Philanthropy & Funding

The Joy of Hanging in There

Don’t stop funding just because you can.

Many funders, from small family outfits to marquee foundations, seem to operate under an unwritten rule that organizations should be funded for a limited time—say, two to five years—and then dumped in favor of newer, fresher faces. The pace of turnover is familiar to anyone who regularly reads about celebrity marriages while standing in the grocery store check-out line.

I can understand why this kind of churn happens in Hollywood, but I remain puzzled by its persistence in philanthropy. It doesn’t make sense. Let’s say you invested in a company and things are going well. Your due diligence was solid, you made a smart bet, and it’s starting to pay off. Profits are growing, and so you what—pull your money? Of course not. If anything, you double down.

Ongoing, unrestricted funding is the closest thing we have to equity investment in the nonprofit world. With a for-profit company, a one-time investment can continue to generate profit. In the not-for-profit world, if you want more impact, you need to put in more money. Good organizations provide ever-greater bang for the buck through efficiencies of scale, opportunities for leverage, and iterative refinement of their model and operations—but they still need that buck. 

OK, sure, sometimes organizations don’t need any more money, like when:

  • The problem is solved for good—like smallpox and now Guinea worm.  There aren’t a lot more: Polio, for example, is more a case of “we gotta keep funding” than of “problem solved.”  
  • Earned revenue can drive impact to scale—sure, but it doesn’t happen very often, and always takes a lot longer and a lot more grant money than you think it will.
  • Government takes on the idea and executes on it effectively at scale—also doesn’t happen very often, and also always takes a lot longer and a lot more grant money than you think it will.

Mostly they do need your money. The role of philanthropy is to make up for market failure, to make vital stuff happen that wouldn’t happen otherwise. As long as an organization is taking on something important, demonstrates real, cost-effective impact, and continues to get better at what it does, it ought to get your money.

So why do funders bail on organizations that are having real, growing impact? Why this constant churn? One reason funders give is, “Our money doesn’t make a difference anymore.” Of course it does! Money’s fungible! When you provide money to an effective organization, your dollars have the same effect as everyone else’s. If those dollars are unrestricted, they’re even more valuable. A relatively small amount of unrestricted funding can make a big difference, even for organizations that you’d think were too large to notice. A $20 million/year organization once told us that our unrestricted $100,000 helped them secure a $3 million restricted grant.

And then there’s: “We don’t want to make them dependent on us.” OK, then here’s what you do: Don’t ever fund more than, say, 30 percent of anyone’s budget. Make sure that the organization grows that budget so that your percentage gets smaller over time, even if you increase your annual give. Bail out if you don’t see persistent growth in impact and revenue. There. Problem solved.

Another reason funders I talk to seem to think that they can walk away from a solid organization in good conscience is because the successes they’ve funded will attract a host of other impact-minded funders. That’s magical thinking. There is no market for impact; that “host” is more of a ragged band, and your departure just makes the organization scramble to fill yet another hole. Yes, a good organization will continue to thrive without you, but sadly, the successes you helped it achieve don’t give it a fund-raising edge in a world of unaccountable donors, where impact runs a distant third behind novelty and status. 

Don’t walk away from a good thing! When the impact isn’t there, when the scale you’d hoped for no longer seems likely to materialize, then by all means get out—I mean it, get out—but don’t waste a real success. There aren’t enough of them. 

There are so many benefits to staying the course. You get the privilege of working with wonderful people as they struggle and evolve, and the fun of seeing them year after year. You get huge efficiencies: less time prospecting, less due diligence, and of course, less time spent on fundraising and paperwork by the organizations themselves. You get leverage: Your continued funding is a vote of confidence that can attract and reassure other funders. You get a solid, vital network that grows with your portfolio.

And you learn a ton. It’s like this: In the bad old days when I was a medical resident, we had to stay up for 36 hours at a time. It was a stupid system that had only one virtue: You really got to see the evolution of a case, often from start to finish. That perspective was invaluable, and it mirrors what you learn from sticking with an organization as it moves through the stages to impact at scale. It’s priceless learning that pays off for you and for every other group you work with. (And you can get eight hours of sleep, as long as you don’t binge-watch Orange Is the New Black).

I mean, c’mon! How often is it that you get to have more fun and achieve more impact while doing less work? You don’t have to stay forever, just don’t walk away from success—don’t exit on a schedule just because. There are smart strategies that can define the useful length of funding—perhaps you’re really good at early start-ups or at turning around troubled organizations—but don’t default into an arbitrary non-strategy, and realize that each organization’s trajectory and needs are different. Things usually take longer than we’d hope, because the people we fund are doing hard things in hard places. We don’t need less rigor, but we might need a little more patience. Stick it out.

Read more stories by Kevin Starr.

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COMMENTS

  • BY Arlene Samen

    ON March 8, 2016 02:48 AM

    Excellent Article! You are right, it does not make sense for funders to leave when you are making great strides.

  • Thank you for writing this Kevin! Hoping it resonates with your peer foundations. More patience is critical.

  • BY Alexandra Christy

    ON March 24, 2016 08:53 AM

    I completely agree. I’ve worked in and around foundations all my life and the BEST most far-reaching grants were the ones that followed the patient capital principle.  “Flavor of the month” grantmaking is for rookie grantmakers.  Full stop.

  • Kola Masha's avatar

    BY Kola Masha

    ON March 31, 2016 01:48 AM

    The development community has created a lot of good in the world.  I have however found it very odd, that many well-meaning organizations focus on the concept of “Additionality”,  when making investment decisions.  This article makes one of the most compelling and succinct arguments against the flawed concept of additionality i.e if the organization would be successful without my money, why should I give my money.

    This is best highlighted in the line,  “Let’s say you invested in a company and things are going well… and it’s starting to pay off. Profits are growing, and so you what—pull your money? Of course not. If anything, you double down”

    Thank you Kevin…

    I would suggest you extend your argument to not just decisions to exit and investment but also to decisions to make new investments.  The same argument applies…  investments should be channeled to highly scalable, high impact organizations.

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