The Problem: We are too dependent on charities to do good and in need of more purpose-driven businesses.
The Solution: The giving pledge for billionaires should be changed to an ethical investing pledge.
The giving pledge is designed to ‘help address society’s most pressing problems by inviting the world’s wealthiest individuals and families to commit more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their will.’
While the aims of the scheme are excellent, I suggest the application could be improved by moving more of the money into ethical investment funds to support the launch and scale-up of ethical businesses rather than simple being donated to charity; this would not only raise more funds for good causes but would also offer more effective solutions to the world’s problems.
The idea is simple, give the money to a newly created venture philanthropy investment fund, using the principles associated with venture capital but applying them to ethical businesses instead, to help launch and scale such businesses. All businesses invested-in would have to commit to solving a problem and to donating a percentage of profits to charity.
While many of the new businesses would no doubt fail (the rate of success for start-up businesses is around 10%, so 9 out of 10 will usually fail), those businesses that did succeed would create more wealth that could be reinvested into the fund, and would also create an independently financially sustainable model to solve their problem; whereas charities constantly need more money from external sources, businesses generate revenue themselves.
The fund would not only provide finance to ethical start-ups, but also a host of business advice and support, such as legal and marketing, to maximise their chances of success. And it would create an online platform to showcase the businesses to the public at large, offering maximum visibility and publicity to help companies launch.
Some money should still be donated to charities, because there are some problems that business can’t solve, but most should be invested into ethical businesses to maximise impact from every dollar in the giving pledge.
Indeed, as companies invested-in would have to commit to donating a share of their profits to charity, the end result of such a fund would likely be vastly more impact than simple donations alone; businesses would end up donating the same amount or more than they had invested into them, while also growing the size of the fund as their valuations increased.
So, for example, a billion dollars invested in year one would result in a fund worth $10 billion in year 10 and which had donated $1 billion to charity over that period. The same amount would have been donated to charity, just over a longer time, but there would now be $10 billion to re-invest and/or donate to good causes instead of $0.
To maximise impact, don’t give, invest.
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