Every day nonprofits work on the front lines to deliver critical services to those in need, advocate for those who cannot speak for themselves, educate the public on important issues, and improve untold lives throughout the world. Philanthropic dollars are critical to delivering this impact. Every stage in the philanthropic process—from a donor's sourcing of potential nonprofits to fund, to the initial research into a potential grantee, to decisions surrounding how much money to give, and what other supports to provide, to how a donor evaluates the success of a philanthropic gift—can be an opportunity to enhance, or detract from, a strong donor-grantee relationship. A complicating factor to this relationship is the vast difference in power between donors, who have the money, and grantees, who need it. Effective philanthropists are aware of this challenge and respond accordingly at each stage.
Researching a nonprofit you're thinking of funding
Conducting the right kind of research on a potential grantee is one of the most important keys to effective philanthropy. It takes proper due diligence—that is, learning enough about the results, leadership, financials, and operations of an organization, while respecting the limited time of its busy leaders—to determine whether you and a potential grantee are likely to be a successful match. Researching a potential grantee will help you uncover key information such as whether the nonprofit's mission aligns with your personal philanthropic goals, whether the organization is well-positioned to carry out the proposed project, and whether you can successfully partner for the results you seek.
Of course, the breadth and depth of your research will largely depend on factors such as the size of the grant you wish to make, the scope of your goals, and how involved you intend to be beyond the money you give. To help guide you, we've created the multi-part Donor Decision Tool, which advises you on various stages of your nonprofit research. Choose to start with the Light-Touch Approach for grants that are smaller or less critical, then move to a more intensive approach as your grant warrants.
Even if you intend to make a large or critical grant, you may want to learn anonymously as possible about the organization from publicly available documents and other sources.
Even if you intend to make a large or critical grant, you may want to start with the Light-Touch Approach to learn (as anonymously as possible) about the organization from publicly available documents and other sources. As Venture Philanthropy Partners Founding Chairman Mario Morino points out, it's easy to raise expectations of potential grantees. "You have to avoid getting yourself in positions where you have to say no," he says. Doing anonymous preliminary research will arm you with the basics and will help you prepare to meet people from the organization only if you need to go this route or as you become more certain about funding the nonprofit. You could also conduct (potentially confidential) interviews with other funders of the organization, and other stakeholders in the field. This will help you get smart both about the organization and the broader landscape that the nonprofit operates within. In this phase, you won't raise a grantee's expectations about receiving funding, and you won't waste its leaders' time if there are some obvious reasons to walk away.
That's important since, as mentioned, there is a vast difference in power between you and the potential grantee. A nonprofit will try to comply with your requests because they need the funding, but responding to such requests can be incredibly time-consuming and taxing for nonprofits. So to the extent possible, look for materials that already exist. In addition, only gather research to the extent required to make a decision. Part of that research may uncover weaknesses of a nonprofit, but be realistic in your assessment. Depending on the size, age, and growth trajectory of a nonprofit organization or a particular program, its capabilities will look quite different. For example, a startup will likely lack efficient systems or CEO-succession planning, but such areas offer excellent opportunities for partnership: You may choose to provide funding for leadership development or new technology to measure results and improve performance over the long-term. You may also choose to get personally involved by offering your strategic expertise, or making introductions to other funders.
Creating true collaboration with nonprofits you've decided to fundWithout true collaboration with the nonprofits you fund, money is wasted, which can ultimately limit the results you will achieve. Yet, achieving donor-grantee collaboration is extremely difficult. For one thing, few philanthropists are willing to fund nonprofit overhead, which forces many grantees into a cycle of trying to do more and more with less and less. As a result, they become starved for the resources necessary to deliver results. In the Bridgespan paper The Donor-Grantee Trap, which details this phenomenon, one nonprofit leader shares his experience, "Operating with subpar systems has meant that we simply couldn't support a bigger network. A smaller network, of course, means serving fewer kids."
Just as in the for-profit world, nonprofits require essentials to achieve success, like top-notch workers, effective employee training, performance measurement systems, and adequate information technology, to name just a few.
So what do good outcomes cost? Just as in the for-profit world, nonprofits require essentials to achieve success, like top-notch workers, effective employee training, performance measurement systems, and adequate information technology, to name just a few. "The for-profit world does not measure success by focusing on overhead," writes author Ann Goggins Gregory, "but if it did (by looking at sales, general and administrative costs as a percent of total sales), the average rate would be 25 percent." In other words, in the for-profit world, no one expects a company to achieve success without adequate funding for overhead, and yet, many expect nonprofits to do just that.
Relationships between philanthropists and the nonprofits they fund are complicated. In addition, achieving results in philanthropy can be difficult and complex. Still, at the heart of philanthropic work is the donor and grantee relationship, and helpful guidelines do exist, such as those offered by Thomas J. Tierney and Richard Steele in the abovementioned The Donor-Grantee Trap. Here are three:
- First, resource it right. Make sure you are identifying what resources grantees need to be truly successful against your expectations.
- Second, pursue partnership. All too often, Tierney and Steele say that donors feel that simply donating money earns them the title of "partner." In reality, true partnerships are marked by shared goals—are you and your grantee really trying to achieve the same thing?—and a productive working relationship. Aligned goals and a productive working relationship can likely only be attained over time, with candid conversations that allow for "give and take."
- Finally, donors and grantees should seek to get better together. This relies on true partnership and requires collaborating to learn what is and what isn't working.
To these points, a number of the philanthropists we interviewed for the Conversations with Remarkable Givers Video Series provide firsthand insight on how establishing trusted relationships and working to define success together can be critical to achieving success in philanthropy. Some philanthropists we interviewed provide more flexible funding, such as covering overhead and making unrestricted grants. This gives nonprofits the leeway to adapt their strategy as needed, to develop nonprofit leaders, and to identify quickly what works (or doesn't) in order to course correct, if necessary, and stay on track. Some of these philanthropists also work on behalf of nonprofits to attract government funding or funding from other donors.
To learn how you can research a nonprofit you're thinking of funding in the most effective way possible, start with:
Donor Decision Tool: Your Guide to Nonprofit Due Diligence
Should you fund a particular nonprofit? Our step-by-step guides on researching a potential grantee will lead you through the entire nonprofit due diligence process.
If you are looking for a short list of key questions to guide your research, review our Summary Interview Guide.
To learn how establish true partnerships with grantees, start with:
The Donor-Grantee Trap
How ineffective collaboration undermines philanthropic results for society and what can be done about it.
How Do I Build Strong Relationships with Grantees?
As a donor, your grantees' results are your results—they are creating change for the people and causes you care most passionately about. This short guide offers thoughts on how to ground your relationship in shared goals and create a productive working relationship.
The Nonprofit Starvation Cycle
A vicious cycle is leaving nonprofits so hungry for decent infrastructure that they can barely function as organizations—let alone serve their beneficiaries. To break the nonprofit starvation cycle, funders must take the lead.
If you are seeking to transition your funding away from a longtime grantee, and want to do so carefully, review:
Saying Goodbye: Exiting Grantee Relationships with Care
Inevitably, donors will have to transition away from grantees by reducing or ending support. Regardless of why you are saying goodbye (a change in strategy or a nonprofit not meeting your expectations, for example), it's worth the investment in managing the transition carefully. This guide offers tips as to how to do this well.
Thoughts from leading donors:
Ask First: Richard Atlas Gets Grantees to Identify What They Need (video)
"The people who are on the ground doing the work know more about what their needs are than we do," says Atlas, who asks grantees what supports they'd like in terms of leadership, staff, board development, and funding.
Mario Morino on Why Nonprofits Should Focus on Outcomes—and Why Philanthropists Should Help Them
Nonprofits must (and must be empowered to) set clear goals that can be supported with rigorous measurement to determine progress, says Venture Philanthropy Partner's Mario Morino.
The Art of Being a Philanthropist: Eli Broad's Three-Question Investing Test
Before making a serious philanthropic commitment of funding—and time—remarkable giver Eli Broad asks three questions.