our approach

The goal of the Philanthropy Investment Team initiative is to identify outstanding avenues to donate USIT Giving Pledge funds. In the same way that capital markets are efficient, by identifying and funding high quality charities and redirecting dollars that otherwise might have gone toward average or below-average charities, we hope to allocate capital that funds the growth of great institutions.

“Outstanding” can be defined in many ways. Outstanding avenues to deploy the Giving Pledge funds may vary widely from outstanding avenues to deploy the funds of any other large foundation. Most investors are able to define the key criteria to define a “good” business, but that doesn’t mean that every investor will pursue the same investable universe – the differences can stem from:

• The uniqueness of the investor and the quantum of the capital available 

• The playbook of the fund (e.g., Do we want to be hands-on in shaping the operations of our investment or identify a good management team and let the business run?)

• The price to buy the business. This is less applicable in our context of philanthropy, but a comparable criterion would be the price to generate the impact 

• Cultural elements / rapport built between the investor and the management team 

• Risk tolerance of the investor, maturity of the business, and required return of the investment (e.g., Are we willing to invest in earlier stage, less proven business models or do we require a long runway of proven growth?)

• Synergies with existing portfolio and institutional knowledge of the investors (e.g., Are we able to specialize in one industry / impact vertical because of expertise built over time?)

These questions are also relevant to develop a philanthropic giving strategy. The following pages outline the framework that the USIT Foundation Giving Committee plans to use in evaluating our opportunities this year, but we are very open to pushback or suggestions for change. 

Uniqueness of The USIT Foundation’s Giving Pledge

The USIT Foundation will deploy funds to charities for which we have a unique advantage of finding, understanding, and helping to grow over other large sources of philanthropic capital in the market (known as investor-level additionality). Given our current scale, we are able to assess charities and donate amounts that the largest, institutional foundations that give billions of dollars a year (or the for-profit markets) would not be able to support. These charities may not be scaling quickly when we first identify them but have a replicable operational model with a potential to absorb millions of dollars in the long term. 

Broadly, this entails the following:

• Low proportion of operational expenditures, attractive unit economics, and high magnitude of impact generated at a human-level. There must exist sufficient data points such that there is a low probability of regret (i.e., high probability of certainty)

• Relatively small charities for which a $10-50K donation can yield significant impact 

• Generally, we recommend staying in the approximate charity size range of $100K to $10M in revenue, with a sweet spot of $2M to $5M in revenue

• There is no annual minimum or maximum amount for any of our annual donations

• Organizations with which we can develop a continued partnership for repeat donations, continued access to information, and opportunities for operational partnership with our team’s portfolio management function. This means we place a high premium on the charity’s responsiveness and willingness to work with us

• Highly scalable organizations with potential to change the way society’s institutions function and generate a high anticipated social return on investment as measured against other opportunities 

• We don’t want to donate to small charities that we think will stay small forever. We want to identify charities that are early in their “J-curve” trajectory and to which our annual donation can contribute growth acceleration by attracting new sources of funds from government institutions, other donors, or service revenue

• US-based and primarily service-oriented (as opposed to goods delivery-oriented)

Our Approach

Within each 9-month Giving Cycle, we will initially acquaint ourselves with a broad universe of charities and gradually narrow down to our preferred 3-6 organizations over the span of three phases of diligence. Key questions we seek to answer include:

• Establishing Need and Additionality: What is the social return on impact for the marginal investment? Why should the USIT Foundation specifically be the entity to provide the capital?

• Innovation and Scalability: How does this organization compare in efficiency and impact creation relative to peers? Is this model so particularly innovative that it could potentially shape policy and be replicated by other charities?

• Unit Economics: What is the average cost to serve a client who utilizes the program’s services? Would a higher cost relative to our existing benchmarks make sense based on the demographics of the population served? What is the ideal equity check, and is there a certain program that we should fund over providing a general donation?

• Theory of Change: Can we build conviction in each link of the theory of change? Do we know what the experience of the average client is, and can we link the Outputs and Outcomes of the organization with long-term Impacts?

• Leadership and Communication: Can we envision a long-term partnership with the team running the charity?