New Donors Become Uses, Not Sources, of Capital in the Sector

The Acumen Fund’s annual meeting in New York City last year was held at a gem of a museum called the Rubin Museum of Art (RMA).

The RMA is the vision of Shelly and Donald Rubin, whose comprehensive collection of art from the Himalayas, Tibet, and the surrounding areas makes up this perfectly scaled, gorgeously appointed oasis of Himalayan art in Chelsea. [Anyone who loves New York is going to love this museum if only for the fact that it reclaimed the building that was the original Barneys department store. The renovation was directed by Richard Blinder of the architectural firm Beyer Blinder Belle.

At the meeting, the audience had the opportunity to hear Donald Rubin describe in his own words his vision for the art and for this project. Clearly this was an example of a trend we have written about extensively, which is the prevalence and importance of individual donors pursuing their passions and bringing new resources to philanthropy. We’ve argued that new initiatives like RMA are greatly needed new "sources" of capital for the sector.

Yet on a return visit to the museum in May, I noticed on the wall of one of the upper floors of the museum a list of other funders for the museum. It read like the donor list of every other upscale nonprofit in New York, including the likes of the New York Community Trust. Either to complete the museum, or to sustain it, or simply to increase the funding pool, somewhere along the line the RMA had joined the other 1.4m existing nonprofits with their hands out to the limited pool of foundations to supplement public support.

This crystallized for me the ‘other side of the coin’ of new donor initiatives that we have been beginning to observe in our travels: After an initial burst of enthusiasm and funding, the initiatives of donors like Mr. Rubin convert from "sources" of capital to the sector to "uses" of capital, thereafter joining the draw on the limited pool of foundation money.

My large-private-foundation colleagues respond to this musing with immediate concurrence, commiseration, and expressions of frustration with the scale of it all. Welcome to our world, they seem to say. Others in the sector are flummoxed, because they were hoping as we were that new donors would be the funders (saviors?) of social sector solutions in the new millennium.

Doesn’t this realization illuminate some important elements of the broken social capital marketplace conundrum a number of us have been talking about?

Doesn’t it support, in part, the argument of foundations as to why their support is needed for new programs, rather than for growth funds for existing programs?

Doesn’t it highlight that there is no other ‘take-out’ capital for donors, who are like angel funders with their initial spurt of inspiration and investment, but who have no logical first round venture capitalists to join the party or, better yet, take them out of the deal?

Doesn’t it suggest that new legal structures and tax incentives are going to be needed to create that next round of funding (hence our new interest in the Fourth Sector Network?

The people closest to the donors (their philanthropic advisors, their gatekeepers) know darn well that they want more flexibility and creativity in finding ways to help them pursue their passions. However, too few of them have incentives to ensure that the new initiatives that can be effective over the long run are able to do so. And that those that are not effective, are discontinued (sound like a social capital market?).

The large private foundations cannot do it alone. How are we going to respond?

Carla E. Dearing