For family foundations, grant-making is a relationship-based enterprise, Page Snow of Foundation Source tells Family Wealth Report.

Many individuals in the philanthropic sector believe that if non-profits provided “hard evidence” of their results, private foundation donors would give more to the best-performing organizations. However, for family foundations, grant-making is a relationship-based enterprise, says Page Snow, chief philanthropy officer at Foundation Source. 

While a quarter of the participants involved in a recent survey by the firm cited “clear evidence of demonstratable impact” as the most important factor in determining whether to grant to a non-profit, 37.4 per cent said “personal knowledge of/previous experience with the organization.”

The findings are an important reminder that the majority of these foundations aren’t run by professional staff, Page told Family Wealth Report.

“They are comprised of dads and moms (and their offspring) involved in their communities. Understandably, these donors want to give to organizations that they’re involved with, organizations with which they have a personal relationship. Non-profits need to understand that the way they solicit funding from large foundations simply does not work with family foundations. Shipping off a well-crafted proposal is not going to get their attention,” Page said.

She added: “For family foundations, grant-making is a relationship-based enterprise. To attract these donors, non-profits need to deploy their own board members to get to know theses donors. They also need provide opportunities for family funders to get to know their organizations in low-pressure environments.”

Foundation Source is a provider of support services for private foundations. Results from the survey were derived from 198 of its private foundation clients, the majority of whom have private foundations with around $50 million in assets. The firm noted that foundations of this size account for 98 per cent of the some 86,000 private foundations in the US.

In other of the survey’s findings, three-quarters (77.5 per cent) agreed with the idea that foundations should support non-profits without “telling them what to do” as it “negates the value of non-profits’ ‘on-the-ground’ knowledge.” A much smaller proportion - 22.5 per cent - opted for a more entrepreneurial approach, saying that foundations should direct non-profits in carrying the foundation’s vision and ideas.

Foundation Source highlighted that there is ongoing debate about how foundations should work with non-profits; William Schambra of the Hudson Institute in Washington, DC, for example, believes that foundations “should just write checks.” On the other hand, Paul Brest, former president of the Hewlett Foundation is of the view that foundations should drive the agenda.

“I actually was surprised that the percentage of those who opted for a more entrepreneurial approach was so high—nearly a quarter of those participating the survey,” Page said. “Ten years ago, I suspect that that ratio would have been 5 per cent proactive versus 95 per cent responsive. I suspect that the reason behind the shift is that a significant number of our clients are first-generation wealth creators. In my experience, these individuals often want to use the business smarts that created their wealth to drive the agenda in pioneering ground-breaking philanthropic solutions.”

Foundation Source also found that over half of those surveyed (54.3 per cent) have not collaborated with other foundations and have no intention of doing so in the future.

“Interestingly, no respondents said that they had worked with other foundations in the past year, but would never collaborate again, suggesting that those who partner with other foundations find the experience worthwhile,” the firm said.

Impact investing

Impact investing, which Foundation Source describes as “the practice of investing a foundation’s assets to generate a positive social or environmental impact as well as for financial returns,” is a large and growing market.

What the firm learnt from its recent survey is how highly the “social dividends” aspect is valued, it said. For example, while over half of those surveyed said that ROI was of prime importance, 46.1 per cent put a greater emphasis on “choosing investments that further our foundation’s mission.”

“Frankly, I thought that the popularity of ‘impact investing’ had been exaggerated by its proponents,” Page told this publication.

“The traditional model in philanthropy has been to invest the foundation’s endowment to generate the greatest return (often without regard for the social or environmental repercussions of these investments) in order to generate sufficient capital to ‘do good’. Our survey indicates that, for many foundations, the social impact of their investments isn’t just an important consideration - it’s the most important consideration.”

She added that donors want to hear more from their advisors about impact investing, saying: “I’ve noticed that every time I receive a call from a client asking for more information about impact investing – they end up asking me for the name of an advisor who can help them find such opportunities (she noted that she doesn't provide such advice). Wealth managers who are reluctant to engage their clients around their philanthropy are missing an opportunity.”

It was also found that foundations prefer to find grantees themselves rather than solicit requests, with only 7.9 per cent of respondents saying that they fund organizations that submit proposals. However, once funders find non-profits that they trust, they tend to repeat their grants, Foundation Source said.