In the past decade, philanthropy has been on the rise around the world. The trend is driven by a number of factors, including new forms of giving.
The most prominent are crowd funding, social impact bonds and donor collaborative funds. These types of giving enable donors to give more and to give smarter.
Crowdfunding is a new form of philanthropy that primarily happens online, allowing small investments to fund for-profit and non-profit ventures. This method of fundraising is a dramatic shift from traditional fundraising, where companies and institutions seek capital from one or a few major investors.
Individuals also use crowdfunding to address personal needs such as medical bills, a hefty property damage bill or a family crisis. The approach has been highly effective for those facing catastrophic personal loss.
Reward-based crowdfunding, a popular type, enables backers to receive specific benefits ranging from a thank you note or gift to a full product, based on the amount of money they contribute. This model is particularly common on platforms like Kickstarter and Indiegogo, where backers are offered a tier of rewards based on pledge amounts.
Finally, investment crowdfunding allows businesses seeking capital to sell ownership stakes online in the form of equity or debt. This type of crowdfunding is often used by startups and early-stage companies looking for a quick and easy way to raise the initial capital needed to start up.
In recent years, philanthropy has experienced an explosion of new actors, strategies and funding vehicles designed to offer new types of private capital for social good. Among them is the emerging form of social impact bonds (SIBs).
SIBs, also known as pay-for-success financing or pay-for-success bonds, are an outcomes-based financing model in which investors contribute debt capital to fund projects with specific impact goals. When the social goals are met, investors receive repayments from an outcome funder - usually a government department or private grant provider.
SIBs are a relatively new approach to social investment, but they have received significant attention around the world. They are attracting many new types of investors who want to see their investments produce both financial and social returns.
Donor collaborative funds are an emerging form of philanthropy that enable donors to pool resources with other donors to make more impact in a specific focus area. Often called issue funds, these entities aggregate contributions with a thematic focus and grant them to nonprofit organizations with expertise in the area.
Collaboratives can help funders create greater external impact and de-risk their investments. They also can provide learning opportunities, facilitate innovation and experimentation, and increase access to diverse voices and perspectives.
Moreover, donor-to-donor collaboration can be a powerful tool to leverage and catalyze social change. But high stakes collaborations – in which donors contribute more than their own funds to a common initiative – are rare.
But when a collaborative is well organized and executed, it can magnify donors’ individual contributions and produce results that are far beyond the capacity of any single donor. For example, the Living Cities Collaborative, a group of 22 foundations and financial institutions that invest almost $1 billion in urban revitalization, has transformed neighborhoods across the countr
Trust-based giving is an emerging form of philanthropy that aims to address the power imbalances between funders and nonprofits. It has been shown to significantly reduce the burdens on nonprofits and advance their intended impact.
This approach to grantmaking is grounded in a set of six core values that center the principles of powersharing, equity, humility, transparency, curiosity and collaboration. It has been embraced by grantmakers and nonprofits around the world, including India and East Asia.
Moreover, it has proven to improve nonprofits’ ability to meet emergent needs and create sustainable, healthy social change. It also builds a healthier nonprofit-funder ecosystem and strengthens philanthropic communities.
However, this approach requires a significant commitment from philanthropists. They must understand that their accumulated wealth has often been used to entrench systemic inequity, and they need to commit to learning about how to make the sector more equitable and community-centered.