Not All Nonprofit Mergers Are Created Equal

It’s amazing to see the number of community-based donor funds springing up around the country—funds designed to spur the use of and underwrite nonprofit collaboration initiatives in Cleveland, Boston, San Francisco, New York, and other cities. These include the Lodestar Fund, which sponsors the national Collaboration Prize; the Sea Change/Lodestar Fund, a collaboration between Sea Change Capital Partners and the Lodestar Foundation that has a national fund and a local fund; and the Catalyst Fund, managed by the Nonprofit Finance Fund.

A different collaboration fund, the Community Catalyst Fund (CCF), is a project of the Foundation for the Carolinas in Charlotte, North Carolina. Brian Collier, the senior vice president for Philanthropy at the Foundation, shared with me some reflections on the outcomes of the fund’s work. Its work is summarized in a report issued this past March called “Catalyzing Nonprofit Collaboration,” which looks at the results of their first two years of grant making.

The Foundation for the Carolinas serves the 13-county region around Charlotte, and in September 2009, it launched a $4 million fund to support nonprofit mergers and partnerships, and to educate the field about strategic restructuring. Importantly, it built-in a strong evaluation component to determine what impact the fund had on engaging the sector in strategic restructuring. The final report is the story of what it learned while spending down the fund these past three years.

I asked Brian if he was seeing a lot of merger activity among nonprofits in his region. He replied “We have learned that the pain threshold is really high for nonprofits here. There’s still a lot of resistance to mergers and collaboration.” Having observed this for myself in the Midwest, I wanted to know how the fund’s strategy changed over time. Brian explained,  “We started out funding some mergers and quickly realized that a fund of $4 million is not big enough to underwrite many if you are averaging $250,000 to $500,000 per transaction. I can say now that not every merger is equal; unfortunately, beyond general education about ways to collaborate and innovate, we were not going to be able to help small nonprofits with budgets of $50,000 merge with one another. In other words, they had to do it on their own or probably go out of business. Over the course of the initiative, our thinking evolved, and we figured out that if we wanted to have an impact on the nonprofit sector, we were going to have to look beyond mergers.”

Most interesting of all, CCF evolved its funding support from single transactions to system-wide consolidations in the nonprofit and government sectors. For instance, the fund examined library systems, and city and county government consolidations. Ongoing barriers to collaboration led CCF to adapt its funding model further by initiating its own sector-wide collaboration efforts, which a nonprofit leader chosen by the fund led. This approach resulted in new collaborations that addressed issues such as out-of-school time needs for children and workforce development.

Along the way, CCF experimented with funding other types of collaborations, such as back-office sharing and co-location models. In the process of doing all of this, it brought together a unique blend of foundations, venture capitalists, and funding institution staff to “walk-the-walk” of collaboration, in the same way that foundations ask grantees to do.

There has been a real learning curve for the CCF collaboration fund, which is good. One of the lessons identified in the report says it best: “Funding collaboration involves risks and surprises ... gauging success requires both a broad and long-term view.” The best collaboration funding efforts have this mindset.

Read more stories by Jean Butzen.