TL;DR If you have friends in the investment space and you are trying to convince them to think rigorously about their philanthropic capital, this article could do the trick! Originally published on my Substack
I've always been interested in resources for social causes. This interest grew during my internship year at a teaching hospital in Nigeria. As an intern, I did insane triaging and trade-offs, for example, deciding who to give the only oxygen tank at the A & E: the man with the oxygen saturation of 86%, or the one with the saturation of 92%? They both needed oxygen, but with scarce resources, what do you do?
In well-resourced contexts, these decisions are unnecessary, and it’s unlikely you will ever be placed in such a high-stakes situation. But then again, we are all triaging, one way or the other. It may not be as extreme as my A and E experience, but problems are infinite, and the resources to solve them aren't.
As a health economist, I know a good deal about rationing, and opportunity costs and counterfactual reasoning, but these concepts really exploded when I attended Ambitious Impact’s Research Program. If you don't know about them, it has been called the Y Combinator for charity startups. They incubate high-impact charities across the world. The research team evaluates and vets charity ideas, and founders are matched to the most promising ones.
In this article, I want to describe the heuristics the research team uses to vet high-impact charities, and encourage you to translate them to your giving.
But why should we evaluate the charities we give to? After all, giving is a good cause. I agree with you. But not all giving is effective when they are compared against the counterfactual. I mean, as investors, when we invest commercial capital, we always compare them against potentially better ones out there. If we are disciplined enough to reason about counterfactuals in our investments, why can't we translate them to our donations?
So here are four ways to evaluate a charity the way you'd evaluate a startup.
The ITN Framework as a deal flow filter
ITN stands for Importance, Tractability, Neglectedness. It's the core prioritisation framework from the Effective Altruism movement, used to evaluate which causes or problems deserve philanthropic or research attention.
Importance — How much does this problem matter? How many people are affected, and how severely? A problem affecting millions of people in a significant way scores higher than one affecting a few people mildly.
Tractability — How solvable is it? If you doubled the resources going into this problem, how much progress would you expect? Some problems are hard regardless of funding; others have clear, replicable solutions waiting to be scaled.
Neglectedness — How much attention is it already getting? A problem receiving little funding relative to its scale has higher marginal returns on additional investment — your contribution makes a bigger difference precisely because fewer others are making it.
ITN is essentially a deal flow filter. VCs don't do full due diligence on every opportunity; they use fast heuristics to decide which deals deserve deeper attention. ITN does the same for causes. What if we used this to quickly identify high-impact charities that could return the most impact per donation?
A theory of change as an investment thesis
A strong thesis explains a causal logic. This is the same as a theory of change. A theory of change says: If we do X, then Y happens, because Z is true about this problem. It has assumptions you can stress-test, a causal chain you can track, and a failure mode you can spot early. Before donating, ask for one.
An impact model as a financial model
In investment, financial modelling does three things. It compels you to make your assumptions explicit and stress-testable. It translates a qualitative thesis into quantitative claims, and it produces a decision metric. In charity evaluation, the impact model also does this. Impact models, like a fully sophisticated CEA or rapid BOTECs with Fermi estimates, compel you to explicitly state the assumptions behind impact and avoid guesswork based on feelings. It also produces a cost/impact metric that makes it easy to identify inventions with high impact returns.
An org chart as a cap table
How often do you think about a founder's and an organization's characteristics before donating?
If we ask for cap tables before funding, why don't we do the same with our giving? This could mean looking into features like the organization’s systems, staff, and ops, and founders’ characteristics like execution capacity, community legacy, and openness to evaluation and accountability.
There are pushbacks when you try to encourage people to give more effectively. I get this a lot. “Not everything is measurable”, they say. And it seems almost sacrilegious to triage your giving based on data.
I think these concerns are valid. What I tell clients is to take baby steps. Maybe you aren’t ready to pivot your donations to a high-impact charity. What if you write to your current charity and ask to review their theory of change? If anything, doing so could make them start thinking about impact in concrete terms. If the reward for disciplined investment is high financial return, I think the reward for philanthropic capital should be high impact returns. Can we double down on this?
