Philanthropic equity, or “growth capital”, is just a fancy way to say money that nonprofits desperately need. The idea behind philanthropic equity is that nonprofits are only allowed to raise money for programs, when what they really need to make their programs bigger and better is money to build a stronger organization. These dollars that build a stronger organization (technology, systems, non-program staff, etc) are called philanthropic equity. It’s a new concept for the sector and one that the Nonprofit Finance Fund has helped to pioneer. It’s also a concept that we’ve been talking about on this blog recently here, here and here. Today NFF released a report on how their work to help nonprofits raise philanthropic equity has affected those nonprofits. The results are pretty impressive.
NFF has helped nonprofits like Year Up, Donors Choose and Volunteer Match raise philanthropic equity investments, totaling $312 million since 2006. The report analyzes the role of philanthropic equity in the nonprofit sector based on these engagements – detailing results-to-date, the characteristics that have helped spur success, and challenges that remain in building a nonprofit growth capital marketplace. The initial results are promising: NFF found that philanthropic equity has, on average, more than tripled program delivery, and doubled revenue for nonprofit organizations that have conducted comprehensive campaigns (and some results were even greater.) Some specific results include:
- Annual program delivery has grown on average by a factor of 3.1x, with a compound annual growth rate of 57%.
- Annual business model revenue for these nine organizations has grown on average by a factor of 2.0x, with a compound annual growth rate of 36%. In aggregate, business model revenues have expanded by $30 million compared to pre-campaign baselines
- Three of the portfolio members – GlobalGiving, Ashoka’s Changemakers, and VisionSpring – accomplished five-fold growth in their program areas.
Why does all of this matter? Because if nonprofits can demonstrate that philanthropic equity can dramatically increase their ability to create social change, then more donors will be willing to make those extremely necessary kinds of investments. And if more philanthropic equity investments are made in the nonprofit sector, the sector will become stronger and better able to create social change. Philanthropic equity is such an important concept because it could dramatically shift the sector from one that lives hand to mouth, to one that grows increasingly sophisticated and capable of solving our greatest social problems.
If you are a nonprofit leader, encourage your board and donors to read the report. The results clearly make the case for philanthropic equity. And once nonprofits and their donors are convinced about the power of philanthropic equity, the sky’s the limit.
Photo Credit: Mr. T in DC