Good Ventures has granted $25 million to GiveDirectly for the support of GiveDirectly’s general operations. While the grant is unrestricted, we expect that GiveDirectly will most likely use this grant as follows:

~$6-9 million: to hire a marketing team to raise significantly more funding than GiveDirectly has raised in the past.

~$16-19 million: to provide cash transfers to extremely low-income households, either using its standard operating model or as part of collaborations with large aid institutions or governments. These collaborations are intended to address questions that institutional funders have about cash transfers and could include running experiments comparing other aid programs against cash transfers.

We see this grant as an outstanding giving opportunity because:

We believe that GiveDirectly is an exceptionally strong organization, and we see supporting its growth as an excellent opportunity.

Providing funds to help GiveDirectly build its marketing team and arrange partnerships with large institutions could lead to future funding for cash transfers that dwarfs this initial investment.

Funding GiveDirectly’s current model is one of the best giving opportunities we know of. A significant portion of this grant will directly fund GiveDirectly’s core model.

However, we see GiveDirectly’s plans as ambitious, so we would not be surprised if GiveDirectly fails to meet the full scope of its goals. More details on what we see as some of the risks to the success of this grant are below.

GiveDirectly continues to have significant room for more funding, so this grant is unlikely to have a direct impact on our end-of-year recommendations to donors.

Below, we go into more detail on:

For more background on GiveDirectly and its core operations, see our GiveDirectly review.





Process

In late 2014, Good Ventures expressed an interest in contributing significantly more to our top charities than it had in the past. It also asked whether additional grants could accelerate the growth of our top charities as organizations. We considered grants for all four of our top charities and ultimately prioritized discussions with GiveDirectly (more about our other top charities below ).

Over the course of three months, we had four conversations with GiveDirectly about how it would use a large grant from Good Ventures. GiveDirectly put together a proposal that explained how it would use grants ranging in size from $23.5 million to $89 million. GiveWell and Good Ventures representatives discussed this proposal. GiveWell recommended that Good Ventures grant $25 million to GiveDirectly to support its general operations, and Good Ventures agreed.



What will the grant be used for?

The $25 million grant will primarily be used to support two activities:

Fundraising: ~$6-9 million

Cash transfers (including partnerships and research): ~$16-19 million

More details on these activities are below.

Fundraising

GiveDirectly plans to spend $6-9 million of this grant over the next 3-4 years (spending ~$3.5 million over the next two years with the budget growing in later years) to hire a marketing team that will substantially increase GiveDirectly’s fundraising efforts. GiveDirectly expects these funds to cover a) hiring a marketing team that will develop a new fundraising strategy, and b) implementing the team’s strategy over the next 3-4 years. GiveDirectly’s long-term goal for its marketing team is to help GiveDirectly become an organization that raises and spends over $100 million per year with a reasonable fundraising cost-to-revenue ratio (more below).

GiveDirectly’s first step under this grant will be to hire a new marketing director who will build and lead the new marketing team (including hiring 3-5 other staff members for the marketing team). GiveDirectly believes that it will be able to attract a top-talent marketing director because a) based on its research, the size of its marketing budget is competitive with other companies or non-profits where a top marketing director might be able to work, and b) it believes that having already secured the next 3-4 years of its marketing budget will make it easier to attract promising candidates.

GiveDirectly intends for the marketing team to develop a fundraising strategy that will significantly expand GiveDirectly’s donor base. In particular, GiveDirectly aims to fundraise from donors who would not otherwise have given to GiveWell’s recommended charities.

Tentatively, GiveDirectly believes the new fundraising strategy will focus on developing an improved web and mobile experience for donors. For example, the new web and mobile experience may enable donors to track and learn about the specific recipient to whom their donations were routed.

Cash transfers (including partnerships and research)

Approximately $16-19 million of Good Ventures’ grant will be used for cash transfers, either using GiveDirectly’s standard model or through partnerships with other institutional funders. In either case, GiveDirectly expects the delivery of the transfers to be accompanied by additional research. GiveDirectly told us that all of its standard transfers are now part of experimental evaluations that test the impact and design of its cash transfer programs. In collaborations with large aid institutions or governments, transfers could be used to a) run experiments with partners that compare the effectiveness of standard aid programs against cash transfers or b) help partners to experiment with delivering cash transfers.

In the past, GiveDirectly has found that it can more successfully arrange collaborative projects if it can co-fund the cash transfers in the project, so it requested funds from Good Ventures that could be used for this purpose.

Long-term, GiveDirectly hopes that such collaborative projects will encourage aid agencies and governments to deliver more cash transfers with their own funds. It also hopes that such projects may help to establish cash transfers as a standard “benchmark” program against which other global aid programs should be compared.

GiveDirectly plans to discuss partnerships with the following types of institutions:

Donor aid agencies.

Developing country governments (national and local). (For example, several governors in Kenya have already approached GiveDirectly about running cash transfer programs in their counties.)

How quickly will the funds be spent and when do we expect to see results?

In brief, we expect to be able to make a preliminary assessment of the success of this grant after the 2016 giving season (December 2016 – January 2017), at which point GiveDirectly expects that its fundraising strategy will be operational, that the cash transfers funded by this grant will be disbursed, and that it will have made some progress on arranging partnerships.

More details are below. We plan to follow up on each of the below expectations according to our standard timeline for charity updates.

Fundraising

As mentioned above, GiveDirectly expects the marketing team to spend its $6-9 million budget over the next 3-4 years.

GiveDirectly has already begun to interview candidates to lead its marketing activities and expects to hire someone for the position by the end of 2015. It expects the rest of the marketing team (3-5 people) to be hired soon after the lead is on board.

Many retail donors give significantly more during December, the time of year we refer to as “giving season.” We believe that giving season is the right period during which to assess GiveDirectly’s marketing team’s results. GiveDirectly expects its new marketing strategy to be fully operational by the 2016 giving season. After that giving season ends, GiveDirectly expects to have at least broken even on its fundraising expenses; i.e., it expects that the funds that it will have raised due to its new strategy will at least equal the money that it has spent on the strategy up to that point, and it hopes to do significantly better.

Eventually, GiveDirectly hopes to be spending roughly $0.05 on fundraising for every $1 raised, which it believes would be a greater level of efficiency than the industry average. GiveDirectly expects that during the first several years of implementing its new fundraising strategy, it will spend closer to $0.10 – $0.20 per $1 raised.

We do not have a strong sense of what we should expect from a fundraising operation like GiveDirectly’s planned operation, but our rough expectation about its likely near-term efficiency is less optimistic than GiveDirectly’s. We would not be surprised if GiveDirectly managed only to cover its fundraising costs in these early years.

Cash transfers (and research)

GiveDirectly believes it will transfer most of the money allocated for standard cash transfers within the next year and a half (2015-2016). This seems like a reasonable expectation from our perspective. GiveDirectly has scaled up rapidly and has a track record of moving donations to recipients in a timely manner.

Partnerships

Of the three areas to which GiveDirectly is planning to allocate Good Ventures’ grant funds, this is the one for which we have the least well-defined expectations. GiveDirectly’s work on partnership projects has been preliminary, and we are uncertain how these projects will progress.

GiveDirectly has told us that it has promising prospects for partnerships, but we would not be surprised if it does not ultimately develop major partnerships with large institutions. However, if GiveDirectly is able to establish at least one major partnership, we would likely consider its partnerships work to be a success.

The large institutions that GiveDirectly would like to partner with tend to move relatively slowly, so we would not be surprised if these funds took a number of years to be disbursed. If GiveDirectly fails to find a partnership arrangement within a reasonable amount of time, we would expect it to allocate the funds earmarked for partnerships to other near-term uses.



What is the case for making the grant?

Our primary reasons for recommending this grant are:

We believe that GiveDirectly is an exceptionally strong organization, and we see supporting its growth as an excellent giving opportunity. We felt comfortable recommending a grant of this size to GiveDirectly partly because we trust its staff’s views about the best use of additional funds and we expect that it will be able to competently execute on its plans. Some of the reasons that we have a positive view of GiveDirectly include: It has an impressive track record of scaling up as an organization: in its 2012 fiscal year, GiveDirectly transferred less than $0.5 million. In its 2014 fiscal year, it transferred $5 million, and incurred liabilities (future transfers for currently enrolled recipients) totaling $8.6 million (more in our full review of GiveDirectly and its financials). It has always communicated clearly with us and has transparently discussed its mistakes (see a recent example here). We are confident that we will be able to follow up on and learn from the results of this grant, whether they are positive or negative.

We believe that the activities that this grant is funding have the potential to make a large, positive impact by increasing individual and institutional donors’ support for cash transfers. In particular, if GiveDirectly’s new fundraising strategy is successful, it could greatly improve the impact of a huge amount of donations. GiveDirectly may also be in a position to persuade institutional donors to fund cash transfers instead of less cost-effective activities.

GiveDirectly’s core model is one of the best opportunities we know of to use money to accomplish a great deal of good. It has significant room for more funding, and we believe that the money it transfers to very poor people and the research it conducts will have substantial impact.

How did we settle on this grant size?

GiveDirectly sent us a high-level summary of how it could use grants ranging in size from $23.5 million to $89 million. We decided to recommend a grant of $25 million primarily because a grant of this size would enable GiveDirectly to fully pursue what we saw as its two highest-leverage opportunities – implementing a new fundraising strategy and seeking partnerships with large aid institutions – while also providing GiveDirectly a large amount of funding to carry out its core activities of delivering cash transfers and running experiments on those transfers. GiveDirectly told us that it would plan to distribute any additional money it received beyond $23.5 million in roughly a proportion of 3:1:1 for cash:fundraising:partnerships, so most additional money would go to cash transfers.

Also, we told GiveDirectly that Good Ventures would consider a grant in the range of approximately $20 million, and that initial figure likely played some role in anchoring GiveDirectly’s proposals.



What are the risks to the success of this grant?

The major risks to the success of this grant that we are aware of include:

Possibility of fundraising failure : We do not have a strong sense of how likely GiveDirectly’s fundraising campaign is to succeed, but we would not be surprised if it failed to attract new donors at a desirable rate of efficiency. We see supporting GiveDirectly’s fundraising plans as a risky bet.

: We do not have a strong sense of how likely GiveDirectly’s fundraising campaign is to succeed, but we would not be surprised if it failed to attract new donors at a desirable rate of efficiency. We see supporting GiveDirectly’s fundraising plans as a risky bet. Diversion of funds from other top charities : It is possible that GiveDirectly’s new fundraising campaigns could end up attracting donors who would have given to GiveWell’s other top charities if not for GiveDirectly’s campaigns. This may have the effect of diverting donors away from potentially more cost-effective giving opportunities. However, we see this as a relatively minor risk because GiveDirectly explicitly plans to target donors who would not otherwise become part of GiveWell’s audience.

: It is possible that GiveDirectly’s new fundraising campaigns could end up attracting donors who would have given to GiveWell’s other top charities if not for GiveDirectly’s campaigns. This may have the effect of diverting donors away from potentially more cost-effective giving opportunities. However, we see this as a relatively minor risk because GiveDirectly explicitly plans to target donors who would not otherwise become part of GiveWell’s audience. Possible slow disbursement of partnership funds : We think that the main risk associated with GiveDirectly’s partnerships plan is simply that the funds for partnership projects may not be used for a long period of time. In this situation, it may be that the funds would have been better spent on near-term opportunities to do good. However, this risk seems limited because we believe that GiveDirectly shares our desire for funds to be used in a timely fashion and will work to move these partnerships forward quickly.

: We think that the main risk associated with GiveDirectly’s partnerships plan is simply that the funds for partnership projects may not be used for a long period of time. In this situation, it may be that the funds would have been better spent on near-term opportunities to do good. However, this risk seems limited because we believe that GiveDirectly shares our desire for funds to be used in a timely fashion and will work to move these partnerships forward quickly. Too much focus on marketing: A small risk of the fundraising campaign is that GiveDirectly could eventually become too focused on marketing, at the cost of transparency and the quality of its operations. Based on our impression of the GiveDirectly team, we see this as relatively unlikely.

How does this grant affect GiveDirectly’s room for more funding?

We believe that GiveDirectly still has substantial room for more funding, and we continue to recommend donations to GiveDirectly.

Including this grant, GiveDirectly currently holds approximately $40 million that it plans to allocate to its core model. GiveDirectly believes that it has the capacity to transfer about $75 million over the next two years (2015 and 2016). If it received significantly more funding than $75 million, GiveDirectly believes it could hire an additional Field Director and move substantially more money.

We view GiveDirectly’s estimates of its room for more funding as reliable due to its demonstrated ability to scale, and this estimate is consistent with our December 2014 analysis of GiveDirectly’s room for more funding.

We plan to provide more details on our view of GiveDirectly’s room for more funding in our year-end refresh of our GiveDirectly review.



Reflections on the potential benefits of sometimes being an “active” funder

Previously, we’ve written about the distinction between passive and active funding and the strengths and weaknesses of each approach.

Our experiences with GiveDirectly over the last few months demonstrate some potential benefits of sometimes being an active funder. In this case, it was only after Good Ventures encouraged us to ask our top charities about how they could use additional large amounts of funding that we had extensive discussions with GiveDirectly about possible growth plans. Our impression is that GiveDirectly’s vision for how it could use additional funds to grow as an organization sharpened over the course of these discussions as it became clear that Good Ventures was interested in making a substantial grant.

Ultimately, these discussions revealed potentially high-impact giving opportunities that we would not have been aware of if we had not pursued the question of how GiveDirectly could use additional funding to accelerate its growth relatively actively. We had previous discussions with GiveDirectly’s leadership where we explicitly asked them a) whether there was anything else we could do to support their growth and b) whether it would potentially be valuable to provide additional funding for their fundraising team. In both cases, GiveDirectly answered that it did not see promising opportunities for additional funding. Our impression is that our persistent encouragement to think more deeply about how it would use significantly more funding, coupled with a strong interest from Good Ventures in providing such funding, motivated GiveDirectly to reflect on its needs and make the funding request detailed in this post. (Likewise, we would not have pursued these conversations with GiveDirectly as actively in the absence of Good Ventures’ persistent encouragement to do so.)



What are Good Ventures’ future giving plans, and does this affect the expected room for more funding of GiveWell’s top charities?

Below is our summary of Good Ventures’s stance, which Good Ventures has reviewed:

Good Ventures is open to making other large grants (i.e., grants on a similar scale to this grant to GiveDirectly) to GiveWell’s top charities in the future, though it does not have any firm plans to do so at this time. We have explained to GiveDirectly that it should consider this to be a one-time grant and that it should not necessarily expect another large grant in the future. As discussed below, we plan to be continually thinking through the question of whether our other top charities might present comparably good cases for large grants.

Good Ventures has no current plans to change its approach to making end-of-the-year grants to GiveWell’s top charities.

Some of our followers may be wondering whether this grant implies that Good Ventures could fill all of our top charities’ funding gaps at some point soon. Good Ventures does not expect to close the funding gaps of GiveWell’s top charities in the foreseeable future. Good Ventures is still early in its exploration of higher-risk, potentially higher-expected value giving opportunities as part of the Open Philanthropy Project, and there are many possibilities for where its giving might eventually go. Good Ventures is interested in making large enough grants to top charities to take advantage of particularly exciting opportunities (such as those described in this post) and send a significant signal about the benefits to being a top charity, but fully closing each top charity’s funding gap would mean spending significantly more without significantly increasing these benefits. In addition, Good Ventures (as we do) sees it as a good thing for top charities to attract a large number of donations (and not just a large number of dollars); we believe this dynamic is better in terms of the signals it sends about the benefits of being a top charity, and in terms of the robustness of top charities’ financial situations.

If Good Ventures were considering providing enough funding to fill our top charities’ funding gaps, it would let us know of its plans well in advance so that we would have time to alert our donors. If our top charities’ funding gaps were filled, we would find the next-highest priority funding gaps to recommend.

Does Good Ventures plan to make large grants to GiveWell’s other top charities?

When Good Ventures asked us about high-impact giving opportunities related to growing our top charities as organizations, we considered asking each of the top charities how they would use significantly more funding. We ultimately chose not to recommend large grants to other top charities for the time being. We explain the reasoning behind our decision for each of our other top charities below: