The Future of Financing Social Change: An Interview with Antony Bugg-Levine

In this month’s Social Velocity blog interview, we’re talking with Antony Bugg-Levine. Antony Bugg-Levine is the CEO of Nonprofit Finance Fund, a national nonprofit and financial intermediary dedicated to mobilizing and deploying capital effectively to build a just and vibrant society. In this role, Mr. Bugg-Levine oversees more than $225 million of capital under management and a national consulting practice, and works with a range of philanthropic, private sector and government partners to develop and implement innovative approaches to financing social change. He is the co-author of the newly released Impact Investing: Transforming How We Make Money While Making a Difference.

You can read past interviews in our Social Innovation Interview Series here.

Nell: You’ve recently taken over the helm of the Nonprofit Finance Fund, a pioneer in cutting-edge ideas for better capitalizing the nonprofit sector, like growth capital. What’s next for NFF? Where do you go from here?

Antony: I am humbled and excited to be given the responsibility to lead an organization with such a strong legacy and talented staff. After 31 years of working with nonprofits and funders, Nonprofit Finance Fund understands as well as anyone how we can best raise and use financial resources to create sustainable organizations that together weave the fabric of just and vibrant communities.

Honing and sharing these insights is more important than ever. As the economic crisis has turned into an intractable employment crisis, the communities we work with and the organizations that serve them are facing unprecedented challenges. Business as usual is no longer going to work. But business-as-unusual is increasingly exciting. The crisis has created new opportunities by shaking loose long-held barriers that kept the worlds of social change and business firmly apart.

NFF is well-poised to help ensure that these new opportunities bear fruit, by doing what we have always done–bringing a data-driven approach to identifying what works, and working deeply and closely with social change organizations while communicating effectively with capital providers. We will have more details on our specific strategic direction in early 2012 but are very excited about the possible directions we can take. In many ways, this is our time and we hope to be worthy of these opportunities.

Nell: You recently wrote a book with Jed Emerson about impact investing that charts the field and where it might be going. But the field of impact investing, especially in places like the Social Capital Markets Conference, seems to separate itself from philanthropy and the nonprofit sector. How can and should impact investing and philanthropy collide and what will make that happen?

Antony: Advocates of impact investing have done a great job in the last few years explaining how for-profit investment can be both a morally legitimate and economically effective tool to address intractable social and environmental challenges.

But many of these challenges have been intractable precisely because neither markets nor governments have figured out how to address them. So impact investors will have to collaborate with philanthropists, nonprofits and governments to create comprehensive solutions when no one piece can work alone. At NFF we are increasingly seeing the power and necessity of a “total capital” approach where, for instance, we provide impact investing capital in the form of loans, human capital in the form of (grant-funded) consulting support, and government assistance in the form of subsidy or loan guarantee. This is particularly important as the unemployment crisis places increased demands on already strained organizations. For example, to support a set of leading arts organizations, we secured a PRI from the Mellon Foundation that enabled us to provide loans alongside technical assistance to leading arts organizations. We are now developing a similar integrated approach to support social service agencies such as homeless shelters and soup kitchens.

Nell: The vast majority of money is still bifurcated with for-profit investing on one side and charitable donations on the other. What will it take to change that and get more capital to social change organizations?

Antony: When I began this work at the Rockefeller Foundation almost five years ago I thought we were in the deal-making and infrastructure building business: that a few compelling examples of how impact investing can work and the development of networks and measurement standards to facilitate collaboration would be enough to allow impact investing to take off. But now I realize how impact investing threatens deeply-held mindsets of a bifurcated worldview that insists the only way to solve social challenges is through charity and the only purpose of investing is to make money.

To overcome this belief will require more than analysis and anecdote. Instead we need to build new systems to support the new aspirations. We need:

• a regulatory and legal framework that recognizes and incentivizes the contributions impact investors can make;
• educational systems that train young professionals to adapt investment tools to social purpose;
• measurement systems that allow us to assess and compare the blended value investments generate;
• nonprofit and for-profit social enterprises equipped to navigate the increasingly complicated strategic options that impact investors present; and,
• a philanthropic system organized around the question “How can we deploy all our assets to address the social issues we care about?” rather than “How do we give well?”

Nell: What is your idealized financial future for the social change sector? What level and kind of change would you ultimately like to see?

Antony: I envision a day when we organize the social change sector around the problems we seek to solve rather than the tools we happen to hold. Instead of fetishizing the moral or practical supremacy of grant-making or investing, in this world we will recognize that each has a role to play, and they are often most powerful when taken together. Exciting examples are already taking hold. In California, the California Endowment organized a multi-sector coalition to put an end to the “food deserts” that left many poor communities without easy access to purchase healthy food. This collaboration resulted earlier this year in the launch of the FreshWorks Fund that has mobilized grant capital, bank capital, impact investing capital and intellectual capital to bring new grocers into underserved communities. At NFF, we are applying a similar approach in the ArtPlace initiative, which is using arts as an engine for economic development in the US. This initiative has mobilized substantial commitment from private foundations, the US government and commercial banks.

Nell: How much of a panacea for social problems is impact investing? Can double bottom-line investing truly revolutionize how money flows to solving problems? Will it overtake government and philanthropic investment in social problems? And should it?

Antony: Impact investing is not a panacea. We cannot create and sustain a just and vibrant society unless we recognize that many organizations generate social value that cannot be monetized, and instead must be supported through charity and government. But we also must not ignore the vast potential in the trillions of dollars of for-profit investment capital currently lying on the sidelines of the social change agenda.

The global capital markets hold tens of trillions of dollars. Unlocking just one percent for impact investment will bring multiples of the approximately $300 billion in total annual charitable giving in the US. So impact investing can create a huge difference in how quickly or comprehensively we can address those social challenges where lack of money is the main issue.

Impact investing can also be revolutionary by accelerating new discipline in how we identify, assess, and manage our social change agenda. At their best, investors bring a rigor and discipline in allocating scarce resources to their most productive use, where there is a market-based solution. Impact investing will help spur a movement to link social spending to outcomes that a set of organizations can achieve, rather than just the outputs any one organization can deliver. We need to be careful, however, to recognize exactly where these new approaches will work and where simplistic and reductionist thinking will divert resources away from worthy causes or leave behind worthy organizations.

Tags: Antony Bugg-Levine, Convergence, impact investing, Jed Emerson, Mellon Foundation, Nonprofit Finance Fund, nonprofit growth capital, Philanthropy, PRI, Social Capital Markets conference, Social Enterprise, Social Finance, Social Investing

10 Great Social Innovation Reads: August

Since I was on vacation for a couple of weeks in August and pretty much unplugged, I’m probably not qualified to list the 10 greatest reads in social innovation for the month of August, but I’m still going to give it a shot. As always, please add what I missed to the comments.

You can also read the lists of Great Reads from previous months here.

1. Guest blogger on the Tactical Philanthropy blog, Jed Emerson, a pioneer in the impact investing arena, argues that impact investing is at risk of missing a key opportunity to move the field forward.




2. Strategic finance is one of the hardest things for many nonprofit leaders to master, but also one of the most critical. Nonprofit Finance Fund explains how to approach it.




3. Sea Change Capital Partners and Lodestar Foundation are partnering to create a new fund to pay for nonprofit collaboration and mergers. A pool of merger money is a great new addition to what is a pretty big hole in the nonprofit capital market.




4. From the Harvard Business Review blog comes the argument that sometimes it can be good for business to fire some customers. This concept should apply to nonprofits’ donors as well.




5. One of the biggest hurdles to nonprofit performance measurement is a lack of money to make it happen. On the Social Currency blog, Angela Francis explains how nonprofits can find the money for evaluation through capacity capital.




6. The biggest news in August was nonprofit Jumo’s merger with for-profit GOOD. Antony Bugg-Levine (who was just announced as the new CEO of the Nonprofit Finance Fund yesterday) explains how this merger is just the beginning of a real blurring of sector lines to come.




7. On August 24th, US Secretary of Education @arneduncan held a Twitter Town Hall to answer questions about America’s public education system and his ideas for reform. You can see the Tweets at #askarne or read the highlights here. He plans to hold another Twitter Town Hall soon.




8. The Future Generations blog offers a great framework and examples of that often touted, but rarely understood, concept: “scale.”




9. In the wake of Steve Jobs’ resignation from Apple, Cliff Kuang offers a reflection on Jobs as a supreme innovator and great user of technology.




10. From the tech blog, A Smart Bear, comes a lesson for entrepreneurs (and social entrepreneurs too) when being an expert is harmful.

Photo Credit: afunkydamsel

Tags: 10 Great Reads, Antony Bugg-Levine, Arne Duncan, capacity capital, GOOD, impact investing, Jed Emerson, Jumo, Lodestar Foundation, nonprofit collaboration, nonprofit evaluation, nonprofit finance, Nonprofit Finance Fund, nonprofit mergers, nonprofit performance measurement, nonprofit scale, Sea Change Capital Partners, Steve Jobs, Tactical Philanthropy

A New Kind of Money for the Arts: An Interview with Rebecca Thomas

In this month’s Social Velocity blog interview, we’re talking with Rebecca Thomas. Rebecca Thomas is Vice President of Strategy & Innovation at the Nonprofit Finance Fund, a national leader in nonprofit, philanthropic and social enterprise finance. She has strategic responsibility for national initiatives, funder partnerships and new online and next-generation services that advance the organization’s profitability, visibility and impact.  Rebecca serves as a spokesperson and advocate for NFF regionally and nationally, and is the co-author of Case for Change Capital in the Arts and Financial Reporting Done Right, part of a larger publication series on capitalization in the arts.

You can read past interviews in our Social Innovation Interview Series here.

Nell: Your “change capital” project works with 10 arts organizations to help them raise capital to transform their organizations. Why did you decide to focus on arts organizations? What is unique about their need for change capital?

Rebecca: Through the Leading for the Future Initiative, NFF is investing $1 million of change capital in each of ten performing arts organizations that are adapting their programs, operations and finances in ways that contribute to long-term health and vibrancy (click here for the list of participating organizations). The source of this capital is the Doris Duke Charitable Foundation, which partnered with us in 2007 to develop the program as a way of responding to the tectonic shifts taking place in the artistic landscape. These shifts (in demographics, technology, and audience expectations, to name a few) were underway in the arts sector well before the economy went south and jeopardized arts philanthropy and public funding. Because business as usual is no longer an option for this sector, the need for change capital to fund creative re-alignment is particularly pronounced.

Arts sector aside, the majority of nonprofit organizations are mis-capitalized, meaning they lack enough of the right kinds of financial resources to adapt to changes taking place in their external and internal environments. The field often focuses on the lack of capital—certainly a reality for many organizations—but capital is equally often misplaced. Consider the organization with an aging facility and permanently restricted endowment but only two weeks of cash. It may not be undercapitalized but it is certainly mis-capitalized!

The arts sector has, more than many other sectors, suffered from an institutional mindset that equates success with the accumulation of fixed assets, often at the expense of liquidity and flexible capital. The result is that too many organizations are in a starvation cycle, unable to fully pay for their current programs and infrastructure, let alone to invest in meaningful and lasting change.

Nell: Do you have plans to expand to other types of nonprofit organizations with this project?

Rebecca: Our program, which runs through 2013, is limited to the 10 current participants, which were chosen through a multi-phased application and selection process. Given the nature of capital, programs like LFF are expensive and require one or more funders who are willing and able to commit sizable sums of money. The field is fortunate that the Doris Duke Charitable Foundation had the resources and vision to create this program with us. The principles of this program certainly apply to every sector, and we aim to do similar innovative initiatives with funders and nonprofits in other fields (for example, healthcare and charter schools) that we think would benefit from an investment of change capital.

We’ve found that education about the relationship among mission, capacity and financial health is often a precursor to the establishment of a capital initiative of this kind. NFF partners frequently with foundation program staff and nonprofit leaders to introduce the concepts of change capital, reliable revenue and liquid, adaptable balance sheets. From efforts like these have arisen deeper partnerships. For example, we have capital-investment programs with the Kresge and Andrew W Mellon Foundations that, respectively, provide financing for cash reserves and working capital. Change capital is just one of several forms of flexible capital that organizations need, for purposes ranging from risk management to rapid scale to stabilization.

Nell: As part of this project you are demonstrating how nonprofits can adjust their financial reporting to allow for a very necessary distinction between revenue and capital. Do you see nonprofits adopting this fairly significant change? What will it take to change accounting standards to recognize this distinction across the sector?

Rebecca: One of the things we learned early on in this work is that changing the financial reporting—to separate capital flows from recurring revenue—would not be an easy sell, for understandable reasons. Executive directors are reluctant to take a chance presenting new formats to donors who don’t understand the technique, and many board members aren’t inclined to re-learn nonprofit accounting principles. Moreover, NFF’s suggested methodology is not required by the Financial Accounting Standards Board, and auditors don’t always feel comfortable suggesting novel formats, even when they provide heightened clarity.

Notwithstanding these challenges, nonprofits that periodically raise and deploy capital—whether for investing in fixed assets, building a reserve, or implementing a change strategy—should take the straightforward step of separating capital from ongoing operating revenue and expenses, at least in managerial reporting. Financial Reporting Done Right explains in greater detail how this is done, but suffice it to say that when capital and revenue are conflated, an organization’s reports do not present a realistic view of operating performance. Unintentionally misleading information can lead to poor planning and decision making by nonprofit leaders, boards and funders.

Longer term, it will take aggressive education and advocacy efforts to convince nonprofit executives, board members and funders of the value of producing transparent financial reports and audits that reveal business model economics separate from capital infusions. Nonprofits will need to be convinced that they won’t be penalized for producing statements that may, at times, show temporary weakness in operating results during a change or growth period.

Nell: What can and should funders do to make change capital a reality for more nonprofit organizations?

Rebecca: Funders can start by encouraging their grantees’ efforts to adapt in the face of shifting environmental and internal realities. Nonprofits need to know that their supporters view these efforts as important, recognize the risks involved in attempting change, and are willing to provide flexible funding without judgment.

Also, funders can provide support for the development of a rigorous strategy and financial roadmap for change, both of which should be in place before a sizable investment of change capital is made. This planning should include the preparation of financial projections for the period of change and program and financial metrics (identified by the grantee!) to measure progress and guide course corrections. Because change takes time and can be costly, funders should consider aggregating their resources to support a grantees’ change strategy – and any funder “pool” should embrace one standard of reporting.

I want to stress that not every organization is a good candidate for change capital. Many are too financially fragile to invest in transformative efforts and first need capital to recover from previous setbacks. Some characteristics of “change capital-ready” organizations include: an enterprise perspective that sees the organization as more than the sum of its programs; a strong, stable and collaborative management team and board; a commitment to strategic planning, self-reflection, and continued learning; a culture of risk-taking and adaptation in the face of obstacles and new information; a track record of surplus performance and adequate liquidity; and a continuous focus on results and the use of data to inform decision making.

Nell: How open do you think philanthropists are to the idea of building versus buying services? Is the idea catching on for funders? What will it take to make the idea widespread?

Rebecca: The importance of role clarity can’t be understated. Both individual donors and institutional funders need to be clearer about whether they are investors in nonprofit enterprise health (“builders”), annual supporters of nonprofit services (“buyers”), or both. Among venture philanthropists and their ilk, this concept has gained much momentum in recent years. NFF Capital Partners collaborates with such investors in their efforts to scale high-performing nonprofit organizations. Through NFF’s grantmaker training programs, which reach a broader audience, we are also seeing a deeper understanding of this concept, although its application remains uneven. Ben Cameron, Program Director of the Arts at the Doris Duke Charitable Foundation also deserves a lot of credit for understanding and embracing this concept, and then stepping forward to be the learning example for an entire sector.

Time, education, and openness to change will be required for field-wide change. More stories about how nonprofits are successfully (and not so successfully) deploying capital to scale, change or restructure their operations would also help.

But let’s remember that not every philanthropist can or should be a builder. The field would benefit greatly from more buyers who provide (or partner with others to provide) unrestricted support that covers the full costs of program delivery, rather than limited program support or expansion at the margins.

Nell: What challenges are your change capital clients finding during this journey? Are they successfully raising change capital across the board, or are some faring better than others? Why?

Rebecca: Several of our clients have sought to raise change capital outside of this program as they seek to fully realize ambitions that carry a price tag larger than $1 million. A few have raised funds that serve a similar purpose without calling these dollars “change capital.” What we’ve heard from many of our clients is that foundations and boards either don’t have the resources to provide capital at this scale or don’t fully understand the concept. While grantmakers are increasingly embracing other improvements in practice –such as supporting reserve-building efforts, encouraging surplus management, and providing general operating support – few are yet providing flexible capital to be invested in implementing and sustaining enterprise-level change.

I want to make one last point. We set up the Leading for the Future program to enable our 10 participants to embrace innovation and experimentation as they adapt their business models in response to new challenges and opportunities. But programs like this one are not about change for change’s sake. Change capital is not the same as an “innovation grant.” The capital is meant to be deployed in ways that lead to more reliable net revenue (read: surpluses) to sustain each change strategy once the capital is fully spent.

And, at the end of the day, it’s worth remembering that financial stability is only a means to the end of greater nonprofit effectiveness and impact.

Tags: Andrew W Mellon Foundation, builders vs. buyers, Doris Duke Charitable Foundation, FASB, Kresge Foundation, nonprofit arts, nonprofit capacity building, nonprofit change capital, Nonprofit Finance Fund, nonprofit financial reporting, nonprofit fundraising, Rebecca Thomas

10 Great Social Innovation Reads: May

In our ongoing blog series, 10 Great Social Innovation Reads, below are my top 10 picks for the best reads in the world of social innovation in May.

But I’m sure I missed some great stuff, so please add your favorites from the past month in the comments.

1. Three new books released recently argue in various ways that philanthropists need to get better at giving money away. The Economist gives us the skinny: Giving for Results.
2. News organizations are having to reinvent their funding models, some of their innovative ideas for bringing money in the door could spark some thinking in the nonprofit world: Going beyond grants: Eight new ways news nonprofits are raising revenue.
3. The Dowser blog argues that recent efforts to re-imagine the great American city aren’t bold enough: Creating the Sustainable City: Are Imagination and Leadership Enough
4. Newsweek investigates the philanthropic investments billionaires have made in American public schools and claims that the results of those investments have come up quite short: Back to School for the Billionaires
5. New Google research on people’s use of smartphones holds some interesting lessons for nonprofits.
6. Any entrepreneur, social or not, has to fight moments of depression on the road to social change, the A Smart Bear blog tells us how to Fight Mini-Burn Out.
7. From Amy Sample Ward, nonprofit social media maven, comes a great post about crowdsourcing versus community-sourcing and how and when nonprofits should take advantage of each.
8. In a recent interview, Robert Egger, founder of DC Central Kitchen, argues that nonprofits need to rethink how they position themselves in order to really “move the needle”
9. Nonprofit Tech 2.0 gives us Six Online Fundraising Tools You May Never Have Heard Of
10. The Nonprofit Finance Fund is doing something pretty exciting with capital. They are directing $10 million in “change capital” to 10 performing arts organizations to help them “prepare for future growth and make changes to the way they operate.” NFF has a special page with resources and case studies about what they are doing: The Case for Change Capital in the Arts.

Photo Credit: Robby van Moor

Tags: 10 Great Social Innovation Reads, American cities, Amy Sample Ward, DC Central Kitchen, funding for arts organizations, new ways to fundraise, nonprofit change capital, nonprofit crowdsourcing, Nonprofit Finance Fund, nonprofit growth capital, nonprofit use of mobile, online fundraising tools, philanthropists, Philanthropy, Robert Egger

A Financial Taboo Nonprofits Must Get Over

There’s a new blog I discovered recently that I’ve grown to really like. Against the Grain, written by Rick Moyers of the Eugene and Agnes E. Meyer Foundation, is about challenging nonprofit boards to be more effective. Recently Rick has been writing about the need for nonprofit operating reserves. Operating reserves are simply an amount of set aside money that a nonprofit has accessible in times of crisis, budget shortfall, etc. In Rick’s most recent post on the topic, he explains how nonprofits can go about building operating reserves. And to him, it’s quite simple. But I would argue that Rick ignores a pretty ingrained nonprofit financial taboo against running a surplus.

Rick argues that creating operating reserves is fairly easy: “The most reliable way to build reserves is by operating at a modest surplus (bringing in more money than you spend) consistently over time.” And the way he suggests doing this is to have “the fiscal discipline to make hard choices and the ability to resist putting all “extra” money immediately into expanded programs and services.”

But Rick ignores the fact that in much of the sector it is unseemly for a nonprofit to operate a surplus. I cannot tell you how many times I have seen nonprofit leaders massage the budget projections accompanying a  funding proposal in order to show break even or a loss in a given year. It is somehow inappropriate to show funders that the organization is too far into the black. And how many board meetings have been lost to a discussion about why money is sitting in a bank account instead of serving more people? Board members become quite uncomfortable when “too much” money is sitting idle.  Because the question is always: if money exists, why isn’t it being plowed into more programs?

Indeed, it seems the majority of nonprofit organizations don’t enjoy much of a surplus. The 2011 Nonprofit Sector Survey conducted by the Nonprofit Finance Fund found that 60% of nonprofits reporting had less than 4 months of expenses as operating reserves and 28% of nonprofits had less than 1 month of reserves, which is essentially breakeven. Rick found similar results in a survey his foundation conducted in the Washington area.

But money sitting in a bank account serves a very real purpose for a nonprofit. It means the organization doesn’t live hand to mouth, no longer continually puts out fires, and stops expending energy on just keeping the doors open. Operating reserves allow an organization to evolve to the next level where they can think strategically, take some risks, streamline their business model, innovate their solution, and weather economic uncertainty all in the name of delivering bigger, better social impact.

So the nonprofit sector must get over the surplus taboo. It’s ok to run a surplus, in fact, a surplus means that the organization is better positioned to deliver more impact down the road. The key to financial sustainability, and ultimately significant social impact, is strategic financial management. And operating reserves are a first step to getting there.

Photo Credit: Jason Tester

Tags: Against the Grain, nonprofit board of directors, nonprofit budget shortfall, Nonprofit Finance Fund, nonprofit financial management, nonprofit operating reserves, nonprofit surplus taboo, Rick Moyers

10 Great Social Innovation Reads: March

In our ongoing blog series, 10 Great Social Innovation Reads, below are my picks for what really stood out in the world of social innovation in March. These are the discussions, posts, articles, etc. that I think added real value to the emerging world of social innovation over the past month. You can read January’s and February’s picks as well.

As always, please add your picks to the list in the comments.

1. 2011 State of the Nonprofit Sector Surey Results: The Nonprofit Finance Fund’s third annual State of the Nonprofit Sector survey results are out. It’s very interesting to see how the sector is faring 2+ years into the recession.

 

2. How Non-Profits Are Utilizing Facebook: From the Social Earth blog comes a great infographic that demonstrates how nonprofits are using Facebook.

 

3. An In-depth Interview with Sally Osberg, President and CEO of the Skoll Foundation: Sally takes a look back at the last 10 years of social entrepreneurship in this fascinating interview.

 

4. 4 Core Approaches to Philanthropy: Sean Stannard-Stockton from the Tactical Philanthropy blog wrote a pivotal blog series in March on 4 core approaches to philanthropy.

 

5. When you want to quit because it’s just not worth it: True social innovation requires an undying determination to keep going, keep building, keep creating in the face of seemingly insurmountable hurdles, so from the A Smart Bear blog comes a reminder to never give up.

 

6. Google Launches ‘Google for Non-Profits’: Google launches Google for Nonprofits this month. Is this a revolution or an innovation? I’m not so sure. Maybe it’s the start of bigger plans down the road.

 

7. Social Impact Bonds Will Fail Without Solving the Evaluation Problem First: From Full Contact Philanthropy comes a caution about getting too excited about the next shiny thing in social impact finance, the social impact bond, which allows people to invest in nonprofits and receive a financial return if outcomes are met.

 

8. 2011 Bright Ideas: The Harvard Kennedy School Ash Center announced its annual list of the 36 brightest ideas and programs in government. If you think government can’t be innovative or create real change, take a look.

 

9. How Many Points Does it Take?: From the Nonprofit Finance Fund blog comes Craig Reigel’s argument that “nonprofits need a whole range of capital solutions.” I completely agree!

 

10. 22 Nonprofit Mobile Websites: Are nonprofit orgs jumping into the world of mobile to build support? Slowly but surely. Here’s a list of the best nonprofit mobile sites from Nonprofit Tech 2.0.

Photo Credit: aithom2

Tags: Google for Nonprofits, government innovation, nonprofit capital, Nonprofit Finance Fund, nonprofit mobile, Nonprofit Sector Survey, nonprofits on Facebook, Philanthropy, Skoll Foundation, Social Entrepreneurship, social impact bonds, social innovation

The State of the Nonprofit Sector in 2011

Today the Nonprofit Finance Fund released the results of their annual survey of the nonprofit sector. In its third year, this annual survey is starting to demonstrate some interesting trends.

You can see the full survey results here and download their summary brochure here. They have more than doubled the number of respondents since the first year, this year receiving almost 2,000 responses.

Some of the top-line results:

Nonprofit leaders expect 2011 to be another tough year for their organizations and the people they serve:

• 85% of organizations expect an increase in service demand in 2011; just 46% expect to be able to fully meet this demand
• This comes on top of years of increases: in 2010, 77% of nonprofits saw an increase in demand; in 2009, 71% experienced an increase in demand, and 73% of organizations experienced increased demand in 2008
• 60% of organizations have three months or less of cash on hand; 10% have none
• Only 9% expect 2011 to be financially easier for the people they serve

But, there are signs of hope:

• 44% of nonprofits reported ending 2010 with a surplus, a move in the right direction from the 35% who had a surplus in 2009
• 25% of organizations added to reserve funds in 2010
• 35% of organizations raised more revenue in 2010 than anticipated

And even further, nonprofits are getting creative about how to meet demand for their services, in fact a majority of nonprofits actually added services, despite these challenging economic times:

• 55% of respondents added or expanded programs or services
• 49% increased the number of clients served
• 47% partnered with another organization to improve or increase services offered
• 39% reduced annual expenses
• 36% relied more on volunteers

There was also interesting data around how nonprofits relate to their funders. 58% of nonprofit leaders felt they could have an open dialogue with their funders about program expansion, but only 5% felt they could discuss debt burden, followed by 9% for building reserves. And 23% didn’t feel that their funders would engage in dialogue about any of the topics listed. 50% of respondents would like funders to provide more general operating or capacity support, while 11% asked funders to fund what already works, rather than asking for something new.

There is some really interesting data here. I encourage you to look at the full results.

Tags: annual nonprofit survey, Nonprofit Finance Fund, nonprofit sector in 2011, recession and nonprofits, state of the nonprofit sector

Financing Not Fundraising: Find Money for Building Capacity

Part 6 of our ongoing blog series, Financing Not Fundraising, demonstrates the critical importance of money for building nonprofit capacity and describes how to find it.

There must be a recognition in the nonprofit sector, and among the philanthropy that funds it, that nonprofits need money to support not only their direct services, but also the infrastructure (technology, systems, evaluation, training, fundraising) of the organization. Nonprofits will only get better at creating social change if they have a strong and effective organization behind their work.

In case you’re new to this series, our Financing Not Fundraising blog series seeks to address the reality that fundraising in the nonprofit sector is broken.  In fact, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. The nonprofit sector needs a financing strategy, not a fundraising one.  That means that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities.  Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.

George Overholser, from the Nonprofit Finance Fund, is the pioneer of this critical distinction in the nonprofit sector between money to BUY services and money to BUILD organizations.  The idea is simple. There are two types of dollars in the nonprofit sector. Those that BUY nonprofit direct services (dollars for more beds for the homeless, more hours of ESL instruction) and those that BUILD a stronger nonprofit organization (dollars for technology, systems, fundraising staff, etc).

A nonprofit that wants to get out of the vicious fundraising cycle needs to make a commitment to building their organization and finding, and convincing, donors to fund that building effort.

Let’s take fundraising infrastructure for example. Most nonprofit organizations lack sufficient infrastructure to bring enough money in the door.  They don’t have enough money to hire experienced fundraisers, buy efficient and effective technology to track donors, create compelling messaging and collateral, train their board in fundraising, and so on.  But with dollars to invest in staff, technology, planning and expertise, the organization could transform their fundraising function into one that raises many more times the amount of money that they currently do.

So how does a nonprofit organization find money to build their organization? Here are the steps:

1. Create a Plan. Develop a road map for the future that includes a budget for the real costs of the real infrastructure and capacity you need to get there.




2. Determine the Ask. Split the overall cost for these infrastructure elements into reasonable ask amounts given the relative capacity of your donors.




3. Create the Pitch. Create a compelling capacity funding pitch that connects these infrastructure elements to an increase in your ability to create impact in the community.  A more seasoned development director means that you can raise more money, more effectively, more quickly. With that additional revenue, your services can reach more people.




4. Analyze your Donors. Look for the individuals, foundations, and corporations who love what your organization does, have the ability to give at the ask levels you determined in #2, and could be made to understand the argument that money to build can allow your organization to do so much more.




5. Explore Alternative Funding. Find new ways to fund capacity building. For example, PRIs, or program-related investments, (essentially loans to nonprofits) could be used to build fundraising  infrastructure because once a nonprofit’s capacity to raise money has been increased, the loan could be paid back out of the additional revenue. Explore creative options like this with funders.




6. Make the Ask. Present your plan and pitch to the donors you have identified and educate them about the critical importance of capacity capital.

Money to build nonprofit organizations isn’t just lying around. Indeed, most donors claim that they aren’t interested in funding anything beyond direct services. But with a compelling argument for how money to build an organization can result in much greater impact, many more donors can become builders.

If you want to learn more about how to apply the concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series.

To download the 27-page Financing Not Fundraising e-book, click here.

Photo Credit: y_katsuuu

Tags: buy vs. build nonprofits, financing not fundraising, fundraising infrastructure, George Overholser, increasing fundraising, making the ask, nonprofit capacity building, Nonprofit Finance Fund, nonprofit fundraising, PRIs