Category Archives: Foundations

‘Blood money’ that became a force for good

August 12, 2008 – 10:11 am

My newest column from the Financial Times is out. For those that read the print edition, my column has been moved to the Tuesday edition. For those keeping score, this column marks the one year anniversary of my On Philanthropy column. You will find the full archive of my past columns here.

‘Blood money’ that became a force for good

By Sean Stannard-Stockton

Published: August 12, 2008 - Link to original Financial Times column

Like everyone who lost a loved one on 9/11 Steve and Liz Alderman were devastated when their 25-year-old son, Peter, was killed in the World Trade Center attack. Like many, they chose to honor their son’s memory by creating a foundation in his name.

Of the 303 non-profit organizations launched in response to 9/11, only 27 were still operating five years later, according to a study by the NonProfit Times. What has kept the Peter C. Alderman Foundation going is his parents’ focus on maximizing the impact of their foundation through rigorous analysis. In the words of Peter’s father, Steve: “We will abandon anything that doesn’t work.”

When the Aldermans received $1.4m from the September 11 Victim Compensation Fund, Liz thought of it as “blood money” and almost turned it down. She told me recently that she used to lie awake at night thinking about the people she wanted to kill to avenge Peter’s death. But, with Steve’s encouragement, they accepted the money and launched a private foundation to help victims of terrorism and mass violence round the world.

“Using the money for a good cause was the best revenge,” Steve told me. “The only way for us to counteract great evil was with great good.”

Today the Peter C. Alderman Foundation, in partnership with Harvard University, builds mental health clinics and provides local doctors with the tools they need to treat the emotional wounds of victims of terrorism and mass violence in places such as Cambodia, Uganda and Rwanda. Its work has attracted partners such as the US Department of Health and Human Services and the pharmaceutical company, Eli Lily.

When I spoke to the Aldermans about their foundation, I was struck by the fact they, unlike most philanthropists who talk about the grants they have made, talk about the effect they have had. With an annual operating budget of $500,000 they have set out to help people across the globe. Liz and Steve found that, to have the impact they were seeking, they had to identify outstanding partners and find ways to leverage their giving.

“Starting a foundation was like starting a small business,” Steve said. “Our daughter, Jane, even got her MBA when she realized that we didn’t know enough about business.” She is now the foundation’s executive director.

The Aldermans represent the vanguard of philanthropy - individuals who have recognized that philanthropy is not defined by the act of giving but by the achievement of impact. It is both an emotional act of love by the giver as well as a strategic investment in our social fabric. The Aldermans have discovered that the most emotionally satisfying philanthropy is a gift that has impact.

Unlike many relatively small foundations, the Peter C. Alderman Foundation has an in-depth strategic plan. Through its mental health clinics, the foundation has reached 65,000 people with traumatic depression. Many grantmakers simply measure themselves by the scope of their activities, but the Alderman foundation goes further and documents that it has seen 80 per cent of the people it has treated return to productive lives.

In Cambodia, where the legacy of the genocidal Pol Pot and the brutal Khmer Rouge still grips the populace, the Aldermans have proved they can treat traumatic depression. Demand has been so large that the foundation created a second clinic to eliminate the 14-month waiting list. Importantly, the Aldermans have shown they can achieve their mission cost effectively; the Cambodia clinic system provides services at a cost of $50 a head.

The Peter C. Alderman Foundation is not the first to have a strategic plan, strong partners and demonstrated impact. But it is part of an emerging group of relatively small family foundations that are demonstrating how to use effectively these tools.

The Aldermans have shown that the most effective way both to help people and soothe their own emotional wounds is through a focused strategy and measurement of impact.

I was struck by how the Aldermans talked like seasoned social action experts with impact data and leverage statistics dominating our conversation. But, in the end, the Aldermans are grieving parents trying their best to make sense of a devastating loss. “I’ve realized that you can’t cry when you’re working on the computer,” Liz said. “You get the keys all wet.”

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

By Sean Stannard-Stockton | Also posted in Financial Times Column, Impact Measurement, New Philanthropy, Philanthropy | Comments (0)

Life = Risk

July 21, 2008 – 8:02 am

One of the core lessons of financial markets is that you can only increase returns by increasing risk (you can be more talented than other people at any given level of risk, but the level of risk is the primary determinate of long term returns). I’ve been talking for a long time about why the social sector needs to embrace the idea that only people that run the risk of failure (and therefore fail sometimes) can achieve greatness.

Here’s video proof:

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, New Philanthropy, Philanthropy, video | Comments (6)

The Big Give

July 15, 2008 – 10:50 am

The Big Give (not to be confused with Oprah’s Big Give television show) is an interesting UK based website that allows donors to search for projects to fund. Much like a stock screening tool (which lets you look for stocks to buy that fit your criteria), The Big Give lets donors “screen” projects based on size of gift, charitable “sector”, geographic location and beneficiaries. The site is a good example of the type of tool that I think will become the leading way that donors of all size will find the nonprofits they support. See the column I wrote for the Financial Times that looked at philanthropy in the year 2033 for more details.

Tactical Philanthropy reader Jon Brooks is Managing Director of The Big Give. Rather than explain the site myself, I thought I’d let Jon take the floor. (FYI: Jon sent me a note about The Big Give after I suggested that most foundations should stop accepting most grant requests and instead proactively seek out grantees. At the time, I said that being deluged by grant requested “sounds like spam to me.” So one way to think of The Big Give is as anti-spam software for your foundation!)

In 2007 the UK-based Reed Foundation was struggling to find quality funding proposals for its £1m/year grants. Unsolicited requests were never appropriate and seemed a waste of valuable charity resources.

With no paid members of staff, processing requests also used valuable foundation resources. Promoting the foundation’s need for quality proposals (e.g. through a website/marketing) would have only led to more administration work for both charities and the foundation.

We felt the most suitable solution was an online database of charity projects, and so developed The Big Give. UK charities upload and categorize their own projects - remaining responsible for all content - which allows the Reed Foundation to filter by various factors. Once we have a short-list of projects, we can contact the charity to discuss their proposal in more detail.

The beauty of the web is that we can share The Big Give with other donors looking for new projects. The site is free, and users remain anonymous until they decide to contact the charity. With over 4,500 charities registered, we do not carry out in-depth due diligence. Instead, we provide links to third party websites - such as the Charity Commission - to make it easy for donors to research potential charities to a level that suits their needs.

An example:

In 2007, the Reed Foundation trustees wanted to consider a £100k donation to rainforests. Other websites provided limited information on the work each rainforest charity did, and the charities’ own websites concentrated on the £5/month donors. The only way to find out if a charity could provide us with an interesting project was to ask - and that led to face-to-face meetings, offers to tailor projects to our needs, and so on.

With The Big Give, we are able to search for rainforest projects at £100k and have a short-list of concrete proposals within seconds. Only when we have selected the best ideas and checked the accounts of the charity behind the project do we meet with the charity.

My personal story:

As happens at many small foundations, I worked on the Reed Foundation alongside a full-time job within the Reed recruitment company. As the idea for The Big Give developed, I spent more time on the project and went full-time with The Big Give in August 2007. The website launched to charities in October 2008, and we are now looking at how to make The Big Give relevant to all charity donors.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, New Philanthropy, Philanthropy, Social Media, nptech | Comments (3)

The Foundation Review: Call for Papers

July 2, 2008 – 8:09 am

In February I wrote about Tactical Philanthropy reader Teri Behrens (director of evaluation at W.K. Kellogg Foundation), new project The Foundation Review. Said Teri at the time:

I am very excited about this new venture because I believe the time is ripe for a peer-reviewed publication that will provide practical information about what works — and doesn’t work — in foundation-funded programs.

Articles submitted for the first issue (Comprehensive Community Change), planned for December 2008 publication, are out for peer review now. Teri has issued a call for papers for issue 2 & 3. Click here to get the details on how to submit your own paper.

I asked Teri why she thinks The Foundation Review is needed and she provided the answers below:

* Philanthropy is increasingly becoming recognized as a profession in its own right. A peer reviewed journal is a key mechanism for building the knowledge base of the profession.

* There is increasing demand for transparency about the workings and results of foundations.

* Anyone who works in philanthropy can point to stacks of technical reports about the field of philanthropy (e.g., those published by Grantmakers for Effective Organizations and Foundation Strategies Group), and about the results accomplished by philanthropy (which are usually published by the foundations themselves). With no central place in which to publish these reports, retrieval and use of the information challenging at best.

* Existing disciplinary based peer reviewed journals may occasionally include articles on topics related to foundations, but they require a style of writing (e.g., an extensive literature review) that is not compatible with the way the sector works.

* Although much of what is published on the results of philanthropic work is written by external consultants — such as evaluation consultants — these consultants also may not have incentives or funding to enable them to spend time writing for peer reviewed publications. Further, disciplinary based journals may not be receptive to articles that report on the broader, community based issues that are generally of interest to foundations.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Information Sharing, Philanthropy, Tactical Philanthropy | Comments (1)

Update on Edna McConnell Clark’s Growth Capital Fund

June 27, 2008 – 1:10 pm

In December of last year I wrote about the growth capital fund being raised by the Edna McConnell Clark Foundation. At the time excerpted a description from a Stephanie Strom article in the New York Times.

A New York foundation that focuses largely on opportunities for low-income youths is creating a fund to help charities become bigger and more efficient.

The institution, the Edna McConnell Clark Foundation, has committed $39 million to the fund and attracted $49 million more from other foundations and individuals, putting it well on its way to achieving its goal of raising $120 million by June…

Yesterday I received an update from Nancy Roob, the CEO of the EMCF (below). I think the key reasons I am excited about this deal is that EMCF believes 1) “we need to explore and test better ways of financing high-performing organizations”, 2) that they are getting co-investors to “fund the same business plan”, 3) that their choice of organizations to fund is based on impact, and 4) that they are committed to “sharing learning”. These are some of the critical themes I have been writing about and that need to be investigated for philanthropic capital markets to come of age.

Bravo to Edna McConnell Clark and their co-investors!

I am extremely pleased to report that, as of June 26, 2008, we and our grantees have succeeded in achieving our goal of raising $120 million for these three organizations.

The grantees and the individual goals they have met are:

1. Nurse-Family Partnership, which has administered for 30 years a scientifically validated home-visitation program that improves the health, development and, eventually, the economic self-sufficiency of children born to first-time, low-income families ($50 million).

2. Youth Villages, which conducts cost-effective, evidence-based interventions, such as multi-systemic therapy, that help youth involved in the juvenile justice and foster care systems stay in or return to their homes ($40 million).

3. Citizen Schools, which improves the academic performance and high-school readiness of low-income, middle-school-age youth by providing rigorous academic support, leadership development, and hands-on learning projects led by volunteer “citizen teachers” and trained staff during after school hours ($30 million).

Of the $120 million total, EMCF trustees committed $39 million. We have been joined by [19 other investors].

Although reaching this goal is significant, it does not represent an end in and of itself. All three organizations will need to continue to raise significant amounts of renewable, reliable private and public funding to execute their growth strategies and achieve long-term sustainability. It is our belief that this initial infusion of $120 million in up-front growth capital will lay the groundwork and pave the way for additional investment and support by others.

We at the Edna McConnell Clark Foundation are most excited about the unprecedented nature and structure of these coordinated co-investments. These are three separately syndicated deals and our partners have joined us in investments of their choosing. What all three agreements have in common is that, in addition to financial support, co-investors have made a commitment to the same set of practices and protocols:

• Funding the same business plan. Grantees developed multi-year business plans with clear performance metrics and a road map showing how an infusion of up-front growth capital from the private sector could lead to longer-term financial sustainability, including new and increased public funding.

• Agreeing to the same terms and conditions for investment. Every investor has agreed to sign a memorandum of understanding that aligns the terms and conditions for each investment. Co-investors will meet as a group quarterly with grantee leadership to review performance. A critical goal here is easing the habitual reporting burden for grantee organizations.

• Adopting a performance-based approach to payout. A common payout schedule is part of the terms of investment and requires that grantees achieve key performance milestones and develop longer-term financing mechanisms at the pace their business plans call for. This should ensure that growth capital is drawn down wisely.

• Ensuring an effective exit. Raising up-front growth capital and spending it down over several years while other reliable and renewable funding streams kick in should ensure that co-investors will be able to exit responsibly and effectively. Although some co-investors may choose at a later date to fund another phase of growth, for now these deals are structured so that all parties involved can exit at their conclusion. Most co-investors, including EMCF, view our commitments as one-time in nature.

• Sharing learning. All co-investors are committed to learning together and being transparent with each other and the public about the pluses and minuses of this syndication model.
The Edna McConnell Clark Foundation’s role in this effort is different from anything we have done before. Although we will not directly manage other funders’ money (all funds flow from individual investors to the grantee), we are responsible for coordinating investor activities, organizing quarterly reports and meetings, and ensuring transparency and information flow between investors and grantees. This role significantly raises the bar for the Foundation in terms of our accountability to our funding partners, our grantees and ourselves.

We launched this pilot initiative because we knew we could no longer “go it alone” if we wanted to finance more effectively over the long run our most promising grantees. We also believe that, on behalf of our philanthropic and other colleagues in the field of youth development who are striving to solve at sufficient scale some of our nation’s most intractable social problems, we need to explore and test better ways of financing high-performing organizations with the potential to change dramatically the life trajectories of greater numbers of economically disadvantaged youth.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Information Sharing, New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (0)

Online Grant Applications

June 25, 2008 – 10:10 am

Flaw #9 from the Project Streamline report:

More than 80 percent of the grantmakers who responded to our survey reported that they have taken steps to make their information gathering practices “more efficient and streamlined for nonprofit applicants.”

…Many streamlining strategies have turned out to be useful to foundations and their grantees. Yet others, notably online applications and common grant applications, have produced mixed results, creating new issues for grantmakers and grantseekers alike.

…Common grantmaking forms for application and reporting (here, generically referred to as CGAs), which provide a single set of application and/or reporting questions that a substantial number of funders in a region (or funding area) will accept, have seemed like a logical time and resource saving tool for philanthropy. Yet our research found surprisingly little support for common grantmaking forms as a strategy for effective streamlining. CGAs are accepted (or, much less frequently, required) by 34 percent of foundations that responded to our survey.

Common grant applications is one of those ideas that make so much sense on the surface. But then I think about how any investment manager would reject the concept of having a standard template of information on which to base their decisions. Every person has at least slightly different criteria for making an investment or grantmaking decision.

But investors do have a very important infrastructure in place that philanthropy lacks. Investors in publicly traded markets know that every company will file their financials with the SEC. Unlike nonprofits’ 990s, SEC filings are not documents focused on compliance and IRS driven issues. SEC documents are designed to inform investors (the recent changes to the 990 did move them in this direction). In addition, companies host quarterly conference calls to discuss their business. While every investor has their own criteria for investing, they have a common set of information they can obtain about any company.

But here’s the critical difference. A common grant application means that there is a standard set of information that nonprofits can send to funders. In the stock market, the common set of information is available for investors to go get. This switch from passive receiving of information to proactively going out to find what you want is one of the core changes that the internet (and especially web 2.0) bring to the world. A common grant application misses the whole value of the internet. Instead of having nonprofits fill out and submit lots of grant applications, why don’t they just post a single set of common information for any funder to download? The 990 could serve this purpose, but why should funders let the IRS dictate what information is important? Why can’t the philanthropic community design their own “impact report” template that every nonprofit could complete and keep updated? (I asked Brian Gallagher, CEO of United Way of American, this question in a recent podcast.)

Personally I think that most funders should do away with even accepting most grant requests. I think it would be boring to be deluged with requests, most of which I wasn’t interested in. Sounds like spam to me. I’m much more interested in proactively identifying and researching the investments (for-profit or nonprofit) that I am interested in. It sure would help if I could pull up good information about nonprofits on Google Finance the same way I can pull up good information on stocks!

Update: I should be more clear when I say foundations should not accept grant applications. What I believe is that the system of philanthropy should switch from a system of where nonprofits ask for money to one where funders proactively seek out grantees. I layed this thesis out in a Financial Times column earlier this year. But within the current context, I realize there are ramifications if a single foundation stops accepting requests.

By Sean Stannard-Stockton | Also posted in Effective Giving, Fundraising, Grantmaking, Information Sharing, New Philanthropy, Open Source Philanthropy, Philanthropic Technology, Philanthropy, Social Media, Tactical Philanthropy, nonprofits, nptech | Comments (1)

connec+ipedia

June 23, 2008 – 6:00 am

For some time now I’ve been talking about the need for large foundations to share their knowledge base with the general public. While some people have made this argument from the standpoint of obligations that foundations have to the public, I’ve thought that foundations will find that they are able to more effectively further their own mission by sharing their knowledge base. Since individuals give seven time more money each year than all the foundations in the country combined, it stands to reason that foundations who share their knowledge with the public might influence some of these vast flows of funding to support the mission of the foundations.

Recently the Meyer Memorial Trust, a $700 million+ foundation that has proven innovative in a number of ways, launched an attempt to share their knowledge base with anyone who is interested. The project is called connect+ipedia. Rather than explain the project myself, I asked Amy Sample Ward - Communications and Learning Associate at MMT and author of the foundation’s New Media Blog - to share her thoughts with Tactical Philanthropy.

By Amy Sample Ward

If you are looking for some introductory information about after school programs, for example, and you do a Google search for that term, you would get 40,200,000 results. But, if you use connec+ipedia, you get 111, all of which are cards on the topic or organizations involved in such work. So, what is connec+ipedia?

Let’s start at the beginning: A few years ago, Meyer Memorial Trust (a private, regional foundation based in Portland, OR) recognized the need to explore the world of knowledge management. A full program staff turn over in a short amount of time (with program officers retiring after decades of service) meant an irrevocable loss of institutional knowledge, and the adoption of a knowledge management tool could ensure that such loss did not happen again. Marie Deatherage, Director of Communications & Learning, was tasked with the investigation and discovered that foundations around the country were investing a lot of dollars (millions, even) to develop tools that only the organization could use and that often faced little-to-no staff buy-in.

MMT had shown a commitment to both supporting open source software and to supporting the broader philanthropic and nonprofit sector through grantmaking and other projects, so, when Marie met the two great minds behind Grass Commons who were working on an open source wiki tool that incorporated database functionality, the choice seemed clear. What was also clear to the Trust, was that this wouldn’t be a tool for internal use only, but would be completely open. Other foundations, nonprofit organizations and state agencies were often all working on the same kinds of programatic work, so it would make sense that they should be able to collaborate online, in a way that allowed for sharing of best practices, data, standards, and other information—that these parties should all have access to the same information when working to make informed decisions about work that effected the field.

Wagn is the free, open source software that connec+ipedia runs on, combining the editable functionality of a wiki (like Wikipedia) with ‘tagging’ or referencing functionality of a database. Anyone (with Intern access) can view, search, and read the site. Users (request an invitation!) can edit, create and contribute content, all organized through people, places and things, as well as the intersections between them. Back to the initial example: If you wanted to find out about after school programs, searching Google may be too much information. Searching on connec+ipedia, instead, could mean a more easily digestible avenue to tailored information. Users from across MMT’s service area and beyond, in foundations, nonprofits, state agencies, as well as corporations and public citizens are already making connec+ipedia a resource. The Oregonian has even gotten behind it!

By Sean Stannard-Stockton | Also posted in Information Sharing, New Philanthropy, Open Source Philanthropy, Philanthropic Technology, Philanthropy, Social Media, Transparency, nptech | Comments (2)

Due-Diligence Redundancy

June 19, 2008 – 1:15 pm

Flaw #8 from the Project Streamline report:

Since it is difficult to determine exactly what is needed for due diligence (and since the list regularly changes), grantmakers tend to play it safe at the recommendation of their legal and financial advisors, requiring redundant and often unnecessary documentation from grantseekers. According to one foundation focus group participant, the foundation’s auditors give such confusing and contradictory advice that “we just make everyone go through the same process just in case, even though it seems like a waste of time for some of these grants.”

For example, the Tax Determination Letter—the original letter from the Internal Revenue Service (IRS), establishing an organization’s tax status—does not prove that the organization is still in good standing with the IRS. The only real way for grantmakers to verify an organization’s standing is to research the nonprofit before each payment to be sure that the letter has not been rescinded. The IRS suggests that granting organizations either access the Business Master File (a file that is updated monthly) from the IRS, or rely on a third-party (such as GuideStar’s Charity Check) to verify that the organization remains in good standing. However, most grantmakers, often at the insistence of their legal and/or financial counsel, continue to collect the Tax Determination Letter for each grant request.

“I know that we could stop asking for the IRS letter, and could use a system like GuideStar. However, our auditors ask for the tax letter to be in each file!”
—Grantmaker

I’m an advisor to foundations and other grantmaking entities. I want to help them be as efficient and effective as possible. But more than anything, I want to make sure they do not get into any trouble. Even though my firm is not directly charged with managing their compliance, I do everything I can to help my clients gain access to the tools and services they need to insure they never run afoul of the IRS. So I understand why this “flaw” exists.

It seems to me that one of the solutions to this sort of issue rests in the idea of nonprofit “stock exchanges”. I’m not convinced that there is a viable concept behind the idea of nonprofits “trading” on an exchange. But I do think that an “exchange” could emerge that would essentially make the promise to funders that listed nonprofits had passed a level of due diligence to qualify and were required to submit regular documentation of their ongoing compliance. It would not be the responsibility of the exchange to judge the impact of the nonprofit (that would be the funders job, just like the New York Stock Exchange does not suggest that every company is a good investment). But at least funders could dispatch with all the run of the mill due diligence and the IRS could extend a sort of safe harbor to funders who gave to listed nonprofits.

I wrote more about this idea in the Financial Times column titled The Donor Landscape of 2033 is Bright.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Information Sharing, New Philanthropy, Philanthropy, Transparency, nonprofits | Comments (1)

Unnecessary Reports

June 16, 2008 – 10:59 am

Flaw #6 from the Project Streamline report:

Despite funders’ stated desire to use reporting and evaluation for monitoring compliance and measuring impact, results from a 2004 study of funders’ attitudes and practices found that only about half of foundations surveyed used results strategically, either to influence future grantmaking or to share with the field. Our research came to the same conclusion: grantmakers indicated that they use most of what they collect primarily to monitor compliance.

“We assume that they feed everything to a giant fiery furnace.”
—Nonprofit Executive

I can imagine nothing more boring than requesting, organizing, recording and filing information that was of no use to me. That’s called busy work and it is the kind of work that is given to people who simply need to be kept out of trouble. If you are a program officer at a foundation and you are engaging in this kind of busy work; demand better. You are too smart to waste your time this way and your are wasting the time of smart people at nonprofits who have better things to do.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (0)

Philanthropy & Trust

June 12, 2008 – 9:49 am

Flaw #5 from the Project Streamline report:

Simply put, many nonprofits believe that foundations do not trust them, and they interpret the burdens of application and reporting as evidence of that distrust. Trust emerged as an important theme in nonprofit interviews and focus groups, particularly when fundraisers and executive directors contrasted foundation fundraising with individual donor solicitation. When working with individual donors, nonprofits fundraise through relationships. Donors typically put their faith and money in the organization based on a series of conversations and materials that the organization already has on hand, such as annual reports and brochures. Nonprofits commented that, compared to individuals, foundations are not always worth the effort. The difference, they hypothesized, has to do with trust.

According to a development officer from a large, international nonprofit organization, “Sometimes, I feel like program officers look at me as a used car salesman—like I’m smarmy. I wish there were a little more compassion.” And, indeed, foundations do regard development staff with suspicion. As one small foundation representative stated, “We don’t work with fundraisers… development staff are salespeople.”

Fundraisers ARE salespeople! There’s nothing wrong with selling, but it is incredible important when you deal with someone that you understand their objectives and incentives. In the for-profit marketplace, companies have an “investor relations” department. These groups still want to paint a nice picture of a company, but it is not so much their job to raise money as it is to answer investors’ questions. I’ve predicted in the past that a similar role will evolve at nonprofits.

But that being said, I do think it is important to trust your grantees. Don’t trust everyone and anyone, but if you refuse to give money to anyone you do not trust, you will be left with a handful of organizations that you do trust. In Grassroots Philanthropy, Bill Somerville talks about trust as one of the single most important issues in the nonprofit/grantee relationship.

If as a funder you do not trust the people you interact with at a nonprofit, walk the other way. There’s over a 1,000,000 other nonprofits you can look at instead.

Note: I want to elaborate on my statement that fundraisers are salespeople. Fundraisers get compensated to bring money into their organization. Not to assist donors in their grant decision making process. Now great fundraisers might reframe their role as a trusted advisor to their donors (just as many great salespeople do), but that doesn’t change the structure of the fundraising profession.

By Sean Stannard-Stockton | Also posted in Fundraising, Grantmaking, Philanthropy | Comments (3)

Bill Somerville on CBS

June 11, 2008 – 10:55 am
A producer at CBS read my Financial Times column about Bill Somerville and asked Bill to take them on the same field trip that he took me on. The result is this three minute video with the news crew visiting all the same places that I mentioned in my column.

Click here to view the video.

You have to watch the video just to hear Bill compare the grantmaking process of most foundations to someone trying to milk a cow upside down. The Project Streamline report seems to suggest that description is pretty accurate.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Impact Measurement, Media, Philanthropy, Venture Philanthropy, video | Comments (0)

Outsourcing Administrative Costs to Nonprofits

June 11, 2008 – 9:24 am
Flaw #4 in the Project Streamline report looks at the way foundations often “outsource” the burden of evaluation to nonprofits.
Because the “net grant” is often small, it is particularly problematic when grantseekers are required to do what is essentially the grantmaker’s work without compensation. We refer to this phenomenon as outsourcing the burden. Although many grantmakers do not want their grant money used for administrative and fundraising purposes, application and reporting often require labor- and time intensive activities of the grantseeker, activities that frequently can and arguably should be done by grantmakers.

Last time we discussed why it is a mistake for foundations to not consider nonprofits’ costs of obtaining a grant when they think about their strategy. Today I want to point out when “outsourcing” makes sense within the context of philanthropy and when it does not. Outsourcing is generally a strategy that is used when a third party is able to produce goods or services at lower cost (or better quality) than the party in question. In the context of foundation due diligence it is likely that foundations can achieve lower costs since they are making grants in larger volume than most of their grantees are receiving grants. Since, as we discussed last time, it is not relevant whether the cost falls on the foundation or the nonprofit, foundations should be seeking the low cost location for the work to be done.

But I would suggest that a more important issue is that foundations can likely produce higher quality due diligence by performing it themselves rather than by asking nonprofits to supply it. Nonprofit grant seekers have an incentive to paint the very best picture of themselves. Foundations on the other hand, presumably would take a more objective approach to gathering due diligence.

At Ensemble Capital we have our own systematic approach to analyzing potential investments. We gather a lot of data and qualitative information from material provided by the companies we are looking at and we often speak directly to management to get answers to our questions. But if a company submitted a prepared response to our request for information, I would see it for what it was; a marketing job intended to convince us that they were a good investment.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (0)

Net Grants

June 10, 2008 – 7:54 am
Flaw #3 identified in the Project Streamline report examines the concept of “net grants”
Nonprofits don’t really receive grants. They receive “net grants”—the total amount of funding minus the true cost of getting and managing the grant. Nonprofits must weigh the possibility of funding against the cost of seeking it…

…The grant and organization size were not found to be good predictors of the time spent during application and reporting: small and large grants can be equally time consuming, according to CEP’s data. In fact, nonprofits in our study reported that smaller foundations can be harder to work with: despite small grants, they often have highly specialized requirements.

In a recent post I mentioned that a friend of mine (who’s opinion I respect very much) disagrees with my use of “investing” as a frame for understanding philanthropy and thinks that philanthropy is better understood through models of “consumer behavior” (ie. donors do not invest in nonprofits, they “buy” the “social good” that nonprofits are creating). [quick tangent: George Overholser thinks both views are correct and differentiates between the two viewpoints in his article "Building is not buying"]. When thinking about the concept of “net grants” it is useful to look at the issue through the investing frame. If you are buying a product, you do not care about the seller’s costs. You just want to get the best value. But as an investor in a company, you want to help them as much as possible. Therefore you should be interested in reducing their costs. You want the size of your “net grant” to be as large as possible.

If you are buying the services of my firm Ensemble Capital, you don’t care what our company’s “client acquisition” costs are. But if you are investing in the company, you care very much about these costs. Another way to think about it is this; all of the money in a foundation has already been given to nonprofits, it is just being held for future delivery. This is factually the cases since the IRS only grants an income tax deduction for gifts to nonprofits because the gift is considered a “completed gift” to a nonprofit. That money literally belongs to the public. So whether a cost is paid for by a nonprofit or paid for by a foundation, the end result is the same. We know that foundations care very much about keeping their own administrative costs down, so the logical extension of this decision would be to minimize the cost to nonprofits of obtaining grants.

I think the concept of “net grants” is a powerful one and something foundations should understand when they think about their grant making. Realize too that the costs of the nonprofit that actually obtains the grant are not the only relevant costs. If 100 nonprofits spend $1,000 each to pursue a $100,000 grant, they the net grant would be $0. Nada. Nothing gained. In effect the foundation has just taken $1,000 away from the 99 nonprofits that failed to get the grant and delivered the money to the winning grantee.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (1)

Grant Proposal Requirements Aren’t “Right-Sized”

June 4, 2008 – 2:29 pm
Flaw #2 from the Project Streamline report:
We asked foundations whether their requirements varied depending on the size and type of grant requested. The majority (66 percent) don’t vary their requirements depending on the size of the grant given… Nearly three quarters (72.4 percent) also reported that they do not have a streamlined process for previously funded organizations, requiring long-time grantees to apply for repeat grants as though applying for the first time.

I generally use financial markets as a frame of reference when thinking about philanthropy. I think that while for-profit investing is not (in the least) a perfect analogy when talking about philanthropy, it can provide a useful frame for thinking about our field. But a friend of mine has argued to me that consumer behavior is a better frame of reference than investor behavior. That might be correct. So let’s think about the statement above from the standpoint of a consumer.

Do you spend more time thinking about and gathering information to prepare for a purchase of a new car or for a tube of toothpaste? It makes all the sense in the world to connect the amount of research you do with the size of your purchase (grant, investment, etc). And what about previously funded organizations? Don’t you have certain brands of products that you grab right off the shelf because you’ve bought it in the past and have already done your research? Humans are able to learn from experience. Imagine the inefficiency of going into a grocery store and looking over and evaluating every brand of every product you’re considering instead of spending your time evaluating what is new. You’d spend all your time deciding what to buy instead of benefiting from your purchases!

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (0)

Project Streamline Chairman Responds

June 3, 2008 – 8:54 am
Richard Toth, of the Robert Wood Johnson Foundation and chairman of Project Streamline, comments on my recent posts:
Sean, thanks for reporting on this project. I am the Chair of the Project Streamline and I am particularly interested in what you and your readers have to say about our conclusions. I think your comparison to the investment industry is very relevant. Do foundations really need data in different formats or is it just ³the way it has always been done?² Is it possible that foundations like investors could all be given the exact same information but the decision making process will be determined by how foundations look at the data? Can you imagine if publically traded companies were required to rewrite their financials for each of their major funders? Or draft a different prospectus for each hedge fund? It seems absurd. Yet, essentially that is what non-profits are facing. The question Project Streamline is trying to address is how can we improve this process?

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (0)