The issue of whether small and medium size nonprofits can or should raise growth capital seems to be a controversial one. Steve Goldberg, author of Billions of Drops in Millions of Buckets: Why Philanthropy Doesn’t Advance Social Progress, speaker, and consultant to Charity Navigator, New Profit and other leading entities in the nonprofit and philanthropic sectors, took issue with my post Can’t Small Nonprofits Raise Capital Too? He believes that capacity capital, not growth capital, is right for smaller nonprofits. I, however, believe that capacity capital isn’t enough.
Small nonprofits are no less deserving than larger ones, but only the larger ones can undertake the kinds of planning and demonstrate the capacity to make effective use of funding designed to enable organizations to grow by factors of 2, 3 or more over the course of several years.
Steve goes on to argue that capacity capital, not growth capital, is the way to go for smaller nonprofit organizations and that we need to expand the availability of capacity capital in the nonprofit market. While I definitely agree with that last statement, I still believe that small and medium nonprofits that have a great solution and a vision for growth should have access to growth capital to get them there, as I responded:
If there is a small organization that is providing a powerful and unique solution, shouldn’t they be able to expand that solution, not through incremental growth, which is the nonprofit norm, but by factoral growth, which growth capital allows?…Small nonprofits who have a great solution and a vision for growth don’t have the luxury of sitting around waiting for the nonprofit capital market to evolve to a place where the bottom 80% of nonprofits have access to growth capital. Second, creating a growth capital campaign doesn’t have to be prohibitively expensive for smaller nonprofits. Sure they can’t afford the larger fees that Nonprofit Finance Fund might charge, but they also don’t need that kind of money to be able to grow.
I believe this debate is really important because it is not enough to help the largest, most successful nonprofits to reach scale. There are countless smaller nonprofit organizations whose solutions are just as critical, but lack the expertise and capital to bring them to scale. We can’t just have a top down approach. To truly transform the nonprofit capital market we have to create access to growth and capacity capital throughout the sector, wherever great ideas and strong leaders exist. Because, really, do we have time for the trickle down approach?
Photo Credit: Michael