Partnerships that are more than money
In the world of philanthropic capital, not all dollars are created equal. While they may have the same purchasing power, certain factors can make a dollar more — or less — valuable than another. Below I describe three scenarios where a funding partnership provides more than capital.
Scenario 1: There is an additive relationship
The nature of the relationship between the funder and the recipient can greatly impact the value of a grant or investment. Some funders adopt a hands-off approach, providing capital and allowing organizations to chart their own course. At the other end of the spectrum, funders engage by taking board positions and giving direction to shape organizational priorities. Between these extremes lies a vast range of possibilities. A simple way to characterize it is that some funders are reactive to grantee needs and others are proactive to grantee needs.
Funders with a proactive approach typically establish systems to routinely provide — or at least offer — guidance related to strategy, communications, measurement, and fundraising. These funders have exposure to many organizational models at once, giving them many data points on what works and what doesn’t. Given that, they typically directly provide the support themselves via a Program/Investment Officer or a distinct ‘capacity building’ team.
Conversely, reactive funders provide solutions only when requested. They are less likely to have pre-built systems or methods to connect grantees with relevant support. Because support is provided on an as-needed basis, trust and openness are even more important than usual.
Here are some examples of common tactics to support grantees:
Funder provides access to a bench of experts e.g., marketing/fundraising/strategy experts that grantees can access free of charge. The experts are either in-house (i.e., staff) or external consultants on a retainer or fixed contract with the funder, who covers the bill.
Funder connects grantees who are working on a similar challenge to swap insights. This might be specific, like how to hire a CTO, or generic, like how to approach policy makers on issue X. This could be ad-hoc or via structured match-making. Effective match-making relies on a middle-person who understands the demand and supply sides of the talent market very well.
Funder convenes a group of relevant grantees to workshop each others challenges. This is in the context of non-profits, where there is little commercial need to hide business models. It does, however, first require a foundation of trust between organizations.
Funder leads a co-funding round much like a venture capitalist would, crowding in funding by using their statue and quality of information.
Funder offers specific advice or help on organizational challenges, like developing a new evaluation plan or increasing the rigor of data collection tools.
Funder does a secondment with a grantee to help solve a specific problem.
So what does this all matter? As someone seeking capital, consider the kind of relationship you want with your funders. If you can, prioritize funding from sources who will create a genuinely additive relationship with you. As a funder, create a playbook to make getting help easier and faster. One way to do this is to write a literal playbook of common challenges and useful responses. Another may be to standardize a process for identifying and accessing support. Remember, not all help is useful and ineffective advice could make a dollar less valuable. So gather feedback on your approach and the assistance provided.
Scenario 2: The funding offers a new credential
Some grants not only bring financial support but also carry an air of prestige. This scenario is akin to being accepted into a prestigious college or being a part of a sought-after incubator. The mere association with the funder is a status signal. It’s like the funder has made a public declaration saying “this person and their ideas have potential and I believe they can do it, so you’d be silly not to, too”.
Dollars from these funders serve as a further credential — they make it easier to attract the next dollar and gain access to new experts or localities. Interestingly, from my observation, these funders aren’t the same across sectors. Some travel, but many don’t — making the prestigious funders specific to each community or sector. However, I have noticed that several characteristics must be true of the funder in order to afford this prestige.
Typical characteristics of funders who convey prestige:
The funder is renowned for making sound investments. They have a proven track record of backing organizations that make a real impact.
The funder has high expectations. They have a rigorous due diligence process, such that only a small portion of prospects ever receive their support.
The person who created the wealth is well-known and respected. Their earned credibility extends to the organization.
As someone seeking capital, you may pinpoint which status hierarchy matters to your organization and find the funders influential there. As a funder, you may pay extra attention to the influence you bear, ensuring you’re purposeful about what signals you’re sending the broader field.
Scenario 3: No other funding is accessible
Finally, imagine a situation where a funder is the only one willing to provide financial support. In this case, the funding is non-fungible — meaning the grant or investment couldn’t be replaced by another funding source. I refer to this as ‘last resort capital’.
This funding is rare. It is not often that a funder is willing to back an idea that others haven’t already given to (funders check out the co-funders as a talent marker… see above). But if the aim is to be genuinely catalytic, or take on ‘high-risk’ ideas, then serving as a funder of last resort may be a great strategy. When the project works out, that funding has a huge upside having unlocked progress that wouldn’t have otherwise occurred. When it doesn’t work out, new insights are revealed, which may encourage others to tackle the challenge or, at the very least, update the existing approaches.
For funders looking to have a high marginal impact with each dollar, consider last resort capital as a strategy. Then hone your due diligence skills and potentially find new markers of credibility to spot the most likely winners. For those seeking capital, try to understand why funders aren’t interested and own this. Communicate the challenges you’re facing and explain clearly why your idea or team is worthy of betting on anyway.
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I don’t suspect these three ideas are particularly surprising. But I share them as it pays to name them explicitly. You — as a funder or doer — should be fully aware and intentional about the relationships you put around yourself. This is particularly true for organizations at an inflection point, as the value of each scenario above is amplified in those moments.
