What I didn't expect about being a funder

I am very fortunate to have my job in many ways – I get to talk to, learn from, and give money to amazing people and nonprofits all around the world. I get to allocate a modest amount of resources to incredible organisations that I think are doing some of the best work to improve the world. I don’t have to fundraise for my or my team’s salaries anymore. However, there are some things I’ve learned since becoming a philanthropic grantmaker that were either surprising or affected me more strongly than I expected.

I will outline some of these below. These are not meant to invoke feelings of “oh poor grantmakers who have access to money and influence” but rather “oh, I never considered things from that perspective”. Hopefully, they will also lead to more productive working relationships between funders and advocacy groups.

Here, I discuss:

• How challenging the trade-offs are that funders face

• The extremely poor feedback mechanisms that nonprofits have

• How people treat you differently once you have access to funding, and how that changes you

• The weight of saying no to good groups

• Some things that make me feel cynical

Trade-offs are hard and money is scarce

Before I started my grantmaking role, I would often say things like “oh funders should fund X more and it seems like they are missing Y consideration”. However, it turns out things are not that simple. Just like it is very tempting to back-seat drive, it is very easy to say that money should be deployed in this or that way.

Similar to driving, there is much more responsibility and gravity when you are doing the actual thing, rather than offering comments from afar. When you are driving, you are (mostly) responsible for the lives of people in your car, as well as having the ability to significantly harm other road users. This is a big responsibility and it should not be taken lightly!

Grantmaking carries even more weight. The decisions you make could impact the lives of thousands of people and, in my case, also millions of animals. If you get something wrong, you might consign people and animals to a worse life than they could have otherwise had. This is a serious responsibility. It is no longer an intellectual exercise and thinking about what is an interesting idea. This can weigh heavily on me, and I expect the same is true for other grantmakers.

To illustrate this, I see a bunch of grant applications that might fit into these two rough categories:

• Tried & tested grant: Something that has been funded previously and we know will likely deliver strong returns to do good

• Speculative grant: A more novel and experimental idea, which could be more impactful than our tried & tested ideas, but has a much lower chance of actually succeeding.

You might think that it is reasonable to fund some of these speculative ideas – I agree! Maybe we should spend 5-10% of total funding for an issue on these experimental ideas. However, the actual number of speculative grants that I see is pretty high, such that it doesn’t make sense to fund all of the ones that emerge. And for every speculative grant that doesn’t work out, that likely means that we missed an opportunity to tangibly improve lives.

Additionally, people often fall into various traps when proposing speculative projects:

• The 1% fallacy: A bunch of these speculative projects fall into a similar trap where the reason for doing them is something like “Even if we have a 1% or 10% of succeeding, the benefit is so enormous that it is worth trying”. People seem to anchor on what seems like a small probability of success, like 1 or 10%, thinking it is achievable. But in some cases, it is far too high! For example, if you are trying change national legislation or change the minds of millions of people, this is extremely hard. Your likelihood of succeeding might be closer to 0.1% or even 0.01%. A similar analogy from the for-profit world is that many companies say something along the lines of “If we capture 1% of this market, we’ll be worth billions of dollars” without realising that capturing 1% of big markets is a colossal feat.

• Tractability is often more relevant than scale: It is easy to get fixated on trying to solve the absolute biggest sources of suffering. Generally, I think more people should be impact-focused and solve big problems! But I think this should not come at the expense of having a reasonable chance of success (e.g. greater than 5-10%). Tractability is good because it builds momentum as a movement and creates learning. See my previous blog post for more reasons why you should prioritise winnable things.

  • Necessary caveat: I think this is true over a certain bar of cost-effectiveness. For example, if you care about animals, this might be going for winnable campaigns focused on farm animals, rather than settling for winnable campaigns on dogs & cats, given the former group of animals is much larger and needs much more help.

Another important factor is that when you’re a funder, you get access to more information than you did previously. You now hear from tens, if not hundreds, of different organisations about their planned work, what they could do with more money and little funding there is. You sometimes even hear people saying they will have to lay off staff if you don’t give them money, or that they will close certain programs without your funding (more on this kind of comment later). In essence, the trade-offs are much clearer when you hear and see specifics that illustrate what happens when something doesn’t get funding, by choosing to give something else funding.

This is all underscored by the fact that most social issues have far less philanthropic funding than is required to solve them. This means prioritisation and tough decisions are essential. This means that having a good program with good people isn’t sufficient. It often means you need a great program/idea that is addressing a key gap in the movement, with strong people who have the right professional skills and networks for this project, at the right time and with a good track record or compelling plan. And I am personally reticent to fund organisations, especially early-stage ones, that don’t have all of the above, for reasons related to my next point.

Nonprofits have bad feedback mechanisms

I think the philanthropic/voluntary sector is an important way to do good that isn’t covered by the private market or government – hopefully, most people here are onboard with that. However, nonprofits also have a pretty big disadvantage relative to the private sector.

If a for-profit company is not addressing an important customer need or executing poorly, it will eventually run out of money and close down. This is good! If you aren’t delivering value, you find out pretty quickly and either pivot or die. Sadly, nonprofits don’t have any such feedback mechanism. If a nonprofit isn’t having a large social impact, they don’t necessarily face any tangible downside. As long as they can tell a compelling story to donors and fundraise, they keep going indefinitely. If it’s not obvious, I think this is a pretty bad outcome for the world.

This is why it is so exceptionally rare to hear stories of nonprofits shutting down because their work wasn’t effective enough, such as this case by the Maternal Health Initiative. However, the incentives to do so are pretty bad. See these quotes from Ben & Sarah, the co-founders who shut down Maternal Health Initiative (MHI):

“No one wants to shut down. It is hard to accept that the sleepless nights, time away from loved ones, and endless negotiations with an unfamiliar bureaucracy we went through were all in service of a project that failed to achieve its goals. We spent the best part of two years championing an intervention — convincing donors to give us significant funds and overworked nurses to change their behavior — that we now believe brought little benefit and drew funds away from more useful programs.”

“We were lucky that MHI was a small organization with just three employees when we decided to shut down. For much larger projects and organizations, it’s easy to see how the human cost of closing down becomes a major barrier. Nonprofit organizations are often staffed by caring, dedicated people who may be making personal and financial sacrifices in order to do their jobs. Shutting down requires decision-makers to acknowledge that those sacrifices could have been better directed elsewhere.”

How do we solve this problem of misaligned incentives? I don’t know, it seems pretty hard. But I have some scattered thoughts on the topic.

1. Funders play a bigger role in accountability: Kevin Starr of the Mulago Foundation thinks funders need to play a bigger role here. In two great pieces, provocatively titled “Don’t Feed The Zombies” and “Funders, Do Your !!@%@#! Job”, he lays out some pretty compelling reasons why. In a nutshell, he thinks funders should act like for-profit investors. Just like for-profit investors work hard to invest in profitable companies and avoid bad companies, philanthropic funders need to carry the responsibility of funding effective charities and not funding ineffective ones. It sounds pretty obvious but right now, funders aren’t accountable for actually having a big positive impact. This paragraph from Kevin sums it up quite nicely:

“Accountability implies consequences, but people like me never get fired for lack of impact. You can lose your job because you said the wrong thing, because you slept with the wrong person, or because people don’t like you. But you will never lose your job because you failed to create enough change in the world. We can’t steal the money, we have to follow the tax rules, and we’re supposed to avoid double-dealing, but, fundamentally, we’re not accountable for results. We can fund all the ineffective stuff we want, and nothing will happen to us.”

This might look like funders being more hard-nosed and making tough decisions, like stopping your funding to a group you were a key donor to. This is not easy – no one likes saying no to people or making big decisions that affect the lives and salaries of people, especially if it is people you know personally and have been funding for some time. But then again, it’s worth asking: what would the beneficiaries you’re meant to serve want? If you are responsible for distributing funding to improve the lives of people or animals, I am pretty sure they would want you to put aside any awkwardness you have and just do the things that are best for them, which might involve cutting funding to an organisation. Again, I will quote from Kevin Starr, who gives some high-level guidance on how you might decide who to fund:

“Don’t fund anyone who doesn’t do a credible job of determining their own impact. An organization that doesn’t determine its own impact is flying blind and you will be too. Impact can also be defined by what it is not. First and foremost, activities are not impact. Trainings, workshops, delivering programs—that’s not impact. Nor are bogus metrics like “lives touched” and “people reached.” Awareness and attitudes don’t matter if it doesn’t lead to action; action doesn’t matter if it doesn’t lead to change. What people know, what they say, and what they do may be necessary steps on the way to impact, but it’s the end result that matters.”

2. However, it shouldn’t solely be the responsibility of funders to determine that a program or organisation isn’t performing; nonprofits should be more ruthless about their own impact and make hard calls. However, organisation leaders are in a tough spot. It may be challenging if they have great staff and volunteers whose lives they don’t want to upend. Leaders may worry that if they tell a funder they are shutting down a program or their organisation, they are somewhat telling them they weren’t spending their money wisely in previous years – this may make future fundraising hard.

   Reassuringly, from what I have seen, when a leader shuts down an ineffective project or organisation, it almost always improves their reputation among grantmakers and other nonprofits. For example, when the Maternal Health Initiative shut down or Anima International closed major programs, the response I heard was overwhelmingly positive. But sadly, these decisions are extremely rare. How do we incentivise more of this honest self-reflection into the impact of our work? That is an open question for me, and something I would love some ideas on.

How people treat you differently (and how that changes you)

People had joked to me prior to my current role that being in a position to direct funds would change how people treat me. This seems obvious to think about but I wasn’t quite prepared for how obvious and significant the shift was. Almost from one month to another, there was a noticeable number of people who suddenly wanted to “catch up” or “get my feedback on something”. This was a bit weird – how come they weren’t reaching out when I was the same old James just a month or two ago?

But I can’t be too surprised: when I used to run nonprofits, I would do the same. People are just doing their best to put themselves and their organisation in the best possible position to raise funds and carry out their work.

However, this does have some personal consequences. Namely, I have become more cynical than I would like about people’s intentions. When someone who I don’t know particularly well, and have no particular expertise in their area of work, asks me for my thoughts and feedback on their work, I assume it’s mainly because they are interested in funding, because there isn’t much else I can offer. Even worse, when some people I knew before my current role want to socialise, there can be a lingering suspicion that they have ulterior motives, even if this isn’t the case at all.

The changes in social dynamics also appear in more subtle ways. People seem to listen to you more attentively, agree with your ideas more and even laugh at your jokes (trust me – my jokes are not good). This has the worrying effect of inflating your ego. If people listen and agree more, you must be saying smart things, right? Or is it just because you have access to resources, people want to stay on your good side? Sadly, I think the latter is sometimes true, and I also expect people do it subconsciously, without thinking about it too much.

It’s hard to say no to people

As I mention above, there are sadly not enough funds for all the important work that needs to be done. As such, funders need to say no to good projects, often much more than they say yes to great projects. This has an emotional toll on you, as no one enjoys breaking bad news to people. I have heard from people who run open grant applications that their rejection rate is as high as 90-95%. Thankfully, it’s not quite so bad for me. But it is still not fun to say no, over and over again, to passionate, hardworking advocates, whose sincere goal is to make the world a better place. Then you add the additional social layer, which is saying no to friends.

(Quick related request: I ask that people always check with both parties before making introductions! There is nothing more awkward than being introduced to someone because they need funding (or have that goal ultimately), but they are not a good fit for your organisation. It would be great if there was time to jump on a call with all these people and explain why their work isn’t a great fit for what you’re interested in. Sadly, that is rarely the case, especially given that you may get a number of these introductions/requests a month.)

It’s easy to become cynical

Despite my best intentions, I find myself becoming slightly jaded and cynical about some efforts to improve the world. This is partially due to the following reasons:

• I always seem to hear bad news about organisations via informal channels, not from the organisation itself.

  • Unsurprisingly, nonprofits don’t often share negative news about their work or their organisation with their funders. However, funders often hear about this bad news through other means, whether that’s other funders, friends, other nonprofits, etc. This isn’t a great look for a group. It’s a missed opportunity to build trust, by being transparent about the difficulties of running an organisation and achieving things, which most funders are all too familiar with. For most funders, and definitely me, this is a big deal! It means that when you share positive news, I am much more likely to take what you say at face value. This brings me to a funny position: When organisations share negative news with me, I trust them a lot more. However, I will emphasise that this means sharing things honestly, rather than some sanitised version of an issue with many key details missing – this is just as bad as not sharing anything.

• Nonprofits are very prone to overestimating what they will achieve

  • When 95% of groups send me their goals, I immediately reduce their ambition by 50% (at least!) to get a realistic sense for what they can accomplish before I try to understand how valuable that is. This is due to seeing many people fall foul of the planning fallacy, expecting they will accomplish far more than they actually can.

  • Most humans suffer from these kinds of biases – this study shows that when even trained national security officials assigned a 90% probability to statements being true, those statements were correct only 58% of the time. I recommend calibration training to help people get better at this. I personally use tools like Quantified Intuitions or Calibrate Your Judgement by Clearer Thinking for 30 mins each week to help improve my judgement and forecasting.

• Organisations using measurability bias as a get-out-of-jail-free card

  • I will sometimes hear statements that sound like “We can’t measure our impact, but we’re definitely doing things that are extremely important”. Too often, I think people use measurability bias as a get-out-of-jail-free card for either a) working on projects that aren’t actually that impactful or b) not putting enough effort into sufficiently measuring their impact. If something is actually that useful for the world, or making an impact, you should be able to measure it.

  • Even if you have a theory of change with many steps that play out over years or even decades, your work will rely on assumptions and intermediate milestones, and you should be testing whether these assumptions and milestones are becoming reality.

• Using sensationalist claims to try invoke guilt and get funding

  • I will sometimes hear things like this from groups we are funding or might fund: “We will have to lay staff off or could even collapse entirely without your funding”

  • First, you lose a lot of credibility when you say things like the above, but despite no change in funding on our end, no negative outcome like the ones above has actually happened.

  • Secondly, there is a better way of accurately saying this, if true, which doesn’t come across as emotional blackmail.

Wrapping up

In case it’s not obvious, I am extremely lucky and grateful to have this privilege and responsibility. There are many great groups that I’ve played a role in getting funding for, and they are doing incredible things to improve the world. Personally, I have been able to learn from and meet dozens of inspiring advocates who are tirelessly working to make the world a better place. They are the real heroes!

One day, I won’t be a grantmaker anymore, and I will find out how funny I really am. Until then, thanks for laughing at my jokes.

Thank you to Eleanor and Claude, who both provided useful feedback on this piece.