Our plans for seed funding promising nonprofits

Seed funding has the potential to determine whether a highly impactful organisation thrives or fails. Making grants to new nonprofits is certainly a high-risk strategy, but it can pay off. In our previous post on the topic, we explained the basic idea behind seed funding nonprofits and highlighted a few prominent groups we’ve come across in this exciting space. This post lays out what we’ve done so far to find funding opportunities for our members, and what we plan to do next.

The approaches we considered

Last year, we spoke with members of Founders Pledge who were just as excited as we were about early-stage funding. Since then, we have been thinking about how our members could go about seed funding promising nonprofits.

Some of the approaches we considered include:

• Relying on existing funders and incubators - as our previous post showed, there are a number of groups that already focus on funding new nonprofits or related ideas. Given that these groups dedicate more focus to this area than we are able to, the lowest hanging fruit could be to recommend our members directly fund the most promising groups in this space.
• A light-touch incubator - if the main barriers to nonprofits starting are non-financial, then it could be most useful to use an incubator-style model and provide services and resources instead of, or as well as, cash. While FP is not currently well-placed to run an incubator program, we are thinking about non-financial resources that we could easily provide to projects.
• A fund - we also thought about giving our members the opportunity to contribute to a shared pool of funding that a dedicated fund manager would then distribute. The main advantages of this would be that it would enable faster grant-making (which is more important for early-stage projects) and reduce the burden for donors.

The model we chose and what we’ve achieved so far

Ultimately, we decided to take a path of sourcing potential projects from existing funders and incubators, and then selecting a subset of those projects to recommend. Our criterion for recommendation was whether the project could be as impactful as GiveDirectly (one of our top recommended charities for poverty alleviation) at scale and could use additional funding. To assess this, we looked at projects based on three areas:

• Problem - What problem does the project aim to address?
• Idea - How does this project aim to solve the problem?
• Organization - How strong is the team and organization?

We chose this path because directly assessing projects allows us to learn more about this type of grant-making, and gives members the chance to fund individual projects.

We’ve now carried out one round of sourcing and filtering projects. Following this process, we’re excited to have identified three projects that we plan to recommend as funding opportunities. One of these came from our housing affordability research, while the other two are in the area of global health and development.

What we’ve learned

Having run through this process for the first time, we have a few lessons that will inform our work in the future:

• We found it hard to evaluate projects in the abstract and, without understanding the cause area they work in, to compare projects working in very different spaces. This was in spite of the fact we focused primarily on areas we had some understanding of from prior research.
• Many of the projects we found were unlikely to be severely underfunded, because (by design) our process found projects that had already been identified by others.
• Many of the most promising projects came from a fairly small group of funders. If a funder is able to share existing research on why a project has potential to create impact, then it can greatly reduce the amount of time we need to spend evaluating it from scratch. It also means more of their projects are likely to be promising, given our criteria.

Our plans for the future

Although we’ve so far found fewer projects reaching the barline of GiveDirectly than we had hoped, we’re still interested in this area and plan to continue our work.

Initially, we expect to publish our funding recommendations on a recurring basis every 6 months. The number of recommendations we make may vary substantially from round to round, and if we’re unable to find any projects meeting the barline of GiveDirectly, then we won’t necessarily make recommendations every round.

In the next rounds of our work, the main ways we expect to find recommendations are:

• Internal research outside of this project (e.g. our general climate change research unearths a strong project with high growth potential).
• Promising projects passed on from respected funders/incubators.
• Inviting applications for funding from potential nonprofit founders, to implement highly promising ideas that aren’t already being implemented.

More immediately, on Wednesday 9th September we are holding a webinar where we will present our work so far and reveal our first round of recommendations. If you’re a member of Founders Pledge and are interested in attending this virtual event, we’d love to hear from you!