High Output Giving – a common sense approach

Significance

Why, despite all of the best efforts of funders, are we still unsatisfied with the results of our grantmaking? One reason is we don’t know what the results of our grantmaking could be; a shadow portfolio helps us learn how to get closer to that better world we believe is possible. 

Whatever outcomes you fund – in the arts, health & human services, education, civic engagement, etc. – you presumably fund them because you care about maximizing those outcomes and making the world a better place. As such you should be relentless in your pursuit of the best outcomes; you should want to learn about who is doing the best work to improve the outcomes you care about, and you should want that learning to be fast and frequent. This is why many outcomes-focused foundations would benefit from maintaining a shadow portfolio.

What is a shadow portfolio?

So what are we talking about here?

Your portfolio is what you fund. You are most likely already tracking the effectiveness of the organizations/programs based on your foundation’s own evaluation criteria.

Your shadow portfolio includes the funding requests that you turn down. By maintaining a shadow portfolio you track the work of programs and organizations you chose to not fund in a particular funding cycle, and evaluate them according to the same criteria as your portfolio.

Simple as that.

Hypothetical example of how a shadow portfolio can work

Let’s make up an example in the field of work broadly labeled civic engagement. Your foundation is funding organizations to register voters from low turnout communities. You received six funding requests for this work, and you funded three of them. At the end of the funding cycle, you evaluate them based on the number of new voters these organizations (VR) were able to register, relative to their budget for this work.

Here’s a snapshot of your hypothetical evaluation of these organizations.

Organization A: VR = 1,450 ; Budget = $25,000 ; Cost per new voter = $17.24

Organization B: VR = 1,234 ; Budget = $20,000 ; Cost per new voter = $16.21

Organization C: VR = 700 ; Budget = $17,500 ; Cost per new voter = $25.00

Looks like you did good work- there are 3,384 newly registered voters in your county! And across your entire portfolio of civic engagement work it cost you $18.47 per new voter.

Let’s now take a look at the shadow portfolio, consisting of the organizations you chose not to fund for this work but they still did the work because they found another funding source.

Organization D: VR = 700 ; Budget = $16,000 ; Cost per new voter = $22.86

Organization E: VR = 1,300 ; Budget = $22,500 ; Cost per new voter = $17.31

Organization F: No Data Available

Based on the data available to you, you can evaluate the organizations you didn’t fund according to the same criteria you use to evaluate the organizations you did fund. In this example, only two of these three organizations were able to provide you with the data requested*. But that’s still enough for you to learn from.

By looking at your portfolio and your shadow portfolio side by side you can identify the strongest performers among all the organizations you know to be doing this work.

In this example, it looks as though investing in Organization A and Organization B were relatively good bets for the outcomes you seek. But with 20/20 hindsight – and your commitment to maintaining and learning from your shadow portfolio – you realize that investing in Organization E ($17.31 Cost per New Voter) would have been better for your outcomes as you measure them than Organization C ($25.00 Cost per New Voter), at least for this funding cycle.

Moreover, if you compare the performance of your entire portfolio – Organizations A, B, and C – this funding cycle (average of $18.47 Cost per New Voter) against the best portfolio possible this cycle (Organizations A, B, and E, with an average of $16.94 Cost per New Voter), this really drives home how a shadow portfolio gives you a new line of sight for high output giving—it allows you to apply the same analytical rigor to both your grantees and their alternatives.

While an organization’s past performance should not be the only factor considered when making funding investments it is certainly one important factor. Prudent outcomes-focused foundations – foundations truly committed to the outcomes they wish to improve with their philanthropic investments – should learn from their shadow portfolios each funding cycle, and incorporate that learning on an ongoing basis into the investments they make in subsequent funding cycles.

*Note: There is an ancillary lesson here around Organization F in this example, the organization that did not provide your foundation with the data you requested. There can be many reasons why this may occur: maybe Organization F didn’t end up doing the work; maybe they did the work but tracked different data; maybe they tracked the same data but elected not to share it with you; maybe there was data spoilage; etc.

“There is no sin in finding out there is evidence that contradicts what we believe. The only sin is not using that evidence as objectively as possible to refine that belief going forward.“

-Annie Duke

Disclaimers

1.    I acknowledge most outcomes cannot be reduced to such a mechanistic & linear evaluation (including outcomes in civic engagement- a field of work that typically extends far beyond the narrow confines of voter registration work). But this article is focused first and foremost on the importance of learning from shadow portfolios, and not on comprehensive program evaluation. Moreover, this example does not imply a recommendation of the Cost per new voter metric; this is merely an instrument to introduce the concept of the shadow portfolio.

2.    Not all foundations grant money because they are concerned with maximizing outcomes. That is fine, though this argument may not apply to those entities.

3.    Past performance does not guarantee future performance; this is particularly relevant if you are only looking at a performance in a single funding cycle, rather than longitudinal data.

4.    Past performance should not be the only factor considered in grantmaking decisions but it is nevertheless an important factor to consider, both in the organizations/programs you fund and the ones you do not.