New report says: a significant investment in nonprofit growth can really pay off

A recent report by the Nonprofit Finance Fund confirms what I’ve been saying about the need for significant investments in nonprofit revenue development for some time. In their words,

“Many nonprofits with strong programs and great results fail to thrive. One reason is the way the sector is currently financed. Nonprofits are rewarded for keeping margins tight, and few have access to the type of capital needed to explore better business models, scale impact, and create lasting change. In contrast to the money needed to fund “business as usual,” philanthropic equity can radically improve our ability to address society’s critical needs.”

What’s philanthropic equity? It’s big high stakes, high risk “investments” which are designed to enable nonprofits to make significant leaps forward in their program delivery and/or their business model. The report calls these kinds of investors “Builders.”

The report distinguishes Builders from “Buyers”  who support the ongoing programs or operations of a nonprofit. As I read the report, Builders understand that there are no guarantees, that they are taking a risk to help the organization undertake significant change. The payoff, if it arrives, is vastly scaled or improved program impact and sustainable growth.

The Nonprofit Finance Fund was able to collect multiyear data on nine organizations. The payoff:  program delivery grew 3.1x  and business model revenues grew by 2.0x in the organizations that received this philanthropic equity.

Here’s my layperson’s take on the report.

If you pump a lot of money (underscore “a lot”) into nonprofits over a few years, and they use it to make smart investments in transforming programs or business models, you might just get a big payoff in social impact and revenue enhancement.

To everyone thinking about replicating this out there, note that the amount of philanthropic equity invested in these organizations was pretty significant, ranging from a low of $3 million to upwards of $22 million (though not all of that money was spent by the receiving organizations at the time of the report).

For nonprofits: Here’s  a great report to help you justify a growth campaign to prospective Builders that will radically improve your business model and/or transform your social impact.

For institutional funders: If you want to see significant increases in an organization’s philanthropic revenues, you’ve got to think at a much larger  scale. Funding just one development director, with no other support, doesn’t really help organizations make the big leaps, in my opinion. But funding an entire staff in development, that would be a great take-away from this study.