A sweet spot for Private Foundations: Finding new and unorthodox solutions
One of the most interesting use-cases for philanthropy is to help society fix problems that government and private enterprise have not been able to solve on their own. Private foundations have a big advantage in that they do not answer to voters, customers, or shareholders, which provides them with extraordinary freedom of choice in how they deploy their resources. This allows private foundations to support riskier projects and ideas in the search for innovative solutions to society’s problems. If a certain innovative project or idea does not pan out or simply doesn’t work, the structure of private foundations allows them to stomach the failure with relative tranquility. This capacity to tolerate failure certainly contributed to often-repeated quote by Franklin Thomas, the former president of the Ford Foundation, when he described private foundations as “the research and development arm of society”.
Perhaps the most common application of private foundations providing support to innovative but risky projects lies in the field of medical research. Although philanthropically funded medical research accounts for less than 3% of all medical related R&D in the US, it packs a very hard punch and has an outsized impact. Private foundations fill funding gaps that government and private enterprise are unable or unwilling to fill. There is a well-known gap between the initial scientific exploration of new medical ideas and the point at which private industry is willing to get involved. Private foundations are crucial in providing funding at this early stage to support preclinical and early clinical work which can establish proof of concept.
A classic example of impactful medical research funded by philanthropy is the Aaron Diamond Foundation’s pioneering work battling the HIV and AIDS epidemic. The foundation founded an AIDS research center that, with its flexible funding mechanism, allowed for a nimbleness, speed, and risk tolerance that was inimitable by government labs. Among other great accomplishments, the research center helped pioneer many iterations of combination drug therapies that have been able to suppress HIV infection to undetectable levels.
Aside from advancements in the medical field, philanthropists and private foundations have contributed to many other advancements in society at large—the breadth of these breakthroughs is quite eclectic. For example, the Sloan Foundation has supported the Sloan Digital Sky Survey since the late 1990s all the way through to the present day. This program is one of the largest, most comprehensive, and most often cited astronomical surveys that has ever existed. The data it collects can be applied to many areas of inquiry such as the large-scale evolution and structure of the universe, the formation of stars and galaxies, and the nature of black holes. The program’s data and findings are available in full to the entire astronomical community and to the broader public at large.
Another fun example lies much closer to the heart. In 1969, the Ford Foundation joined the Carnegie Foundation in supporting the creation of Sesame Street. Many people credit Sesame Street as being one of the largest and most affordable early childhood interventions to ever take place. For more than 50 years Sesame Street has been helping children not only learn their letters and numbers, but also softer subjects like how to give voice to emotions and how to understand emotions in others. Sesame Street is one of the most vigorously researched television programs in history and has been affirmatively proven to have a positive effect on its young viewers.
There are many inspiring stories out there of private foundations making a big impact. Your foundation can do this too! Don’t be afraid to take a risk with your philanthropic dollars—that is something that private foundations are supposed to do.
We're Here to Help!
Our mission is to amplify the positive impact of private foundations! Please feel free to contact us at 888-402-1780 for a free, no-obligation conversation—we would love to talk with you!
2022 Tax Planning Guide for Private Foundations
The CPA KPA 2022 Tax Planning Guide for Private Foundations provides information and planning tips to help navigate complex tax and compliance issues. We help demystify Form 990-PF and the complicated rules that govern private foundations.
Do people donate to charity for the tax deduction?
The primary reason people give to charity is not to take advantage of tax deductions. Very simple arithmetic shows this cannot be true.
The Truth About Overhead Ratios
The overhead ratio is a useful tool for private foundations carrying out due diligence in their grant making process. Evaluating the effectiveness of nonprofits is very difficult and analyzing overhead is just one piece of the puzzle. Every nonprofit charity needs a balanced amount of overhead to operate its charitable programs and to invest in crucial systems, talent, and training.