The challenges with restricted funding are what are leading to Gofundme, Indiegogo like campaigns, which sometimes take all your resources and attention away from doing the work you need to do to raising funds creatively and sometimes coloring outside the lines from what is acceptable by IRS.
In a recent foundation grant, we agreed to do additional three events to provide follow up, we were given a grant agreement that we didn’t have any input in terms of measurement, why certain metrics mattered or much in terms of direction. We found ourselves chasing these three events, that were not part of our model, not something that made sense for us to do without significant redesign and quite honestly, based on the past track record of working with that demographic pool, we didn’t have good engagement record. In the end, we barely covered our expenses, we incurred far more in staff time in creating the reports that we didn’t design or have much input in.
Small nonprofits like us often say yes too quickly to the money without questioning and pushing back. It ends up hurting us in the long run in lost time and deviation from our core programming that matches with our skill set and resources.
This sort of experience and laborious IRS and board bureaucracy is going to lead many to leave the sector and create more impact and mission focused B corp models. In the end, what is meant to add capacity and grow the sector (foundations) are ultimately going to cause demise of some nonprofits, burnout of nonprofit EDs and while that isn’t the intended outcome, it certainly is the case that we are seeing in our conversations.
This is timely…considering foundation funding can manage to give unrestricted funding opportunities even if around specific topics but not box non-profits into performing to their visions versus meeting the true needs of the population to be served.
Agree with all you said. Only wonder when the meeting you described at the Battery in SF will become an on-going conversation between donors, social purpose org leaders, researchers, clients, etc. on Google+ and other on-line platforms.
If I share my vision, ideas, theory of change, history, challenges, goals, needs, etc. on a web site in great depth, what can I communicate in a 10-30 minute pitch that makes any sense to people who may not be thinking along with me, and who my not be doing their own deeper learning to understand how programs like mine contribute to solutions and how they can help.
When, IF…, this becomes practice, then we can look forward to a different future.
We like to think that private charitable giving is different to, say, buying a service. In my experience, donations are much more transactional than most donors admit. Ever more donations come with strings, or restrictions, attached. This is tolerable in some cases: a donor giving to a relief organisation in response to a specific disaster, or a foundation giving to a university for a specific line of research.
When it comes to more innovative or entrepreneurial action, though, it is dangerous and needs to stop, for a few simple reasons.
First, although social entrepreneurs rarely complain—feeling that they are the weaker party at the fundraising table—restrictions are terrible for the growth of their organisations. Typically, restrictions direct spending towards field activities rather than core investments in people, systems, and infrastructure that could drive growth. And just as importantly, extensive reporting on the use of funds eats up precious management resources and limits the organisation’s ability to raise funds from several donors for the same set of activities.
In short, restrictions can be destructive because they prompt social entrepreneurs to start tailored activities that are doomed for dependency or death.
Secondly, most restrictions are unnecessary. They have become a standard practice of presumably professional, strategic giving that nobody questions anymore. But if grant makers feel as though they need to impose control of this kind, it would seem that they do not fully buy into the organisation they’re supporting—and should have used their resources towards a better selection. Any grantee will admit that it is flexible, unrestricted funding that enables their organisation to operate at all. But luckily, in my experience, donors can be convinced more often than not to drop restrictions and opt for smarter reporting or other forms of accountability.
Thirdly, restrictions often prompt grantees to lie to funders, especially when multiple funders impose overlapping restrictions. Tracking which money to spend on what turns into a sort of “ninja accounting” with misrepresentations that damage trust between donor and grantee, and may lead to even tighter controls—a vicious circle of mistrust that serves nobody.
Finally, and perhaps most surprisingly, this practice may actually not be compliant with local charity regulations. Under my German jurisdiction, for example, a donor may not influence the grantee’s operations after the grant is given. If they do exercise influence on the organisation’s operations—for example, by approving spending, deciding on activities, or managing PR—they enter (taxable) sponsorship territory. If donors really want to have a pre-specified set of activities implemented for them, they should consider buying that as a service on the commercial market.
It is time someone said it: Restrictions are not the call sign of a professional grant maker, but a contrived and corrosive control mechanism. They are bad for all parties. Let’s put an end to them.
Thanks for all the great comments! It’s been so validating to hear the enthusiastic support for this argument. It makes it really clear that we need to rethink the funder/grantee relationship in order for social innovation to thrive. One foundation that does a great job is Peery Foundation, who has developed practices around grantee-centered grantmaking. Mulago Foundation and Draper Richards Kaplan Foundation also do a great job of this. Any other examples of foundations that are doing well here?
I know I’m late to the game, but I think the trends you mention are spot on - and concerning. If you look at other funder / entrepreneur relationships, like VC, you see that the investors are essentially placing a bet on the entrepreneur and trusting that they will use the capital as they see fit. This investment is typically used for talent, systems, technology, marketing, etc. - all things that would qualify as “overhead” in the non-profit context and that non-profit leaders rarely get to prioritize given the restrictions you mention.
I think the reasons for this are two-fold (probably more than two, but I’ll start there). (1) There is a better realization of the mutual benefit created; investors are getting the same, if not greater, value from the entrepreneur as vice versa, and (2) There is competition - if an investor were to come to the table with undue restrictions on their capital, the entrepreneur would simply choose another term sheet.
Of course, this gets to the real root of the issue, the mismatch of supply and demand. Right now there is much greater demand for philanthropic capital than supply, so the lack of competition allows funders to call all of the shots (which begs the question if there needs to be much more consolidation of nonprofits).
If philanthropy is - as you rightly state - moving more towards a private sector mindset, I think funders need to understand the mutual value that is created in their relationship with nonprofits (they have their high-level systems view because they have learned a million lessons alongside their multiple grantees).
COMMENTS
BY Ritu Sharma
ON March 18, 2015 12:15 PM
The challenges with restricted funding are what are leading to Gofundme, Indiegogo like campaigns, which sometimes take all your resources and attention away from doing the work you need to do to raising funds creatively and sometimes coloring outside the lines from what is acceptable by IRS.
In a recent foundation grant, we agreed to do additional three events to provide follow up, we were given a grant agreement that we didn’t have any input in terms of measurement, why certain metrics mattered or much in terms of direction. We found ourselves chasing these three events, that were not part of our model, not something that made sense for us to do without significant redesign and quite honestly, based on the past track record of working with that demographic pool, we didn’t have good engagement record. In the end, we barely covered our expenses, we incurred far more in staff time in creating the reports that we didn’t design or have much input in.
Small nonprofits like us often say yes too quickly to the money without questioning and pushing back. It ends up hurting us in the long run in lost time and deviation from our core programming that matches with our skill set and resources.
This sort of experience and laborious IRS and board bureaucracy is going to lead many to leave the sector and create more impact and mission focused B corp models. In the end, what is meant to add capacity and grow the sector (foundations) are ultimately going to cause demise of some nonprofits, burnout of nonprofit EDs and while that isn’t the intended outcome, it certainly is the case that we are seeing in our conversations.
BY Paul Shoemaker
ON March 19, 2015 03:18 AM
oh hell yes!! http://www.ssireview.org/pdf/Re-Constructing_Philanthropy_FINAL.pdf
BY Melissa Powless Chacon
ON March 19, 2015 01:34 PM
This is timely…considering foundation funding can manage to give unrestricted funding opportunities even if around specific topics but not box non-profits into performing to their visions versus meeting the true needs of the population to be served.
BY Melissa Powless Chacon
ON March 19, 2015 01:37 PM
@Paul Shoemaker…hit the nail on the head. Thanks for sharing!
BY Daniel F. Bassill
ON March 19, 2015 02:14 PM
Agree with all you said. Only wonder when the meeting you described at the Battery in SF will become an on-going conversation between donors, social purpose org leaders, researchers, clients, etc. on Google+ and other on-line platforms.
If I share my vision, ideas, theory of change, history, challenges, goals, needs, etc. on a web site in great depth, what can I communicate in a 10-30 minute pitch that makes any sense to people who may not be thinking along with me, and who my not be doing their own deeper learning to understand how programs like mine contribute to solutions and how they can help.
When, IF…, this becomes practice, then we can look forward to a different future.
BY Felix Oldenburg
ON March 22, 2015 08:01 AM
http://www.forbes.com/sites/ashoka/2014/11/24/lets-put-an-end-to-restricted-giving/
We like to think that private charitable giving is different to, say, buying a service. In my experience, donations are much more transactional than most donors admit. Ever more donations come with strings, or restrictions, attached. This is tolerable in some cases: a donor giving to a relief organisation in response to a specific disaster, or a foundation giving to a university for a specific line of research.
When it comes to more innovative or entrepreneurial action, though, it is dangerous and needs to stop, for a few simple reasons.
First, although social entrepreneurs rarely complain—feeling that they are the weaker party at the fundraising table—restrictions are terrible for the growth of their organisations. Typically, restrictions direct spending towards field activities rather than core investments in people, systems, and infrastructure that could drive growth. And just as importantly, extensive reporting on the use of funds eats up precious management resources and limits the organisation’s ability to raise funds from several donors for the same set of activities.
In short, restrictions can be destructive because they prompt social entrepreneurs to start tailored activities that are doomed for dependency or death.
Secondly, most restrictions are unnecessary. They have become a standard practice of presumably professional, strategic giving that nobody questions anymore. But if grant makers feel as though they need to impose control of this kind, it would seem that they do not fully buy into the organisation they’re supporting—and should have used their resources towards a better selection. Any grantee will admit that it is flexible, unrestricted funding that enables their organisation to operate at all. But luckily, in my experience, donors can be convinced more often than not to drop restrictions and opt for smarter reporting or other forms of accountability.
Thirdly, restrictions often prompt grantees to lie to funders, especially when multiple funders impose overlapping restrictions. Tracking which money to spend on what turns into a sort of “ninja accounting” with misrepresentations that damage trust between donor and grantee, and may lead to even tighter controls—a vicious circle of mistrust that serves nobody.
Finally, and perhaps most surprisingly, this practice may actually not be compliant with local charity regulations. Under my German jurisdiction, for example, a donor may not influence the grantee’s operations after the grant is given. If they do exercise influence on the organisation’s operations—for example, by approving spending, deciding on activities, or managing PR—they enter (taxable) sponsorship territory. If donors really want to have a pre-specified set of activities implemented for them, they should consider buying that as a service on the commercial market.
It is time someone said it: Restrictions are not the call sign of a professional grant maker, but a contrived and corrosive control mechanism. They are bad for all parties. Let’s put an end to them.
BY jocelynwyatt
ON March 27, 2015 03:01 PM
Thanks for all the great comments! It’s been so validating to hear the enthusiastic support for this argument. It makes it really clear that we need to rethink the funder/grantee relationship in order for social innovation to thrive. One foundation that does a great job is Peery Foundation, who has developed practices around grantee-centered grantmaking. Mulago Foundation and Draper Richards Kaplan Foundation also do a great job of this. Any other examples of foundations that are doing well here?
BY Beth B
ON April 18, 2015 05:51 AM
Thank you Jocelyn, for this great piece.
I know I’m late to the game, but I think the trends you mention are spot on - and concerning. If you look at other funder / entrepreneur relationships, like VC, you see that the investors are essentially placing a bet on the entrepreneur and trusting that they will use the capital as they see fit. This investment is typically used for talent, systems, technology, marketing, etc. - all things that would qualify as “overhead” in the non-profit context and that non-profit leaders rarely get to prioritize given the restrictions you mention.
I think the reasons for this are two-fold (probably more than two, but I’ll start there). (1) There is a better realization of the mutual benefit created; investors are getting the same, if not greater, value from the entrepreneur as vice versa, and (2) There is competition - if an investor were to come to the table with undue restrictions on their capital, the entrepreneur would simply choose another term sheet.
Of course, this gets to the real root of the issue, the mismatch of supply and demand. Right now there is much greater demand for philanthropic capital than supply, so the lack of competition allows funders to call all of the shots (which begs the question if there needs to be much more consolidation of nonprofits).
If philanthropy is - as you rightly state - moving more towards a private sector mindset, I think funders need to understand the mutual value that is created in their relationship with nonprofits (they have their high-level systems view because they have learned a million lessons alongside their multiple grantees).
P.S. We’re seeing similar trends in impact investing, as I wrote about recently here: http://www.ssireview.org/blog/entry/impact_investing_in_global_health_lets_get_flexible
Thanks again!