Risk-taking foundations fund gritty issues

It is widely recognised that this is a tough time for the charity sector. Public donations to charities have fallen by 20% in real terms in the past year, with £1.7bn less being given. £81bn  in spending cuts will also have far reaching consequences, with a  third of charities’ funding (£13.9bn) currently coming from Government. These changes are hitting charities hard, with 1 in 10 facing closure in 2013.

There is some good news:  the Family Foundation Giving Trends 2012 report recently announced that there was a substantial rise of 6.2% in donations from the largest 100 family foundations in the UK (if data from the Wellcome Trust is excluded). The total donated from these organisations amounted to £1.3bn in 2010/11.

Another recent publication, The Coutts Million Pound Donor Report, found that there were a total of 232 charitable donations worth £1m or more in 2010/11. This is up on last year by 58 gifts—the highest number since the survey began in 2006/07. However, the total value of those donations fell by 7 per cent from £1.3bn in 2009/10, down from a pre-recession high of £1.6bn in 2006/07.

When funding is scarce, private foundations have a unique role to play in the sector. Funding decisions are made by trustees who aren’t answerable to shareholders or the general public; they are therefore independent and flexible, and can quickly redirect funds to address the areas of greatest need.

It is for this reason that one of the advantages of private foundations is their ability to take risks. They can fund risky and early stage projects, often closed to those who have to justify every penny spent and avoid failure at all cost. Charities need to find new ways of tackling social problems—they need to innovate—but finding public sector funding to do this can be extremely tough.

Private foundations also have lee-way to fund pilot programmes to identify whether an approach works. If it doesn’t, then lessons can be learned and future programmes stopped; if it does, an evidence base has already been built and other funders can help to fund at scale. Impetus, for example, invests in early stage organisations that are ambitious to grow. In 2008, it invested in IntoUniversity, which engages young people from disadvantaged backgrounds to attain a university place and other chosen aspirations, by offering long-term, out-of-school study support. Prior to Impetus’ investment, IntoUniversity operated on one site and helped approximately 700 people. By March 2012, it had expanded to three sites and helped around 12,100 people. Over this time, the charity’s income has grown from £0.16m to £1.84m.

Private funders can also fund ‘grittier’ issues or those that are deemed to be political, for example, domestic violence, asylum seekers, offending and human rights. These causes are harder to sell to donors and often struggle for funding. For example, the Diana Memorial Fund supported the Prison Reform Trust (PRT)  to dramatically reduce youth custody over a period of five years.

Finally, with many charities facing the withdrawal of statutory funding, private funders play an important part in deciding the future of these organisations. They can let them fall by the wayside with a belief in the survival of the fittest—or they can step in and bail them out. Each foundation needs to make a decision based on the strength of each charity and the context in which it is working. If the charity is strong, private foundations can offer a lifeline during tough times.

With the various roles private foundations can play, intelligent funding has never been more important. Private foundations need to be well informed—they need to understand the issues they are funding and the policy changes taking place. They also need to undertake detailed due diligence before making a funding decision. And most importantly, foundations need to work together to recognise what others are doing and therefore avoid duplication, and as a larger body, to raise the profile of the issues and organisations they are supporting.