Another, more prosaic, long word is ‘disintermediation’. A financial term, it simply means ‘cutting out the middle man‘. Since the credit crunch, the finance sector has embarked on an enormous round of disintermediation, driven by the need to cut costs. While fundraising is yet to follow suit, we may not have long to wait. One example is GiveDirectly. Founded in 2008, GiveDirectly uses ‘unconditional cash transfers’ (translation: giving people money) to communities in Kenya and Uganda to alleviate poverty, boost families’ income and facilitate entrepreneurialism. GiveDirectly use ‘randomised control trials’ (RCT’s; translation: testing if an intervention works by using it on one group but not another comparable group and recording the difference in outcomes) to understand the effectiveness of their work. They claim impressive results, and that cash transfers are very effective in poverty reduction. Others disagree, arguing other interventions including affordable irrigation and micro-credit should be prioritised. We don’t yet know who is right, but we do know that disintermediation is real and here to stay, in some form or other. The debate matters for fundraising, whose traditional model is donors gifting money to organisations to do work. But what if an authentic ‘100% model’ is possible? (you may already have guessed, but I’m skeptical of Charity:Water’s claims to have achieved this already – I love their website as much as the next person, but there’s no way they have no overheads) . What if 100% of the donation really could go to the ‘work’?
One way this could happen is by connecting the funder directly to the projects via peer-to-peer or peer-to-business (P2P or P2B). The Internet makes this more and more possible, as Uber and AirBnB, among others, remind us. A question for fundraising is whether it will embrace the trend to disintermediation or resist and turn to ‘antidisintermediationism’? Certainly, ‘delayering’ should not be a surprise. Basic scenario planning or SWOT analysis reveals that peer-to-peer is fast emerging as a rival technology, not least because the traditional donor-led model makes it difficult to effectively scale-up promising ideas, and can be an enabler for ‘founders syndrome’. And beyond P2P, alternative finance channels like crowdfunding and variants of ‘impact investing’ are to the fore, as seen in the recent Cambridge University and EY report on European alternative finance (see Chris Carnie’s recent blog for more on this, and a write up of the recent European Venture Philanthropy Association conference in Madrid). My takeaway is: start planning for a world with less passive donors and more active investors.
While this change will undoubtedly be disruptive, it could have upsides. Fundraising could seek funds from the capital markets directly, (as Scope have already done) making scaling-up easier; it could evolve its management structures to enable greater varieties (and quality) of governance; it could access more diverse mixtures of funding in order to spend to invest, which could in turn mitigate the endless chase for unrestricted funds which grant-makers and donors alike are often loath to commit; and it could use the greater plurality of funding to develop new types of projects not possible with the traditional binary restricted/unrestricted funding mix. It could also perhaps encourage a more long-term outlook in developing donor/investor relations. I sensed exasperation in some of the comments of Higher Education attendees at the recent NCVO Fundraising summit, perhaps baffled that a crisis has arisen when most HE institutions have in fact never stopped building long-term donor relationships. Moving the focus from donations to investments would change charities outlook fundamentally. Disruptive, yes. But also potentially desirable.
The Internet has revolutionised many industries, (just ask Borders) and is likely, in time, to revolutionise fundraising. P2P/P2B, crowdfunding, alternative finance and impact investing are exciting or frightening, depending on the viewpoint. But while I’m no gambler, if I had to bet I’d say that to cling to the warm blanket of familiar practice – ie antidisintermediationism, resisting inevitable technological change – would be potentially very damaging for fundraising, if not simply quite atrocious.