The nonprofit sector tries to solve big problems. So why don’t investors don’t make “big bets” on them?
Nell Edgington recently asked: Why Don’t We Make Big Bets On Nonprofits? The nonprofit sector deals with trillion dollar-size problems (poverty, struggling public education system, rising income disparity). They require trillion dollar-size solutions. The size of these solutions requires investors making “big bets.” Yet few do. Why?
I work in the nonprofit sector. I see three reasons investors don’t make big bets on us.
First, few nonprofits think systems. Big problems are systemic. They require systemic solutions. Nonprofits rarely think this way. They alleviate some of the harm caused by the system, but few (if any) have a plan to end systemic problems, like poverty.
By failing to think systems, most nonprofits are unknowingly politicized. They lean left (redistribute income) or right (a rising tide lifts all boats). Redistributing income assumes the poor don’t want to work. But they do, writes Oren Cass in his new book, “The Once and Future Worker.” A rising tide assumes everyone has a boat. The poor don’t. Either way, nonprofits lack an effective plan for making big changes because politics is downstream. The occasional big bet that they receive usually comes from a politicized investor.
The third reason investors don’t make big bets is nonprofits lack the infrastructure to make systemic changes. Most wouldn’t know what to do with a large gift—a point Alana Semuels makes in the Atlantic. After the Haiti earthquake, the Red Cross reportedly squandered the half a billion it received in donations. It lacked the infrastructure—high-performing staff, systems thinking, and technical expertise—to apply systemic solutions.
This is why many of the world’s wealthiest philanthropists create their own nonprofits. Some channel their funds through the Giving Pledge, where 184 philanthropists have pledged to give away half of their net worth before they die. But the results are mixed.
Take Paul Allen, co-founder of Microsoft. He signed The Pledge in 2010. At that time, he was worth $13.5 billion. Allen died in October, having given away just 2 billion. But his wealth had grown to $20 billion—48 percent more than he was when he signed the pledge in 2010. Allen didn’t make any big bets on nonprofits.
But he did make big bets elsewhere. Since 2010, Allen bought the Seattle Seahawks and the Portland Trail Blazers. He became a minority owner in the Seattle Sounders. He purchased a stake in DreamWorks. Allen invested where he expected to make a return.
And therein lies a win-win solution. Impact investing—stakeholders getting a return on their investment. The economic driver is profitability. If nonprofits thought systems and had the necessary infrastructure, they could get a seat at the table, advising impact investors so that we see profitability with social responsibility, a rising tide for all.
This win-win could end systemic poverty in Baltimore. Under Armour is headquartered in Baltimore. The company is building its new headquarters, part of the $5.5 billion dollar Port Covington project. The City of Baltimore has pledged $600 million to improve infrastructure. Both expect a return on their investment. The city envisions increased tax revenues. Under Armour, increased profits. But what about the poor?
They lose—at least as the project currently stands. Port Covington will increase property values, driving out those who can barely afford to live in the area. It’s unlikely that the rate of systemic poverty in Baltimore, climbing since 1970, will decline.
A win-win solution would solve this problem. It establishes the necessary hard and soft infrastructure for making new cities. Hard is profitable businesses, utilities, engineering, technology and public policy. Soft is finance, resilient families, education, the arts. Soft could include the faith community—if it thought systems and infrastructure.
The money is out there. But “no one wants to be the one who made a big bet and lost,” writes Ray Madoff, a professor at Boston College Law School who studies philanthropy. It is more a question of nonprofit leaders having the organizational structure and high-impact staff capable of assisting private/public partnerships that create flourishing cities. This is where investors make big bets. It’s a win-win.
 Issa Baluch and Jon Vandenheuval, Africa Risk Dashboard: Mitigation Architecture for Investors From Lessons Learned the Hard Way (Headline Books, 2017).