Private philanthropy is more crucial than ever before

It is widely recognised that this is a tough time for the charity sector in the UK. Public donations to charities have fallen by 20 per cent in real terms in the past year, with £1.7bn less being given. £81bn in spending cuts will also have far-reaching consequences, with a third of charities’ funding (£13.9bn) currently coming from the government. These changes are hitting charities hard, with one in 10 facing closure in 2013.

In times when funding is scarce, the role private foundations play becomes increasingly important. Private foundations have a unique position: decisions are made by trustees who aren’t accountable to shareholders or the public, meaning their funding is independent, flexible and can be redirected to address the areas of greatest need.

One of the greatest advantages of private foundations is their ability to take risks. Accountable only to their trustees, they can fund risky and early stage projects. Charities need to find new ways of tackling social problems – they need to innovate – but finding public sector funding to do this can be difficult.

Private foundations can fund a pilot programme to identify whether the approach works. If it doesn’t, then lessons can be learned and future programmes stopped; if it does, an evidence base has already been built and other funders can help to fund at scale. Impetus, for example, invests in early stage organisations that are ambitious to grow. In 2008, it invested in IntoUniversity, which engages young people from disadvantaged backgrounds to attain a university place and other chosen aspirations, by offering long-term, out-of-school study support. Prior to Impetus’ investment, IntoUniversity operated on one site and helped approximately 700 people. By March 2012, it had expanded to three sites and helped around 12,100 people. Over this time, the charity’s income has grown from £0.16m to £1.84m .

Private funders also fund “grittier” issues or those that are deemed to be political, such as asylum seekers, domestic violence, offending and human rights. These causes are harder to sell to donors and often struggle for funding. For example, the Diana Memorial Fund supported the Prison Reform Trust to dramatically reduce youth custody over a period of five years.

Finally, with many charities facing the withdrawal of statutory funding, private funders play an important part in deciding the future of these organisations. Each foundation needs to make a decision based on the strength of each charity and the context in which it is working. If the charity is strong, private foundations can offer a lifeline during tough times.

With the various roles private foundations can play, intelligent funding has never been more important. Private foundations need to be well informed – about the issues they are funding and the policy changes taking place. They need to undertake detailed due diligence before a funding decision. Most importantly, foundations must work together to recognise what others are doing and avoid duplication, and as a larger body, raise the profile of the issues and organisations they are supporting.

Rachel Findlay is head of funder effectiveness at New Philanthropy Capital