Philanthropic Equity

The Fast Company blog had a nice piece a few days ago on what the Nonprofit Finance Fund Capital Partners call “philanthropic equity.” The basic premise of this approach involves using equity capital to fund nonprofit capacity building. Among the interesting angles: a nonprofit accounting system that tracks growth capital separately from general operating revenue. It doesn’t sound so radical but for most nonprofits, I’ll wager, it would dramatically shift the way they think about budgeting, accounting, and financial planning.

Nonprofit folks have heard for years about the importance of diversifying revenue streams, but outside of shifting from foundation dollars to donations and throwing in some events, I don’t have the sense that the nonprofit sector is pulling this off in any substantial way. Fast Company blogger Alice Korngold doesn’t talk much about what some of the creative approaches funded by the firm might look like. I think one of the challenges for this sort of effort to improve long-term financial viability for nonprofits is a lack of visibility for good examples of alternative revenue models. It’s not that the examples don’t exist, but they aren’t really part of the mainstream nonprofit conversation.

I suspect that the bigger challenges are cultural, though. Nonprofit folks often have a tough time conceptualizing revenue models that involve monetizing anything. It’s not a lack of imagination, but the norms of the sector itself – “We’re nonprofits . . . we don’t do that sort of thing” – can make it pretty hard to see some of the options. It’s not just the idea of monetizing that can be hard to get your head around, but accepting private investment capital and making large investments in long-term capacity (which looks a lot like what funders often call “excessive overhead”), well, the culture of nonprofits tends to resist rather than welcome.

One example of overcoming this resistance: A women’s leadership organization focused heavily on training recognized – thanks to a new board member with substantial corporate experience – that the market for their workshops was much larger than they had realized and willing to pay much than they were charging. They substantially increased their rates, generating a great deal more revenue while still fulfilling their mission of teaching leadership skills to women. To solve the access problem – making sure that women of all means could participate – they created new scholarship mechanisms, which turns out was easy to fund because of the increased revenue stream. This was a pretty radical shift, though, and I suspect that the conversations in the board meetings and among staff were challenging ones.

We’ve got a lot of work to do if we are serious about helping the nonprofit world think a little differently about how to approach the work of doing good.

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