Restricted Funding is Restricting Progress

Originally published on www.cnmsocal.org

Scenario 1
Imagine you are trying to build an innovative new car. It’s cool, luxurious, runs on your leftover garbage, and will be sold to the public for only $12,000. You need money to rent a space, buy supplies, hire employees, etc. You create a business plan and go to venture capitalists to ask for $10 million in seed money. They give you the money and perhaps even connect you with others or offer expertise. In exchange, they receive stock in the company or a seat on the board, etc.

Scenario 2
Now imagine that you are a nonprofit building that same car. You go to foundations and come back with one that wants to give you $25,000, but only to buy tires (that will actually cost you $75,000 to buy). Another will give you $100,000, but only if you can make the car available for $10,000 to people in their geographic focus area. Another will give you $5,000 for steering wheels, but require pages and pages of documents that will take up about $3,000 worth of your time to create and gather. About a dozen more or so of them make up the rest of the cost, but none of them will pay for salaries or rent. In exchange, they ask only that you wait 6 months to a year for them to get you a check and that you write up a detailed report on the process.

***

In the SSIR article, When Restrictions Apply, author Jocelyn Watt argues that general operating funds for nonprofits are the future of innovation. And a quick google search will show you that she’s not the only one pushing for unrestricted funding.

• Just Give ’Em the Money: The Power and Pleasure of Unrestricted Funding
• Why Unrestricted Cash Donations Really Help Nonprofits
• Let’s Put an End to Restricted Giving
• The Attraction of Restricted Giving, and What Can Go Wrong
• No More Free Rides: Foundations Need to Increase General Operating Support Now 

So why haven’t things significantly changed?

In the car example above, Scenario 2 sounds maddening and like a very good way not to get an innovative car built. But it’s the reality that many nonprofits live in. And it’s frustrating, it’s disheartening, and it makes it so hard to get the work done. And worse than that, it makes it hard to stay sustainable, let alone be innovative. How do you build cash reserves when you barely have enough funds to cover a program? How do you keep your top employees when you can’t give them the salaries and benefits they need to stay? How do you get work done on outdated computers? How do you grow when you don’t have the funds to market properly? And how do you innovate when you’re not allowed to fail?

Do I sound exasperated? I am. I see a broken system that isn’t changing fast enough. So why do we still do things this way? Why are any grants from funders restricted? Because here’s the thing: nonprofits and funders want the exact same things. If we all want to see positive and lasting change, why the push and pull?

I would like to see the traditional foundation look more like Scenario 1. Now, I understand that in that scenario, the people giving out the money will see a return on their investment in the form of money back and that is not feasible for the nonprofit sector. But we can certainly do better on the partnership front. I see it looking something like this: An organization and funder meet and talk about their mutual interest in a certain result or impact. The two work together as partners to ensure that the nonprofit organization that is carrying out the work has:

• The connections they need to strengthen the work and/or get additional funding
• The expertise to accomplish their goals
• The funding necessary to not only fund programs, but to cover overhead costs
• The room to innovate (which means having the permission, time, and money to fail)

This can only work if the two groups are on a level playing field. It can’t be the haves vs. the have-nots. Or the smart ones vs. the passionate ones. It can’t be vs. at all. It has to be and. The current power dynamic is a remnant of an out-dated way of doing things and slows innovation. And the problems out there are too big to move as slowly as we are. Nonprofits are constantly being asked to collaborate and innovate. Isn’t it time we ask the same of our funders?

***

Scenario 3
You are a nonprofit looking to build an innovative car. You meet with the GreenAuto Foundation who are interested in funding transportation that is better for the planet. They love your car and want to help. They give you $1 million, unrestricted, and connect you with other funders who can help, as well as auto experts that can help you with your design. You check in with them regularly, and let them know how things are going, where you’re getting stuck, and what you’re learning. GreenAuto is there as your partner to make sure that, together, you create a really great solution. If things don’t go as planned, you and GreenAuto come together to trouble shoot and find ways to move forward.