07/10/2012 | 3 mins |

Nonprofit Due Diligence Done Well

07/10/2012 | 3 mins |

By Kathleen P. Enright

President and CEO, Grantmakers for Effective Organizations

Selecting the right grantee partner is probably the most important decision a grantmaker makes. Yet GEO’s national survey of staffed foundations in the U.S. found that insufficient or ineffective due diligence is frequently cited (by 21 percent of respondents) as the reason a grant was unsuccessful. (You can download the study here.)

Written proposals are only one indicator of whether an applicant represents a good fit and a smart investment. Due diligence, when done well, ensures alignment with a grantmaker’s mission, helps to distinguish nonprofit organizations that have a greater likelihood of success, and enables grantmakers to understand and manage the risks associated with various grants.

Yet there is no perfect level of information. The challenge is to learn what you need to know about a potential grantee without placing an undue burden on the nonprofit organization. The scope and demands placed on the nonprofit should be appropriate relative to the size of the potential grant. For instance, very small grants can and should be made after doing only basic due diligence. However if a grantmaker is considering a multiyear, several hundred thousand dollar investment, it is worth both your time and the potential grantee’s to go deeper.

Though we don’t have data on grantmaker practices specific to due diligence more broadly, on a positive note, half of all funders reported that their application requirements were proportionate to the size and type of grant and about 35 percent indicated that their renewal grant application requirements were less than original requirements.

Do these kinds of changes really matter to nonprofits? These may seem like small adjustments, but when you are a nonprofit executive stretched for time, reductions to application requirements for smaller grants free you up to focus more time on serving your community.
 

So how can grantmakers keep it simple to ensure a streamlined and effective due diligence process? Make sure to consider the following four key questions:

 

  • What do you really want to know? Answering this question will depend in large part on your relationship with the grantseeker, the type and size of the grant.
  • How will you get the information you need? Keep the grantseeker’s perspective in mind and recognize that information on an organization and its project can be gleaned from the organization’s proposal, conversations with the nonprofit’s leaders and staff, and through independent research.
  • Are there ways to stage the due diligence process? Grantmakers should consider what they need to know at different points in the due diligence process and whether there are ways to stage the process so grantseekers do not have to provide all the information and documentation at one time.
  • What can you reasonably expect to learn—and in what amount of time? Grantmakers should structure their due diligence with an eye to how much staff can reasonably be expected to do in a specified amount of time and how to help ensure that staff are using this time wisely.

About GEO

Grantmakers for Effective Organizations is a community of 3,000 individuals representing close to 400 grantmakers that are challenging the status quo in philanthropy to help nonprofits achieve more. Understanding that grantmakers are successful only to the extent that their grantees achieve meaningful results, GEO promotes strategies and practices that contribute to grantee success. We help grantmakers improve practices in areas which, through years of work in philanthropy, have been identified by innovators in the field as critical to nonprofit success: Learning for Improvement, Collaborative Problem-Solving, Funding Outcomes, Stakeholder Engagement and Scaling What Works. For more about GEO, visit our website at www.geofunders.org.
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