What Investors Get Wrong When They Become Philanthropists

Investors spend much of their professional lives assessing leadership teams, by Mary Rose Gunn, CEO of The Fore

Whether allocating capital to a listed company, a private business or a venture-backed start-up, the quality of management is often regarded as one of the most important indicators of long-term success. Strong leaders allocate resources effectively, adapt to changing circumstances and build resilient organisations capable of delivering sustainable growth.

Yet when many investors become philanthropists, they often approach capital allocation very differently. Rather than backing organisations and their leadership teams, funding decisions frequently focus on projects, programmes or specific activities. While understandable, this shift in thinking can create an interesting contradiction. The qualities investors value most in business are often the same qualities that drive success in the social sector.

Over the years, I have met hundreds of charity leaders and social entrepreneurs. Many possess the characteristics investors actively seek in founders: determination, creativity, resilience and an unwavering commitment to solving a problem.

The difference is that their success is often measured in social or environmental outcomes rather than financial returns. This distinction can influence how funding is provided in surprising ways.

In the investment world, risk is an accepted part of the process. Investors understand that not every opportunity will succeed. Some investments will underperform, while others will generate outsized returns. The objective is to allocate capital intelligently, while minimising the risk.

Philanthropy, regrettably, often takes a different approach.

Funders understandably want reassurance that their capital will make a difference. However, this can lead to a preference for certainty over innovation. Funding is often restricted to specific activities, accompanied by detailed conditions or focused on short-term outputs that are easy to measure.

While accountability remains essential, an excessive focus on certainty makes it more difficult for organisations to innovate, adapt and grow. This is particularly important when considering where new ideas come from.

In business, investors recognise that many of the most innovative companies begin life as relatively small organisations. The same is often true in the charitable sector. Emerging challenges in underserved communities are fertile ground for the establishment of new charities as people get on with solving the problems in front of them. These small organisations have the freedom to respond quickly, test new approaches and identify solutions that larger organisations may overlook.

Not every innovation will succeed. But that is true of any entrepreneurial endeavour.

However, in philanthropy, very different attitudes towards organisational capacity can strangle the ability of the best ideas to flourish.

Most investors understand that sustainable growth requires investment in infrastructure. Technology, systems, leadership development and operational resilience are all viewed as legitimate uses of capital because they support long-term success.

Within philanthropy, these areas are incredibly difficult to fund.

There is often a natural desire to direct resources towards frontline services. The impact of a programme is easier to visualise than investment in a finance system, a technology platform or staff development. Yet organisations rarely achieve their full potential without these foundations.

Technology provides a useful example. Across the charitable sector there is growing recognition that digital tools and artificial intelligence could improve efficiency, reduce administrative burdens and increase impact. However, many organisations still struggle to secure funding for implementation and training because these investments are perceived as overheads rather than enablers.

The irony is that the organisations under the greatest pressure are often the ones that stand to benefit most. Encouragingly, attitudes are beginning to evolve.

The growing conversation around unrestricted funding reflects an increasing recognition that organisational leaders are normally best placed to determine how resources should be allocated. Rather than prescribing exactly how every pound should be spent, unrestricted funding allows organisations to invest in what is needed most: capacity, long-term resilience, changing circumstances or all three.

This does not remove accountability. If anything, it places greater emphasis on leadership quality and clearly documented organisational effectiveness. In many respects, it mirrors the trust investors place in management teams when backing a business.

This is the lesson we want philanthropy to learn from investing.

Successful investors create value by identifying capable leaders, providing patient capital and giving organisations the flexibility to execute their vision. The challenge is ensuring that the principles guiding successful investing are not forgotten when the objective shifts from financial returns to social impact.