Bridging the Divide Between Nonprofits and Philanthropy in Silicon Valley

As social impact advisors who live in Silicon Valley, we have spent the past decade working with both local nonprofits and local philanthropists. In so doing, we have witnessed the impact that the recent economic boom has had on our region and on the local social sector. On one hand, huge wealth is being created here, and much of it is being allocated for philanthropy. On the other hand, many local community-based organizations are struggling to survive—unable to meet demand for their services, pay escalating rents, or compete for top talent in one of the tightest labor markets in the nation.

We’ve also observed that local community-based organizations and Silicon Valley’s new donors often speak different languages and live in different worlds. To understand why, we embarked on a research project into Silicon Valley nonprofits and philanthropy over the past year. We set out to answer questions such as: Why are community-based organizations struggling to meet demand in one of the wealthiest regions in the country? Why aren’t more Silicon Valley philanthropists directing their dollars toward local organizations and issues, rather than national or global causes? What is the cause of these disconnects, and how might these two groups come together to better serve our region?

With support from The David and Lucile Packard Foundation, we reviewed and synthesized mountains of statistics, built new datasets, and talked with more than 300 Silicon Valley stakeholders about community needs and the present and future of Silicon Valley’s social sector. The resulting report, The Giving Code: Silicon Valley Nonprofits and Philanthropy, builds on work that others have done but also breaks new ground, providing a holistic portrait of the region’s nonprofit and philanthropy ecosystems—their size and shape, how they operate, where they do or do not intersect, and how the gulf between local philanthropists and local nonprofits might be bridged. In this article, we highlight our most provocative findings.

The Prosperity Paradox

Economic booms are not new in Silicon Valley, yet the region’s recent growth has been nothing short of breathtaking. The technology companies sitting at the epicenter of Silicon Valley’s economy continue to grow at accelerating rates, generating $833 billion in sales last year. In 2011 there were three so-called “unicorns” in Silicon Valley—privately-held companies with valuations greater than $1 billion; in 2016 there were 21. The amount of personal wealth being generated by this growth is difficult to fathom. Silicon Valley now boasts more than 76,000 millionaires and billionaires, and a startling 12,550 of the region’s households have more than $5 million in investable assets.

However, even as Silicon Valley’s millionaires multiply, and its philanthropy rises, many of its 2.6 million residents are being plunged into financial distress. The regional cost of living has climbed so high that a stunning 29.5 percent of local residents—roughly 800,000 people—rely on some form of public or private assistance to get by. Silicon Valley’s middle class is literally disappearing. From 1989 to 2014, the middle class segment of the population in Santa Clara and San Mateo counties decreased by 11 percent and 10.5 percent, respectively. Silicon Valley now boasts one of the greatest income gaps in California, with the average low-income family earning less today than it did in 1989. And Silicon Valley’s nonprofits report a sharp increase in the number of low-income and (formerly) middle-class families accessing their services such as free healthcare, food banks, and shelters.

Philanthropy Is Booming

The good news about the economic boom is the huge increase in Silicon Valley philanthropy over the past decade. Corporations and foundations are giving at unprecedented rates, and longstanding individual donors are being joined by thousands of entrepreneurs determined to direct both their financial capital and their ingenuity toward solving some of the world’s most difficult problems. Here are few of our more surprising findings with respect to local philanthropy:

• Between 2008 and 2013, total Silicon Valley-based individual giving rose from $1.9 billion to $4.8 billion—a 150 percent increase.
• The number of private foundations based in Silicon Valley increased 47 percent between 2005 and 2015, more than twice the national growth rate. Additionally, the number of local foundations with more than $10 million in assets has increased 72 percent since 2000, with 28 percent of them founded in the last 10 years.
• Exclusive data shared by the two largest national charities with donor-advised fund (DAF) programs—Fidelity Charitable and Schwab Charitable—shows that these two charities now hold more than 4,500 DAFs among Silicon Valley clients, 292 percent more than they did in 2005. These combined DAFs have more than $2.2 billion in assets­—an astonishing 946 percent increase since 2005.
• The amount that Silicon Valley companies have given away locally through cash contributions has more than doubled since 2009, from $56 million to nearly $117 million in 2015.

Although Silicon Valley’s new philanthropists are still in the early stages of their journeys, certain patterns to both the motives and the style of their giving are becoming evident. Their approach to philanthropy is focused on impact, innovative, connected, and diversified—themes that we explore in more detail in the report. While this emerging “giving code” is not yet set in stone, two things are clear: these donors seek to be “bigger, better, and faster” in their giving than the philanthropists who came before—and they are inherently skeptical of nonprofits.

Local Nonprofits Are Struggling

And yet, despite this growth in philanthropy, very little of this money is actually making its way to local community-based organizations providing important services and trying to address complex issues like homelessness, affordable housing, workforce development, or education reform. Additionally, Silicon Valley community-based organizations aren’t able to keep up with rising demand for their services, and are struggling to make ends meet. As a consequence, many local nonprofits lack the capacity to meet immediate needs, let alone gain traction on the complex, systemic issues they are trying to address.

• On the surface, Silicon Valley’s nonprofit sector seems robust, with the total number of nonprofits growing 28 percent in the last 10 years to 9,725. However, the vast majority of local nonprofits (77 percent) report revenues under $1 million—they don’t have significant scale.
• While 30 percent of Silicon Valley’s nonprofits focus on human services, they generate only 10 percent of the sector’s revenue. Universities comprise less than 1 percent of the sector but report 28 percent of nonprofit revenues. And hospitals represent only 0.3 percent of local nonprofits but capture more than 30 percent of revenue.
• In a recent survey, 80 percent of nonprofits reported an increase in demand for their services over the past five years, and 51 percent say they won’t be able to meet demand this year.
• Additionally, 46 percent of nonprofits say that doing business in Silicon Valley is hard because of high office space costs, difficulty in finding or keeping talent, and the high cost of living.
• Many local nonprofits lack financial stability: Based on our survey data, more than 30 percent are running deficits above the national average, and 47 percent have less than three months of operating cash on hand.
• To make matters worse, 74 percent of these local nonprofit leaders say they don’t have access to high net worth donor networks.

A Widening Gulf

This growing gap between the working poor and the wealthy—and between local nonprofits and philanthropists—is hardly unique to Silicon Valley. Across the United States, citizens are seeing the fabric of their communities eroded by the imbalances that come when the cost of living outpaces growth in jobs, real wages, and incomes. Yet despite the pervasiveness of this dilemma, very few good ideas have emerged for how to address it. In fact, we found four critical gaps that illustrate how local nonprofits and new philanthropists seem to be missing each other in fundamental ways.

• Knowledge and information gap: Most local nonprofits don’t understand the emerging Silicon Valley “giving code”—an implicit approach to philanthropy embodied by new high-tech donors. Likewise, many new philanthropists don’t have good information on, or understand, local nonprofits and local needs.
• Social network and experience gap: Nonprofit leaders and new philanthropists don’t move in the same social circles. Very few Silicon Valley nonprofit leaders personally know the region’s technology leaders, and the two don’t often have reason to meet.
• Mindset and language gap: Most nonprofit leaders speak a moral language that emphasizes social responsibility, social justice, and the common good. The new philanthropists are far more transactional when describing their work and their strategies, using the language of business and capitalism.
• Empathy gap: Without obvious common ground, it is easy for each group to reduce the other to a stereotype. The wealthy become the “one percent,” while nonprofit leaders are characterized as “do-gooders” who don’t know how to think strategically.

Bridging the Gap

We would argue that Silicon Valley has a unique opportunity to change how these dynamics play out in a community, to disrupt the social breakdowns that occur from extreme imbalances, to break the old economic model and build a new one. We think this begins in part by inspiring a new kind of conversation and coordination among local nonprofits and the region’s active and growing philanthropic community.

So how do we make tangible gains against the goal of better aligning the work, passions, skills, and insights of these two vital groups for the betterment of their shared community? In our research we surfaced a number of proposed solutions. All of the ideas have the same goal—to begin building networks and making connections that can help the local system work more optimally.

• Learning: Creating structured and well-facilitated opportunities for local nonprofit leaders and new philanthropists to learn from one another—and learn together—about local issues, assets, and potential solutions.
• Capacity-Building: Offering workshops and trainings to introduce new philanthropists to the best practices of the social sector, and better familiarize them with the landscape of local nonprofits; and, similarly, offering workshops to help nonprofit leaders frame and communicate the fundamentals of their work in ways that business leaders and philanthropists can understand.
• Coordination: Creating new models for cross-sector collaboration, and for coordinating the vast array of resources required to drive scalable solutions, and encourage funders to create more efficient mechanisms for reporting impact such as shared standards and metrics.

Silicon Valley is poised to become a region of vibrant nonprofits and committed philanthropists—along with business and government leaders—empowered to work in more connected ways to address the challenges we face in our local region and around the globe. Our greatest hope is that Silicon Valley’s powerful philanthropic community, in alliance with local nonprofits, will come to see significant, scalable, place-based change as one of the most important outcomes it can hope to achieve.

Read more stories by Alexa Cortés Culwell & Heather McLeod Grant.