Investing in Long-Term Efforts to Strengthen Nonprofits Pays Off, Study Finds

Charities that have undergone campaigns to raise “philanthropic equity” have, on average, tripled the amount of services they provide, according to a new report by NFF Capital Partners, which advised the nine charities on those campaigns.

The Nonprofit Finance Fund, an organization that helps nonprofit groups nationwide, set up NFF Capital Partners in 2006 to help charities raise philanthropic equity, which the organization defines as money that a nonprofit uses to build both its capacity to deliver services and the business operations that will make the organization sustainable over the long term.

It’s important for charities to make a clear distinction between philanthropic equity and the “ordinary revenue” they need year in and year out to provide services, says Craig Reigel, partner at NFF Capital Partners, in New York.

“Philanthropic equity is inherently a one-time investment in paying to change the organization,” he says.

New Achievements

Multiyear data are available for nine of the philanthropic-equity campaigns with which NFF Capital Partners has worked most closely. Among those groups, the amount of money the groups bring in for programs and operations—a figure that excludes the growth capital—has on average more than doubled.

The new report profiles some of the philanthropic-equity campaigns run by organizations in NFF Capital Partners’s portfolio, including College Summit, an education group in Washington that seeks to increase college-enrollment rates in poor school districts; Root Capital, a Cambridge, Mass., organization that lends in rural areas in Africa and South America to help build and expand businesses; and VolunteerMatch, a San Francisco charity that uses the Internet to connect people to service opportunities.

VolunteerMatch, for example, raised $4.2-million in philanthropic equity in a campaign that started in 2007. In 2009, the organization made 677,000 volunteer referrals compared with 441,000 in 2006.

Off the ‘Treadmill’

Philanthropic-equity campaigns are important because they allow organizations to make “significant long-term investments” in building their groups, rather than the tepid, small-scale investments that nonprofit groups usually make because they don’t know where the money will come from to finish carrying out their expansion plans, says Mr. Reigel.

“It lets the folks who are running these organizations get off the continuous fund-raising treadmill,” he says. “It lets the social entrepreneurs focus very much on a single strategy as opposed to trying to respond in a flavor-of-the-day sort of way to all of the different funders.”

The losses that foundation endowments sustained during the financial crisis have made it more difficult for organizations running these campaigns to win large, flexible grants, says Mr. Reigel. But, he says, grant makers have said they are increasingly interested in the idea of making big bets on a few groups.

However, he cautions, foundations continue to resist the idea of co-investing with other grant makers and allowing nonprofits to follow a common set of reporting standards for a project that gets money from different foundations.

Says Mr. Reigel: “We’re a long way from having formal syndicates that invest in simple, unified terms the way that for-profits do.”