Corporate and Private Foundations are flocking in record numbers to a new breed of Popularity Contest as a marketing and funding mechanism. Most of us are very familiar with a type of Popularity Contest like what the Community Foundation of Southeast Michigan did several years ago. In order to raise funds for the arts, the Community Foundation held a 24 hour popularity contest of sorts to get donors to donate money for the arts. Donate money to the arts organization of your choice, and the Community Foundation will match your dollars. It was a huge success. Yes, some grant dollars were left on the table (mine included) because their website crashed from the traffic, but overall, the donor reaction was fantastic. The arts in metro-Detroit raised millions of dollars that day.
So it's not unusual for Foundations to use the carrot of matching grant dollars to raise funds from the public which are bestowed upon a charity. As a matter of fact, charities often approach Foundations with this idea in hopes that their donors will be called to act.
What is different about this new breed of Popularity Contest is that the public doesn't not have to use any of its own dollars to vote, and the recipient is sometimes not a charity the Foundation would otherwise support, or not even a publicly supported charity, but a private individual or business.
For years, as an advisor to high net worth individuals and nonprofits, I have advocated and given speeches on the murky area of the tax and reporting aspects Foundations giving grant dollars to private individuals for use in charitable endeavors. It is a very complicated area of the law. It used to be that Foundations would only distribute money to public charities for fear of getting in trouble with the IRS, even though the IRS has established a basic road map for making Foundation funds available to individuals doing charitable work that aligns with the Foundation's mission.
In Michigan, the low-profit limited liability company was born in an effort largely of smoke and mirrors (I own one myself, so I can say this affectionately), in order to essentially educate Foundations and their Board about the opportunity to invest and support entities and individuals who are doing projects that align with a Foundation's mission, but for any number of reasons are not organized as a public charity.
Anyhow, while the low-profit liability company has it share of proponents and skeptics, I do believe that because of this vehicle and others, and copious amounts of advisors like me validating the idea of socially responsible investing, finally major Foundations have gotten the picture. It is simply not necessary for you to be a public charity in order for a Foundation to offer its support to you.
While I am thrilled that now Foundation dollars are accessible by a greater amount of socially responsible individuals and businesses, the absolutely fascinating thing about contests like HATCH (a Popularity Contest bestowing Foundation funds on individuals with a retail idea for Detroit with the most votes) is that really the only charitable / socially conscious aspect of the businesses being funded by HATCH dollars as far as I can tell is the pure fact that these businesses will exist within the economically disadvantaged City limits of Detroit. Sure, you can be a multi-millionaire, but if you have enough votes, you too may be a Popularity Contest grant recipient.
I have on several occasions visited the HATCH website to try and determine what the eligibility criteria are for becoming a candidate for HATCH funding and also the funding mechanics and reporting responsibilities. I have never been able to find any forms to fill out or other indication of the criteria or requirements. So hopefully I'm not mistaken. But even if I am, I do believe that I could start-up a coffee shop in the inner City of Detroit and if I could find a Foundation to fund it that would be a totally legitimate Foundation investment. Most people do not realize this. Almost any inner City business idea you could come up with in a City like Detroit is an Foundation investable / charitably oriented idea if properly postured.
I don't know how many people have actually stopped to think about what HATCH (and others) is doing, and how they are doing it. It really is revolutionary. Foundations are giving popular individuals, some of whom may not even need the funds, real dollars for ideas that are simply popular. The people voting get basic details about the project, adding to the popularity aspect of the whole thing.
I impulsively donated $100 to HATCH after the initial contest and I did vote in that first round. I thought really, while this Popularity Contest is somewhat gimmicky and unfair like a high school popularity contest and while Foundations are really out for publicity and are arguably being a bit lazy about how they find good projects to support, if anyone is crazy enough like myself to start a business in Detroit, I want to support them!
Having said that, are Foundations being publicity hounds, and frankly a bit lazy about how they go about finding good projects to support? And are they throwing good money out the window by funding projects that may not be wise or aren't even off the ground yet? Projects that haven't shown the first sign of being sustainable? And, whose recipients haven't even been vetted beyond a simple application form?
Honestly, I do believe there are wiser ways Foundations could distribute dollars. On the one hand they require public charities to jump through ridiculous amounts of hoops to qualify for a typical grant, and on the other, they throw caution to the wind to back projects whose ideas/ideamakers are popular. It really is a striking contrast. Arguably neither is an ideal situation. Is there no middle ground these Foundations can take? A simple one page application and a proven idea would be a place to start!! I really think Foundations are using this platform as a publicity stunt and/or a marketing vehicle for promoting community engagement, as they couldn't possibly justify otherwise funding projects that are mere ideas or projects that the Foundation doesn't normally go near. Popularity Contests could fly in the face of prudent Foundation investing and grantmaking on so many levels.
There are so many inner City projects that are already up an running that these Foundations could proactively run out and support with greater chance of impact, but without the fanfare of a formal grant application or the fanfare of a Popularity Contest. But that route takes a whole lot more time and effort and project engagement than running a Popularity Contest.
Hey, I have an inner City coffee house that has proven to be an asset to its Eastern Market community and, as a person who also doesn't truly need the dollars, I'd be happy get a grant and would wisely place the funds! And, I think I would totally be eligible under the HATCH program, or one just like it. Why didn't I apply? Honestly, I'm just not that popular. I would never win. Even though my idea was a winner.
Honestly, it is all good. I am all for more inner City projects by anyone with the posse to win one of these annoying (from the standpoint of all my email and facebook spam) Popularity Contests. Please, bring them on! My point is not the discourage them as they have their place in the landscape of Foundation funding. But rather to contrast how far the pendulum has swung. Popularity Contests are more revolutionary than most people realize on the surface cause they are just too darn busy voting! Get out and vote!
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