Why Does Philanthropy Not Have Clear Stages of Investment?

Investment in the for-profit world follows a logical progression with distinct stages and comprehensive data tracking. Angel funders serve a clearly different purpose than Series C investors, as illustrated in numerous industry charts.

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However, the NGO world lacks this clarity for three main reasons, all connected to philanthropy's less efficient market dynamics compared to for-profit sectors. Specifically, these inefficiencies stem from unclear scope definitions and minimal feedback loops.

Foundations Do Not Specialize Enough, Particularly by Size

For-profit investors and incubators operate with high specificity in competitive markets, often specializing by both sector (e.g., deep tech) and stage (e.g., seed funding). This specialization exists because underperformance would be quickly apparent if investors spread themselves across too many sizes and areas: they just wouldn’t make good money. Angel investors use evaluation methods fundamentally different from Series B investors, making it typically more profitable to develop expertise in fewer areas rather than spreading thinly across many.

In contrast, foundations and grantmakers tend to specify cause areas (and often select several) but rarely specify size with the same precision. When they do set size parameters, it's often based on available deployment funds and staff capacity (less money with more staff typically equals smaller grant sizes). This approach can create significant market gaps, with certain development phases becoming neglected in philanthropic cause areas, whereas in for-profit sectors, the incentives to fill such gaps are substantial. Even identifying these gaps can be challenging in the philanthropy world.

Foundations Are Less Transparent

Foundations often maintain cryptic positions about their funding recipients and eligibility criteria. This opacity partly stems from the reality of having far more NGOs seeking funding than available grantmakers. However, this lack of transparency can obscure ecosystem mapping, even for other funders, with the persistent question: "Who else might fund this?"

Transparent scopes would benefit both foundations (by filtering applicants more effectively) and the broader NGO ecosystem. Some opacity comes from legitimate uncertainty and exceptions, but even approximate guidelines like "we mostly fund in Africa and primarily organizations under $1 million" provide valuable orientation for stakeholders, even if such statements are only 75% accurate.

Foundations Receive Limited Rewards for Future NGO Impact

Angel investors only benefit within an ecosystem that nurtures investments through to meaningful exits. While this partially applies to NGOs, where the greatest impact often emerges at scale, no comparable feedback mechanism exists. If investor A consistently backs companies that reach Series C, they attract substantially more investment funding. If a foundation invests in NGOs that become large and well-established, they might gain some reputational benefit, but this rarely affects their resource control.

This dynamic means good investors receive rewards while good grantmakers often don't, limiting incentives for foundations to excel. Similarly, grantmakers receive no comparable reward for addressing funding-constrained areas as investors would. There is a lack of feedback loops.

What Would a Philanthropy Funder Map Look Like?

We should develop a potential mapping framework that adapts for-profit models to specific grantmaking contexts. While numerous exceptions will exist (as they do in the for-profit world), establishing terminology and labeling standards would still provide significant value. Here is a suggestion:

For the specific areas I used green as comparatively easier for NGOs to get supported at that size and orange as comparatively harder. This does semi-reflect where I think philanthropy is most needed in that cause area as of mid-2025.