Philanthropy’s biggest failure is its fear of failure

Philanthropy faces a major obstacle: its fear of failure. Unlike other capital pools, philanthropy lacks the expectation of financial return or clear exit strategies. This should empower it to be the most patient and risk-taking money in the system. However, traditional finance's measures of return and the rigid nature of philanthropy often lead to caution. In India, for instance, corporate social responsibility (CSR) mandates have turned giving into an annual, compliance-driven activity.

Founders, on the other hand, have more freedom with their personal wealth. They can deploy it without the same constraints as philanthropy. To make the most of this freedom, founders need to avoid five habits that undermine their unique advantage. These include demanding evidence before funding, adhering to 1-year grant cycles for long-term problems, refusing to fund salaries and overheads, micromanaging execution, and requiring attribution.

These behaviors narrow philanthropy's focus to organisations that excel at compliance, rather than where the greatest impact is needed. Founders, who have faced similar risks in their businesses, understand the importance of patient, unrestricted capital. They also recognize the value of funding capable teams before the model is proven.

However, founders must guard against impatience with slow-moving organizations, assuming that their company's success can be replicated in social problems, and overestimating their ability to measure impact. Instead, philanthropy should view funders as investors in an equitable future, expecting returns in terms of impact and policy change.

To truly benefit from this mindset, philanthropy must share its learnings with the broader sector. Donors should fund the full cost of impact assessment instead of leaving it to recipients. For shorter-term reporting, existing reports from recipients should suffice. Don't impose new formats and metrics. Lastly, philanthropy has the rare privilege of being wrong. Embracing this can lead to valuable insights and improvements.