January 15, 2016

How Philanthropists Can Think About the Funding Process: The Six Ss of Grantmaking

One way philanthropists can approach the funding process is by organizing the activities into six categories: sourcing, screening, structuring, selecting, supporting, and sustaining.

The leaders, employees, and volunteers of the nonprofits you fund are on the front lines of philanthropy, and it is important to acknowledge that they will be the ones doing the heaviest lifting. To that point, it’s not much of a stretch to say that the single most important job of your philanthropy is choosing your grantees wisely, then doing everything you can to help them deliver the best possible results. The activities involved in choosing and supporting the nonprofits you fund can be broadly divided into what we call the “six Ss of grantmaking”—sourcing, screening, structuring, selecting, supporting, and sustaining.

It’s not much of a stretch to say that the single most important job of your philanthropy is choosing your grantees wisely, then doing everything you can to help them deliver the best possible results.

Sourcing: Finding the nonprofits you wish to fund

You may already be aware of a certain number of organizations working in the areas you're interested in supporting—and it can be challenging to move beyond the realm of nonprofits you already know. But in order to achieve the greatest impact possible, you will want to find the organizations best suited to helping you achieve your philanthropic goals. Typically, there are four major ways to find such nonprofits: You can use established relationships to uncover organizations, do your own research or evaluate existing research, seek out respected opinions, and solicit requests for proposals from interested organizations.

See more details about how you can find a set of organizations that you might want to support.

Screening: Researching potential grantees, or nonprofit due diligence

The process of researching a nonprofit you’re considering funding is a crucial part of the philanthropic process. Much is at stake for both sides. Yet this stage is also inspiring: Finding the best nonprofit (or nonprofits) that you can partner with on the path to philanthropic success is filled with promise and excitement. Researching potential grantees, a process you will also hear referred to as nonprofit due diligence, means that you will learn enough about the results, leadership, financials, and operations of an organization to make the right investment decision, while respecting the limited time of its busy leaders. As you learn about your potential grantees, a few questions are paramount: Does the organization’s mission align with your personal philanthropic goals? Is the organization well-positioned to carry out the proposed project? Can you work well together?

It’s important to tailor due diligence to the specifics of your situation. To help you do just that, you can read our complete guide on researching and evaluating organizations you’re considering funding.

Structuring: Deciding on the nature of the grants you make

Once you have identified an organization you might want to support, think about how you would structure that support. What type of grant would you offer? A grant's duration can be established up front, or conditioned on performance. Funding can be restricted to a specific program, or unrestricted. What size grant will you offer? When you started your nonprofit due diligence, you likely had ideas about this. Now it’s time to get specific. You’ll want to calibrate a grant's gross size by considering your overall capacity and portfolio decisions, and grantee need. What would the requirements of the grant be? You’ll want to articulate specific requirements such as the milestones you expect the grantee to reach.

Review more discussion about how much money you should give to any one organization, and how that money should be given.

Selecting: Making the choice to fund a specific nonprofit

Making the final decision to make a specific grant to a specific grantee is clearly a crucial part of the philanthropic process. In situations where there is one decision maker (an independent philanthropist, for example), this process is fairly straightforward. A more complicated decision-making environment, such as a family foundation, needs a formal process. Such a process will clarify who has the final authority to make the decision, how input will be considered, and what each stakeholder's role will be.

Find help in deciding how you—and any advisors, staff, or family members—should make the final "go/no go" funding decision.

Supporting: Collaborating with grantees to create success

As mentioned above, the nonprofits you support are crucial to the results of your philanthropy. If they aren’t successful, it’s essentially impossible for you to achieve success. That’s why learning how to truly partner with your grantees, including supporting them in a way that creates the best conditions for success, is so important. One key aspect of doing this is to fund nonprofit overhead in an appropriate way. Just as in the for-profit world, to achieve success nonprofits require essentials like top-notch workers, effective employee training, performance measurement systems, and adequate information technology, to name just a few. Unfortunately, all-too-often nonprofit overhead is underfunded, and the result is that nonprofits end up in a vicious cycle of being so hungry for decent infrastructure that they can barely function as organizations—let alone serve their beneficiaries. To break this “nonprofit starvation cycle,” funders must take the lead.

Find more information on how to partner with your grantees to create the optimal conditions for success.

Take a quick look into funding mistakes you can avoid.

Sustaining: Deciding on continued funding

Once you have supported a grantee for the agreed-upon term, you will need to make decisions around sustaining, that is, deciding whether to renew your grant, to exit but also to provide some sort of transitional support, or to exit without providing support. Each option has specific ramifications you will want to consider with great care. For example, when considering a funding relationship, you will want to think about whether a grantee relationship is continuing to support your developing philanthropic goals. Even if you no longer want to continue supporting a particular nonprofit, you will still want to honor that exiting a funding relationship—just as entering one—is a signature moment and can create long-lasting effects. This “wind down” process can take time, and you have an opportunity to set grantees up for success and maintain goodwill throughout the process. In those cases, regardless of why you are saying goodbye, there are good reasons to invest in managing transitions carefully and sustain what you’ve built.

Find guidance on considering whether to continue a funding relationship and how to think about exiting.

Find detailed guidance on how to exit grantee relationships with care.

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