At this time of year, I like to ask: “What do I know today that I did not know a year ago?” and “What am I going to do differently in the coming year because of that knowledge?”
In that spirit, I’m thinking about what I’ve learned since I left my job seven years ago as a program officer at Rockefeller Foundation to lead Nonprofit Finance Fund, a national nonprofit lender and consultant.
What an eye-opener the last seven years have been. Learning directly from the nonprofits we help as well as research and other work we have done to develop nonprofit business models and financial strategy, I’ve come to realize that so much of the conventional wisdom about what makes for good grant making is misguided. I’ve learned that standard practices on the money-giving side of philanthropy often impede effectiveness, stemming from the foundation world’s aversion to risk and persisting because of power dynamics that make it difficult for grant makers and grant seekers to learn from each other.
Here are seven questions I wish I had asked of myself and my foundation colleagues:
Why don’t we just give general operating support?
Like most foundations, ours had a strategy and looked for grantees undertaking specific projects that fit into it. But great nonprofits have their own strategies. By pushing many of them to fit into a specific type of restricted funding, I risked not getting their best. Letting effective nonprofits use our grants in ways they thought best would more likely have generated the best results.
Why don’t we make more multiyear grants?
Running a five-year grant-making project with a set budget at the foundation, I didn’t want to constrain my funding flexibility for future years, but I now realize that short-term funding causes distraction for nonprofits and hinders long-term improvement. Nonprofit Finance Fund’s 2018 State of the Nonprofit Sector Survey found that half of U.S. nonprofits operate with only enough cash on hand to last three months or less. Yet we know that almost none of the issues we all work on will be solved in the next months or even years. Longer-term funding commitments allow nonprofits to breathe and to invest in ways that improve their ability to achieve their missions over time, such as partnerships, new program areas, etc.
Why do we award large grants to large organizations but only small grants to small ones?
I thought I was being prudent by limiting grant sizes to a certain share of an organization’s total revenue. I wish I had recognized how this approach could undermine racial equity. Many organizations, especially those led by people of color, are small because they have been denied access to the networks that allow others to grow. Setting funding to a share of an organization’s budget reinforces rather than dismantles this harmful legacy.
Why do we favor nonprofits with low overhead?
I pushed back on requests to give money for overhead , thinking I was not going to let our foundation be taken for a ride. But I now see how misguided the focus on overhead can be. All organizations need to invest in people, research, evaluation, and experimentation to do a great job and to get better over time. Capping overhead forces organizations to underinvest in these crucial areas and signals that you do not value them. I wish I had taken more time to understand how my grantees connected investments to better long-term performance and worked with them to realistically quantify and cover their full costs.
Why don’t we allow grantees to keep their savings?
I cringe when I remember asking a nonprofit that had delivered on a project for half the projected cost to just wire back the unspent money. Now I realize I was basically saying I did not value its ability to find a more efficient way to get the job done or that this success did not warrant further investment in its work.
What are we doing to increase the net size of our grants?
I knew how much I was giving in grants, but I did not calculate how much less my grantees were actually getting after they paid the costs of obtaining and managing those grants. I should have asked how many hours they were spending managing the relationship with our foundation and found ways to reduce that burden.
Why do foundations ask grantees to provide formal written reports, and in a format unique to each of us?
It’s not like getting the information in a particular report format helped me make smarter grants. I wish I had used the time my grantees spent writing those reports to hold honest and open conversations together instead.
I hope that sharing these questions can help spark new practices, or at least useful discussions, especially given the dynamism in the foundation world these days with so many new leaders, new foundations, and new projects and collaborations. We have seen in our work helping foundations and their grantees to have more trusting and fact-based discussions about financial needs that change is possible and powerful.
There are no one-size-fits-all solutions, but there are definitely two wrong answers to these questions: “Because we always have” and “Because that’s what everyone else does.” Continuing with business as usual will not get the results that foundations’ generosity deserves and the communities we all serve need.
Antony Bugg-Levine is CEO of Nonprofit Finance Fund and founding board chair of the Global Impact Investing Network. He has previously worked for the Rockefeller Foundation, McKinsey, and TechnoServe.
