Rise of Mega Donors – Part 1: Sector Fragility & Volatility
📷 credit: Pascal Bernardon via Unsplash
I’ve often been quoted as saying “we’re living in the second golden age of philanthropy because we’re living in the second golden age of inequality.” In recent years, as a result of the increasing concentration of wealth, the nonprofit sector has become increasingly reliant on the generosity of a smaller set of ultra wealthy individuals, a trend that brings both benefits and significant challenges. The concentration of wealth and the rise of mega donors – individuals who contribute exceptionally large sums – have fundamentally altered the landscape of philanthropy, creating a fragility and instability that threatens the very mission of many nonprofit organizations.
The Power Dynamics of Wealth Concentration
The concentration of wealth among a small group of individuals has given rise to a phenomenon where a handful of mega donors wield disproportionate influence over the nonprofit sector. While their contributions can be transformative, enabling organizations to launch ambitious projects and scale their impact, this concentration of power raises several concerns. Mega donors often have specific interests and agendas, which can steer the priorities and strategies of nonprofits in ways that may not align with the broader needs of the communities they serve. This can lead to a misalignment between donor-driven initiatives and grassroots needs, resulting in a distortion of the sector's priorities.
This dynamic can skew the focus of entire organizations or even sectors. For instance, if a mega donor is particularly interested in funding education technology but the community's most urgent need is basic education access, the nonprofit might pivot its efforts toward technology to secure funding. This misalignment not only distorts the sector's priorities but also risks marginalizing critical issues that lack high-profile champions.
Dependency and Volatility
Beyond even the high profile mega donors like Scott, Gates, Bezos and others, nonprofits across the field increasingly find themselves dependent on a few large donors for a significant portion of their funding. The traditional fundraising pyramid has become narrower and more pointed, with a higher percent of revenue coming from a few at the top vs many small gifts at the bottom. This dependency creates a precarious situation. The withdrawal of support by even one mega donor can lead to severe financial instability, forcing organizations to scale back programs, lay off staff, or, in extreme cases, shut down entirely. Such volatility undermines the sustainability of nonprofits, making it difficult for them to plan long-term initiatives or invest in building their organizational capacity.
Such dependency curtails the ability of nonprofits to plan and execute long-term initiatives. Strategic planning becomes fraught with uncertainty when funding sources are unstable, impeding the sector’s capacity to make sustained progress on complex social issues. The unpredictability of mega donations translates into a lack of financial resilience, leaving nonprofits vulnerable to the changing tides of donor preferences.
There is an urgent demand from society to use any windfall of funds for immediate needs and yet, with the volatility of mega gifts nonprofits wrestle with how much of any windfall to put into reserves or spread out over time. As they plan for the future, they increasingly must plan with several dramatically different funding scenarios which makes settling on a strategy challenging, and those scenarios have less to do with overall economic health or strength of their organization and more to do with the whims and desires of a small set of critical major and mega donors.
Erosion of Public Trust
In addition to their impact on individual nonprofits, the dominance of mega donors also has implications for public trust in the nonprofit sector. When a few wealthy individuals have the power to shape the agenda of numerous organizations, there is a risk that the sector will be perceived as serving the interests of the elite rather than the public good. This perception can erode trust and alongside the belief that “they’re getting taken care of by Billionaire X or Millionaire Y,” can discourage smaller donors from contributing which only exacerbates the cycle, further concentrating power in the hands of a few. Moreover, the public may become skeptical of the motives behind large donations, suspecting that they are more about tax benefits or personal legacy-building than genuine altruism.
Public skepticism can also grow regarding the true motives behind large donations, with suspicions that these gifts are driven more by tax benefits or personal legacy-building than by genuine altruism. This erosion of trust can undermine the credibility and legitimacy of the nonprofit sector as a whole.
The concentration of wealth is not likely to dramatically shift in the coming years and the continued dominance of major and mega donors is likely a reality for the sector for the foreseeable future. But there are steps that both donors and funders can and should take to address these dynamics, stay tuned for Part 2 for some suggestions on some of those key steps.