By Yariv Sultan
Many years ago, I had the opportunity to meet with a potential donor who was interested in funding the construction of a new dormitory complex at a leading Israeli university. Prior to our meeting, we sent the donor a proposal outlining the need for the dormitory complex, including architectural plans and sketches. Shortly into the meeting, the donor pulled out a set of technical specifications for a comparable project at another university. The donor began to compare and calculate the total square feet his donation would buy. He was not at all interested in learning about the students who would live in the dorms, or how the building would improve the quality of their lives, or how it would increase their chances for academic success. The donor’s primary concern was floor space – how many square feet would his dollars buy?
Today we are operating in a very different philanthropic climate. Giving has shifted some charity-based gifts to outcome and impact-driven philanthropy. In the impact era, funders – investors, government agencies, philanthropists and businesses – are focused on the impact of every dollar invested and measuring a social program’s efficacy. How will a project’s outcomes be evaluated? What will be the social or environmental impact?
Classic philanthropy in Israel continues a tradition that is historically rooted in Jewish values of shared responsibility, tzedakah and Tikun Olam. It has been and continues to be a powerful model for giving around the world and a pillar of our culture. But today’s philanthropic practices are addressing the growing desires by funders for new levels of partnership and needs for greater accountability. Family foundations, private donors and public organizations are increasingly viewing their philanthropic involvement via the impact prism.
New social-financial intervention models, such as Pay-for-Success (also known as Social Impact Bond), have introduced innovative financing into the philanthropic exchange. These creative strategies create opportunities for government agencies and public sector organizations to tackle social challenges and catalyze social progress. Using these models, for-profit investors commit to support a project with the intention to generate social and environmental impact, with their financial return being linked to social outcomes. In Israel a number of such Social Impact Bonds have been launched in the fields of education and healthcare (initiated by Social Finance Israel). In these programs, Israeli universities, HMOs, the National Insurance Institute and the Ministry of Education guarantee financial returns to investors in accordance with predetermined social outcomes. Based on this model, a new kind of giving can flourish – Outcomes-based Philanthropy.
The new model enables philanthropists to support a project on the condition that interim funding is secured by a private investor. This agreement is a twist on the classic grant-matching model: the charitable grant is not only contingent upon matching funds raised, but the agreed outcome will determine the final level of the donation. In other words, the more successful the outcome, the larger the final gift (up to an agreed-upon cap).
Outcomes-based philanthropy enables donors to become full and active partners in establishing the roadmap for a successful project by creating a chain of events and practices that are linked to positive outcomes. The stakeholders – investors, social service providers, and government bodies – all stand to gain and are motivated to deliver measurable and positive outcomes to ensure that the charitable grant is disbursed.
Impact philanthropy offers many organizations and nonprofits new opportunities to dramatically leverage additional funds for their activities and ensure new sustainable funding resources. Today’s philanthropists are interested in innovative and flexible giving opportunities that link their gift to measurable positive project outcomes. It is time to shift our fundraising strategies to those based on measurable outcomes, rather than floor space. Then we will know we are making a real impact.
Yariv Sultan is Director of Philanthropy at Social Finance Israel. A former VP of Development & External Relations at the University of Haifa, he holds a Master in Public Administration from Harvard’s Kennedy School of Government.