Although we have drawn upon private sector insights to influence our approach to risk, it is important to note some challenges specific to the nonprofit sector that we anticipate in our risk-tolerant stance.
Foremost, incentives in the nonprofit sector frequently bias organizations away from risk:
- Lack of aligned financial incentives: With no “profit motive,” nonprofit executives and employees are not compensated based on a standard, singular short-term performance indicator; they are not commonly rewarded for riskier behaviors, like program design innovation, that may lead to outsized successes or failures.
- Donor & ratings agency behaviors: Many nonprofits rely heavily on donors, particularly large numbers of small donors, who seek confidence that their gifts will be used for proven, reliable service delivery
- Further, ratings agencies such as Charity Navigator, which have a large influence on donor behavior, reward nonprofits for using as high a percentage of their funding as possible for proven programs - not for experimentation and innovation
- Ethical dilemmas: Failure of a program can often be seen by funders, public or private, as a waste of funds that could have been used on proven programs; even more concerning are lost opportunities for at-risk individuals who have gone through a failed program. In some cases such failures can lead to public backlash or negative implications for executive teams, further disincentivizing innovation.
Because of these systemic biases, we anticipate that finding novel, “moonshot” projects to drive outsized impact will take significant intentional effort, and at times be difficult. We expect to need to test different approaches to communicate our intent, generate excitement, and allay the fears of potential partners.