Seed funding nonprofits: a high-risk, high-reward approach (Founders Pledge)

post by KarolinaSarek · 2020-08-31T15:25:16.420Z · EA · GW · 2 comments

Contents

  What do we mean by early-stage nonprofits?
  What’s the case for funding early-stage nonprofits?
  What already exists in the space?
    Calvert
None
1 comment

This is a linkpost for https://founderspledge.com/stories/seed-funding-nonprofits-a-high-risk-high-reward-approach

"Seed funding a new nonprofit could be the difference between an impactful organisation existing or failing. In our latest blog, we discuss early-stage nonprofits, the benefits and challenges to funding them, and explore examples of this approach in action." ~ Founders Pledge

Given their backgrounds as company founders and VC investors, our members tend to be familiar with a for-profit investing approach based on funding companies with high growth-potential at a very early stage. This is an approach a donor could also take in the nonprofit world, and many of our members find this idea intuitively appealing.

Traditionally, our research hasn’t taken this approach and Founders Pledge’s recommended charities have tended to be established organisations with a proven track record. This is, in part, because they are easier to find and evaluate, and can absorb large amounts of funding. These recommendations are the very best giving opportunities we’ve come across, and we believe they represent incredible opportunities for our members to do good.

But we also think that making grants to early-stage nonprofits can be impactful, because grants have the potential to be the difference between an impactful organisation existing or failing. The early donors who helped get Against Malaria Foundation off the ground, for instance, have had a huge impact; the charity has gone on to distribute tens of millions of life-saving nets to those at risk of malaria.

We are interested in how a seed-funding approach could translate to the nonprofit world, and so we’ve taken a look into the area. Below we outline what exactly we mean by early-stage nonprofits, the case for funding them, and some examples of this approach in action.

What do we mean by early-stage nonprofits?

In this post, we are broadly referring to nonprofits that have the potential to be very impactful at scale, but are currently a long way from it. For example, this would include organisations developing a new intervention, or testing core components of their model before they begin to scale it up. We’d usually expect them to have a budget of less than $500,000 and an idea that is yet to be proven to work at scale.

We’re also talking primarily (though not exclusively) about organisations that are looking to scale up direct implementation of programmes, rather than organisations that may be ‘catalytic’ in other ways (such as established research and policy organisations, or grants to individuals).

What’s the case for funding early-stage nonprofits?

Say you have $10,000 to donate to help children living in poverty. You could either give it to an established charity, such as Against Malaria Foundation (AMF), to fund direct bednet distribution, or you could give it to a new organisation to scale up a promising new intervention like a malaria vaccine. How do these compare?

On the one hand, funding early-stage organisations benefits from:

On the other hand, some challenges of funding early-stage nonprofits are:

To put it simply, funding nonprofits at an early stage is high-risk, high-reward. What’s more, a new idea needs to improve on the best existing solutions to be impactful.

What already exists in the space?

To build up a sense of how a donor could go about funding early-stage nonprofits, it’s useful to look at examples of this approach in action. Examples of groups that follow an early-stage funding approach include:

As you can see, the types of groups that work in this area vary widely, ranging from individuals to governments, and this is reflected in the range of methods used. Prominent ways in which these groups vary in their approach include:

In our next post on early-stage funding, we’ll lay out our search for recommendations in this area so far, the challenges we’ve faced in that search and our future plans in this area.

If you're a member of Founders Pledge and are interested in this area, we'd love to hear from you! Please contact Callum at callum@founderspledge.com.


Callum Calvert

AUTHOR

Callum joined the research team in spring 2018. Before joining Founders Pledge, Callum worked as a quantitative analyst at a hedge fund. He holds a First Class MMath in Mathematics from the University of Warwick.

2 comments

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comment by alexherwix · 2020-09-29T16:04:22.337Z · EA(p) · GW(p)

Thanks for the post, very interesting initiative! However, this investigation seems to be at least slightly in conflict/contrast with other Founderspledge investigations [EA · GW] into "giving later" options such as DAFs. Could you elaborate how these projects relate and where Founderspledge priorities are pointing to?