Measuring Philanthropic Impact… or Impact Investing?

A New York Times article this morning explored the increasing trend among philanthropists to measure the impact of the money they give away.

Although the author does a commendable job of highlighting some of the nuanced issues that surround the very difficult notion of giving money away effectively, he then tries to bridge this notion to the broader world of impact investing. In short, I think he missed the mark.

Although I would agree that the metrics which define and support the measurement of “impact” in philanthropy echo those in the impact investing world, the lenses required to invest effectively vs. to give money away effectively, are as different as football and rugby. The ball looks the same, but from there the two diverge rapidly.

At the heart of the difference sits the role of capital in a transaction. Investors, before committing capital, will always look to understand the merit of the investment itself, and by doing so try to define the likelihood that their capital will be returned and, hopefully, earn a profit (whether that profit is “market rate” or not is a subject for a different post). Philanthropists, before granting capital, will always look to the end benefit of the donation and will reverse engineer the utility/effectiveness of the organization thereby.

In other words, philanthropists may be acting more like investors by requiring output analysis, impact measurement, and rigorous reporting… but they are still supporting organizations which, at most, have the potential to break even rather than rely on donations forever. And in impact investing, investors may be acting more like philanthropists (by accepting, for example, below-market return on a private loan), but they are still engaged in the traditional behavior of a capitalist.

My take on this is that there will always be a role for philanthropy. Trailblazers, pioneer funders, important non-profit supporters, etc., philanthropists have the capacity to identify needs and have the capital to address them which, by definition, must be given away. But when opportunities emerge to harmonize philanthropic capital with taxable capital, and to leverage both by doing so, some pretty damn cool things can start to happen.

Heading to SOCAP – that great impact investing mosh pit – on Monday, where I fully expect to see how this intersection of money and mission (the essence of “mission-related investing”) has evolved over the past year. Should be exciting!