New Money

By William N. Crabtree

Graduate Student, Center on Philanthropy at Indiana University

Definition

New money is a term used to describe the new wealth that has been generated as a result of the current age of ultra prosperity created primarily by the boom in the high technology industry during the last quarter of the 20th Century.

Historic Roots

New money is a recent development centering on the current wealth explosion in the United States and abroad along with the large intergenerational transfer of wealth that will occur over the next fifty years. These and other related developments mean there will be new players of greater diversity in philanthropy, including social entrepreneurs, communities of color, young philanthropists and women's funding communities.

Importance

New wealth offers tremendous potential for the future of philanthropy. Recent statistics discussing the origin and availability of new wealth point to a staggering philanthropic potential. Giving USA estimates that families, currently, with at least $1 million in wealth and income will contribute approximately $800 billion over the next 20 years due in large part to wealth created by early fortunes. In Seattle, alone there are over 55,000 households with a net worth of over $1 million. Additionally, conservative estimates indicate a $41 trillion transfer of wealth over the next 55-year period.

Ties to the Philanthropic Sector

In order to be successful fundraisers, practitioners and students of philanthropy need to become familiar with the changing environment in which they will function in the future. Experts in the field predict that the new money donor will be much different from those of the past. They will be more discerning than the traditional philanthropist and more involved in the decision-making of where the money goes and how it is spent.

Key Related Ideas

Nonprofit organizations should introduce new strategies when working with the inclinations of the new money philanthropist. They should concentrate on social / psychological factors and act as spiritual directors rather than in a traditional advisory capacity. Nonprofits will need to exercise considerable patience with new money donors.

The profile of new money philanthropists make needs unique to this group. They are relatively young, often in their 40s. They worked hard in their businesses to be successful. As a result, they tend to be very focused in their interests where philanthropy is concerned. Therefore, programs are needed that educate fundraisers in how to identify donor's interests and help target their funding. Interestingly, some new money philanthropists function in what has been described as "hyperagencies," meaning that they collectively or alone can function as world builders. Others describe these as groups of empowered people who have the ability to make a difference.

The new money donor of tomorrow will in many ways have a new face. Less likely to be white and male, past preconceptions of the typical donor will not necessarily apply in the future. New money holders are often part of a new business culture, which may dress differently and may also emphasize results and be focused on outcomes. New wealth created by early fortunes most likely means that philanthropists will be interested in giving earlier than ever before. This challenge for fund raisers will be to find ways to communicate to the new wealthy that match the new donors philanthropic identity.

These donors tend to want an instant success type of "social entrepreneurship" that in many ways mimics the venture capital world. One of the new phrases in philanthropy is that of "venture philanthropy." The new wealthy invented this new approach to philanthropy that threatens to reshape traditional notions of giving and the nonprofit sector's approach to fundraising. This new generation of entrepreneurial givers has practices, values and needs that differ from 60+ non-entrepreneurial donors. Venture philanthropy is a way of applying the concepts of venture capital in startup companies to a nonprofit organization trying to find solutions to social problems.

Important People Related to the Topic

Peter Hero of the Community Foundation of Silicon Valley conducted a survey of the general giving and volunteerism in the Valley. The Community Foundation of Silicon Valley has grown from $7 million to nearly $300 million under his direction.

Bill Gates of the Microsoft Corporation. Currently, the Gates Foundation is the largest foundation in the country with a total worth of over $17.1 billion.

Ghib Myers, chairman of the Mayfield Fund, applied the principles of venture philanthropy and created the "Entrepreneurs Foundation." In the Foundation, funding for startup is pooled together for projects targeting education and youth development.