s also the risk of mission drift – that the pursuit of profit might overshadow the mission-driven goals of the investment.

Ensuring the board and executive team is truly aligned with the mission is vital, and a strong organisational culture in which the relevant values are embedded helps to mitigate against mission drift to an extent. Another factor that’s more difficult to control is when a company is bought by another that prioritises profit.

There’s also the fact that many startups in this sphere are in new and emerging markets which may be more volatile than the traditional alternatives. However, many investors do not consider impact investing to be more risky than investing in typical startups.

Challenge Funds

Challenge funds are designed to stimulate creative solutions to specific problems. They typically involve awarding funds to organisations that propose the most promising solutions to predefined challenges. Also, the competitive nature of these funds incentivises innovation and encourages a diverse range of approaches.

According to the World Bank, challenge funds were introduced by the UK Department of International Development (DFID). In 2015, the DFID – along with the Global Facility for Disaster Risk and Reduction (GFDRR) – set up a fund in order to find new technologies and approaches in disaster risk identification.

Another example is the XPRIZE Foundation, which has used challenge funds to spur breakthroughs in fields such as space exploration, education, and environmental sustainability.

Benefits

Challenge funds:

  • Catalyse high-impact solutions
  • Encourage out-of-the-box thinking
  • Leverage competition to drive excellence
  • Can attract significant media attention and public interest, further amplifying their impact

Challenges

In terms of selection, there is a risk that only well-resourced organisations will have the capacity to participate, potentially excluding smaller, grassroots initiatives that may have valuable contributions, nonetheless.

Something else to keep in mind (especially with funds that encourage technological innovations) is that they may inspire a great deal of competition.  

Below are some other points to note, as per the ODI’s Understanding Challenge Funds report.  

Sustainability

Projects that demonstrate sustainability beyond the funding cycle – and which have a solid financial foundation – should be prioritised (hence the reason these funds are incompatible with grassroots initiatives at times).

Management Costs

Challenge funds often come with hefty management requirements because of the large value of the funds distributed. As such, management costs may take up a significant part of the budget.

It’s also important to establish robust financial controls and conduct due diligence to mitigate the risk of fraud. It’s advised that independent audits are employed as well.

The ODI recommends using a web-based system to track enquiries and appraisals, and manage and monitor projects. This helps to reduce the transaction costs for grantees and fund managers.

Projects Covering Multiple Sub-Sectors

Some challenge funds cover multiple sub-sectors within a specific industry; the organisation must therefore have a broad understanding of the entire sector.

This expertise is crucial for effectively assessing proposals, offering the right support to applicants, and managing the interconnected challenges that arise.

Participatory Grantmaking

Participatory grantmaking is an emerging model that empowers communities and beneficiaries to participate directly in the grantmaking process. Instead of decisions being made solely by funders or external experts, this approach involves those who are most affected by the issues at hand, ensuring that decisions are grounded in local knowledge and context.

There are different ways in which communities may be involved; in some cases, they may be at the centre of decision-making and in others, involvement may be much more limited.

An example of a fund that significantly involves community members is the Arctic Indigenous Fund, which supports the needs of indigenous people in the polar north.

The organisation advertises Northern Advisor positions for people from Greenland, northern Canada, and northern Alaska. They are required to commit 10 hours per month and their responsibilities include:

  • Being a spokesperson for the fund and raising awareness of it
  • Participating in the decision making process regarding the fund’s structure and policies
  • Reviewing and giving approval to certain proposals
  • Identifying potential partners
  • Collaborating with other advisors from the region to determine the division of funds within the region
  • Actively participating in the fund’s activities

Benefits

Participatory grantmaking:

  • Fosters greater inclusivity and democratises grant distribution
  • Strengthens relationships within communities
  • Builds capacity, empowering communities to take ownership of their development
  • Enhances the relevance and effectiveness of funding by ensuring that resources are directed towards the most pressing needs as identified by the community.
  • Has the potential for greater transparency
  • Has good scope for innovation

Challenges

Here are a few key challenges associated with participatory grantmaking:

  • Involving a wider range of stakeholders may lengthen the decision-making process.
  • Ensuring that all participants have the necessary skills and knowledge to make informed decisions requires additional training and support.
  • Further resources may be needed for other capacity building activities.
  • Balancing the inclusion of community perspectives with objective evaluation criteria can be challenging.

Data-Driven Grantmaking

This approach involves analysing data to identify trends, assess needs, and measure impact, enabling funders to allocate resources more strategically and effectively.

As such, it is a scientific approach to grantmaking, ensuring decisions are based on the facts and figures and that funds are directed towards high-impact initiatives. It also fosters equity, and enhances accountability, as data can be used to track progress and measure outcomes.

Our Insights tool supports grantmakers in leveraging their data. It provides meaningful insights into trends that might otherwise have been missed, with real-time data enabling responsiveness.

Conclusion

Philanthropy is evolving rapidly as more funders prioritise equity, community involvement, and measuring the impact of projects – as well as addressing today’s most pressing challenges.

By investigating the appropriateness of these approaches in light of their own operations, funders can potentially enhance the efficiency, effectiveness, and inclusivity of their philanthropic efforts.

Whatever your grantmaking approach, Flexigrant is here to streamline the entire grants lifecycle – including the distribution of funds and other financial processes. To learn more or request a demo, contact us today.

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