Dan Pallotta has a good point on the use of funds by a charity and how money received can be invested to create more money to use for charity.
An interesting point to note here would be – when does this loop stop and the money go to the stated cause?
I will illustrate. If an organisation had a million dollars and two options – 1. Feed a hundred thousand starving people in a country [because that’s what the money was raised for] or 2. Invest it wisely in fund raising, so that the organisation would have 10 million dollars the next year which would feed a million starving people the following year. Hunger is an immediate and time sensitive problem.
It would be interesting to note what he would do. I raise this point because every action you take has a consequence. The decision to invest money received by an organisation to raise more money is good, but what’s the consequence? A hundred thousand people might not get food for a year.
One of the key points on deciding how to use your funds would be – what do you tell the donor when you raise that money? If your donor is willing to give you the money to raise more money – you don’t have a problem – but I think you’d have an expectation mismatch when that money is significantly used to raise more money. Why not just start a corporation and receive equity from shareholders and use that money like Dan said you should.
We work with not for profit organisations and our organisation allows anyone, anywhere to contribute to social causes with time, not money. This way, they are involved in the organisation, understand what they do and then can make an independent assessment about whether they would like to contribute money or not.
A donor cannot be judged for wanting to know how his money has been spent. You can however, give the donor a choice between organisations that are grassroot, organisations that multiply their money for wider reach and any hybrid that lies in the middle.