The system by which charities apply to charitable foundations for funding is dreadful. When I ran an
operational charity, I and the team spent far too long on it – often simply re-writing and re-
formatting the same information multiple times into multiple forms, many of them badly designed. Happily our organisation, Giving Evidence, was recently able to study why the system is as it is, and what might improve it. Download our report here. An appendix is here with further detail, including about the economic modelling. Several findings were pretty striking.
First, the analysis confirmed experience: the “cost of capital” for charities securing funds from
foundation is very high. We found it to be at least 5.6% across all UK charities. And particularly high for small charities, costing them at least 17.5% of funds raised from foundations. (I say ‘at least’ because all the assumptions in our modelling were conservative.) Companies don’t pay anything like that when they raise capital (e.g., through loans or issuing bonds or equities). The total cost to UK charities is at least £900m every year – about 1.5 times the revenue of the National Trust.
It’s a silly problem. Foundations are charities, so charities spending resources dealing with each other is friction, entirely of charities’ own creation. We should be able to solve this amongst ourselves. It’s not an external problem, like global poverty or encroaching authoritarianism, which is where our resources should go.
Sadly, the problem of talent and resources being wasted isn’t unique to charities:
Professor Sarah Gilbert, who devised the Oxford / Astra Zeneca Covid19 vaccination:
“Actually, raising funds had been my main activity for years… I trained for years to become really good at ‘doing science’…but… what I actually spend my time doing these days is, mostly, bringing in the money. This [system] can be counterproductive for the cause of scientific research itself… ” (Vaxxers, by Professor Sarah Gilber & Dr Cath Green)
Second, we found foundations more willing to give up time to discuss this topic than charities. That was a surprise because the pain and costs are borne by charities.
Third, building on the above, not all our charity interviewees considered the cost of dealing with
foundations to be a problem at all. Some – particularly in large charities – just felt that “the pain is part of the job”: it’s inevitable so no point fretting about it. Perhaps they have that view because large charities can afford specialist teams to deal with foundations – people rarely speculate on abolishing their own job – and to some extent, large charities compete on their ability to navigate this maze.
Fourth, the problematic system arises mainly because each foundation designs its own process to suit itself. They typically make little use of other foundations’ existing processes: e.g., few new foundations simply copy another foundation’s application form, which would reduce the re-formatting. And few foundations design their process to minimise workload for charities. I have often seen this in my work advising foundations. Indeed, most new foundations create written application forms precisely because they see other foundations having them, and they assume that best practice is good practice. On many issues, my book of guidance for donors urges them: “don’t just copy”.
Fifth, we studied in detail the economic effects of various initiatives which aim to reduce the costs of this application system. For each initiative, we found non-mad circumstances in which it would help, and non-mad circumstances in which it would hinder. Hence reformers should be cautious. We analysed: shared application forms; shared application forms with pooled funds; and online systems for matching foundations with charities (somewhat like online dating systems). Such initiatives will help only if:
- They save more money than they cost, and
- Any other effects are tolerable.
These conditions are not always met. For instance, there are sensible circumstances in which a
matching system will cost more to create, promote and run than it saves. The same for setting up pooled funds between multiple funders, negotiating which can be famously complicated. On the second condition, sometimes a pooled fund will alter where funds go – some areas will gain and others will lose – and that change must be acceptable. It took sophisticated economic modelling to reveal these effects.
Lastly, despite all the above, this looks like a solvable problem. It is solved elsewhere:
- UK universities have long shared a single application form.
- In the US, over 900 higher education institutions share an application process: Common App was created expressly to increase equality.
- A system called Lightning is shared by various UK charities and public sector institutions to get funding to people in financial hardship.
- And the UK government is piloting with four departments an online system for SMEs and charities to apply for government funding. It is designed to solve the twin problems of (i) discovering what funding streams exist and (ii) avoiding duplicated information requests.
The requests from fundraisers are relatively straightforward. The campaign #FixTheForm found big demand simply for more clarity on foundations’ eligibility criteria, and forms which you can save part-way through completing and return to later.
This problem arises from both an information problem – foundations do not see or know the costs they create – and an incentive problem – it is not a problem for foundations. Some foundations care a lot, and are working to reduce it. The prize here is releasing substantial resources for improving society and the environment, and that is surely worth considerable work.
This work was enabled by the Law Family Commission on Civil Society which exists to “unleash the potential of civil society”. A considerable ‘leash’ on civil society is this kind of inefficiency and cost of raising funds.
An article in Civil Society (a magazine) about this research is here.