What Investors Should Know About Projects With a Philanthropic Component

Christos A. Makridis and Soula Parassidis of Living Opera

Don’t dismiss opportunities out of hand simply because there’s a mission to give back or do good- that’s not synonymous with high risk or failure; in fact, it could still mean explosive returns. However, certain considerations become even more vital when you’re ready to take the leap with a “heartstrings” investment

Philanthropic donations have continued to grow year-to-year, reaching $484 billion in 2021 – a 4% increase, relative to 2020. Charitable donations decline during times of economic distress and expand during booms, according to economics research. But times of distress are often when donations matter the most.

Retail investors are trained to think about return on investment and contract investment during times of economic distress. Recessions are often periods of high uncertainty and ambiguity, so sitting on cash can be a safer bet than taking even an educated bet on an investment.

However, that’s not always the best way to think about philanthropic donations; like any general advice, there are always exceptions. In this piece, we’ll look at why investing and engaging during these times can be potentially rewarding both financially, and in other important ways such as personal, social, and passion fulfillment; and we’ll look at the concerns you should keep top of mind.

First, some of the most impactful discoveries are borne during recessions. Our own recently published research in Research Policy shows that the types of inventions discovered during periods of economic distress are the more impactful and general purpose ones, rather than the marginal discoveries that are more prevalent during booms. Sometimes that is because a crisis can highlight what’s really important and direct time and financial resources to solving it, rather than getting caught up with all the momentum trading during a boom.

If a project has found a unique and creative way to solve a giant problem – whether for the world at large or even a niche industry – then the question is simply how long will it take for the project to scale. In other words, when faced with an opportunity to contribute to a “moonshot” investment, don’t worry if the conditions aren’t perfect – better to take the moonshot than wait for “ideal” conditions and miss the opportunity to make an impact.

And that logic doesn’t just apply to conventional products and services – it is also relevant for philanthropy. In fact, some of the most impactful dual-technologies were created in response to a collective social need, rather than a traditional go-to-market strategy, although unfortunately there has been a move away since the 1980s.

Furthermore, a solution to a giant social challenge will generate a ripple effect of other benefits and ultimately lead to some sort of economic gain down the road through improved community and brand. Consider, for instance, the impact that Goodwill Industries has had on the world, providing education, training, work, and practical needs for millions, while simultaneously generating over $6 billion in revenue.

Second, retail investors need to make sure they are not assuming or expecting a level or pace of commercialization that may have been taken off the table by someone integrally involved in the project for reasons that might be vital to its success. Expecting immediate financial returns in some situations is unrealistic, perhaps given the gravity of the problem or the market. 

Let’s continue with the arts as an example. While the arts and humanities received $23.5 billion of donations in 2021, artists themselves—almost across the board—have been experiencing declines in their real wage and employment opportunities, coupled with absorbing higher costs, according to our own research at Living Opera. But the problem is not a lack of funding – it’s the efficacy of each dollar spent; and though not always, this often ultimately stems from conjecture in the first place about expectations of projects timelines, horizons, and values. Why? Because of the competing two major interest groups that fund the category: Altruistic, passionate lovers of art and art institutions in it “for the love,” and those looking to make money in the Art Business.

This means of course that the sector is going to require major reform and fundamental change in the business model (which is already underway with web3 disruption, digital assets, and the rise of independent creators). But that does not happen overnight – or necessarily even in 5 years. The deterioration has been taking place for decades, so it might take a similar amount of time to truly shift the state and trajectory.

So, if retail investors get involved in an arts project for the wrong reasons, they can make demands that may undermine the efficacy of a project and perhaps the very reason it was started in the first place.

We’ve had that happen to us plenty of times in Living Opera. For example, with our launch of the Living Arts Foundation fueled by our Magic Mozart NFT collection – a nonprofit that decentralizes grantmaking in the performing arts – we’ve been asked at least once or twice by people seeking a fast return on investment to convert it more into an NFT marketplace. 

But from where we sit as technologists, economists, and passionate supporters of the opera and classical music categories- what performing artists need right now is not another NFT marketplace, but rather a community of practice containing curricula on arts entrepreneurship and grants. Another NFT marketplace might sound better to potential investors, but performing artists need access to grant opportunities and entrepreneurial skills that are vital to career flourishing. So, in the case of our project, yes- we expect it to yield an eventual monetary ROI for our investors to be sure; but utility, philanthropy, research and innovation are in the driver’s seat for our projects, while commercialization, profits and revenue are certainly along for the ride–just not at the wheel, looking to pull off at the first easy exit. This is exactly what our investors need to know—and do know as communicated by our content—and the kind of info everyone should have for similar projects.

In it for the long haul

You’re going to want to be prepared for a longer tail of potential transformative outcomes and be more hands-on for part of the ride. While there are a lot of ineffective nonprofits – perhaps too many, and that’s why we see donations rising year after year without improvements in the underlying problems that they’re trying to solve – there are also incredibly effective ones that generate social impact greater than many traditional organizations. Goodwill Industries is one such example of a non-profit that has had a profound impact for decades, achieving both financial profitability and social impact at scale. And there are many more examples, ranging from the Boy Scouts of America to St. Jude’s Children’s Research Hospital.

It’s good to move forward with these types of projects that align with your personal passions, values, interests as a human being–not just an investor. This is what will carry you through if and when the passion project takes longer to pay off, conventionally. 

About the authors

Christos A. Makridis is a research affiliate at Columbia Business School, Stanford University and the University of Nicosia, and CEO and founder of Dainamic, a startup that aims to democratize access to AI for mid and small sized banks. Greek-Canadian operatic soprano Soula Parassidis is an entrepreneur, anti-human trafficking advocate, and producer. She has appeared on stage in the world’s major performance venues and is the CEO of Living Opera.

About Living Opera

Founded by two opera singers and an economist, Living Opera is a multimedia art-technology company that unites the classical music and blockchain communities to produce transformative content. Living Opera takes a holistic approach to life, work, and education: “living” means “full of life and vigor,” and “opera” means (in Latin) “labor, effort, attention, or work.” Living Opera NFT collections, such as Magic Mozart, are designed to bring the art and tech worlds together by expanding the audience of people who traditionally engage with classical music and fine art.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.