(We originally posted this in 2021. You can read more of our original ideas in our archive. You can order a business plan of this idea here.)
Problem: When asked on Twitter, “What is the best thing billionaires can do with their money?” by Jonathan Pallesen, Paul Graham responded by writing “To be the ‘angel investors’ of nonprofits. Big donors are super bureaucratic and never want to take risks on new nonprofits. But the best new nonprofits are great, just as the best new for-profits are. So by funding new nonprofits, you can increase the efficiency of big donors.” Is there a way to democratize philanthropy donations to a broader audience through concepts that are used to broaden access to angel investing? Better yet, is there a way to maintain the amount of capital in philanthropy while making it easier to donate large sums and eliminating risk?
Solution: This business would lobby multi-millionaires and billionaires to create massive endowments (renamed potentially as angel philanthropy funds) that are invested in the stock market actively and donate to charities a set amount of their fund every year (2%? 3%?). The payment structure would be that of a classic money manager or venture capital firm (2% fees); however, money managers would not benefit from any carry. All profits would be reinvested into the philanthropic fund, foundation, or endowment.
Assuming conservative market growth, we could expect these sorts of funds to grow at 8% or less per year (based on S&P 500 growth). After subtracting the 2% of fees, 3% of donations, and 2% of donations the fund would grow at around 1% a year on average (though it could grow more or less in exceptionally good or bad years). Better fund management could increase annual growth as well.
This model is not necessarily new. On April 7, 2020, Jack Dorsey announced that he was “moving $1B of my Square equity (~28% of my wealth) to #startsmall LLC to fund global COVID-19 relief. After we disarm this pandemic, the focus will shift to girl’s health and education, and UBI.” It was designed to operate transparently, and you can view all donations made on this Google Spreadsheet here.
The problem certainly is a real one: my friend Michael Ioffe summarizes it well in his December 17 Tweetstorm. He identified three areas for improvement. Ideally this model would touch on all of them:
Major donors (foundations, etc.) were so bureaucratic and wouldn’t support startup nonprofits. Qualms they heard include…
“How can you track the impact of a conversation?”
“Our committee usually takes about six months to make decisions.”
“Please get an introduction through a board member to be considered for funding.”
Insane barriers to funding, especially given that our growth (were we a for-profit) would have enabled us to easily raise a substantial round of funding.
Many amazing people (esp. from underresourced backgrounds!) would start super impactful nonprofits if fast funding for great ideas/solutions was more readily available. Many solutions shouldn’t be for-profits, but won’t survive as nonprofits due to limited early-stage funding.
The market for charitable giving is the United States (and I posit, across the world) is huge. The National Philanthropic Trust summarizes it in 5 ways:
Americans gave $449.64 billion in 2019. This reflects a 5.1% increase from 2018.
Corporate giving in 2019 increased to $21.09 billion—a 13.4% increase from 2018.
Foundation giving in 2019 increased to $75.69 billion—a 2.5% increase from 2018.
In 2019, the largest source of charitable giving came from individuals at $309.66 billion, or 69% of total giving. In four of the last five years, charitable giving by individuals has grown.
Other sources of charitable giving were giving by foundations ($75.69 billion/17% of the total share of American giving), bequests ($43.21 billion/10%), and corporations ($21.09 billion/5%).
To become a “billion dollar startup” this angel philanthropy foundation would have to raise $50,000,000,000 or $50 billion. While this wouldn’t be possible in one year, it could be achieved after a decade or half a decade of focused fundraising and investment.
Monetization: 2% fee of the fund size.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)