Chairman’s Corner: April 2006

Core Ingredients for Successful Grantmaking

by Mario Morino, Co-founder of VPP

In a recent meeting with the leader of a prominent foundation, he asked me: “Based on what you’ve learned, what three things would you suggest to grantmakers like us that might help improve what we do?” It was clear that the question was not leading or pejorative, but a legitimate inquiry into our experience and lessons learned from Venture Philanthropy Partners’ (VPP) investment approach—our version of grantmaking. We’re finding a small but growing number of foundations and major donors who are becoming more interested in learning what they might apply to their own grantmaking.

Almost every day we come upon a new revelation or nuance that helps us refine our investment approach and better enable its effective delivery. After five years of hands-on work with our 12 nonprofit investment partners, we believe that much of what we’ve learned has broad applicability to funders—large and small, public and private, foundations and individuals.

So, with that as context, here’s what I offered in response:

• Do more and much deeper analysis and due diligence. Funders can—and should—do much more to better determine which nonprofits to fund. They must then confirm—as best as they can—whether these organizations do what they claim and if what they actually achieve (their outcomes) makes a difference in the lives of those served. But the area of greatest need—and difference in VPP’s approach—is that much more should be done beyond the program level to assess the organization overall, determining if the leadership and the organization have the capacity, willingness, and readiness to accomplish what is expected.
• Set clear expectations for achievements. Unambiguous and specific expectations between the funder and grantee greatly increase the chance of success for both and minimize the opportunity for failure and disappointment. These expectations are not easily developed—they require in-depth discussions, lots of “back and forth,” and time to ensure that both parties are on the same page. For the grantee, this suggests the involvement of not only the executive director, but their boards and other senior managers. And, for the funder, it also means the involvement of the principals or key decision makers. Most importantly, the grantee must accept and own these expectations as opposed to simply “going through the motions” to get the funding (which, by the way, is a common and rational behavior caused by the very difficult funding dynamics nonprofit leaders have endured to survive). A story from “a day in the life” of the investment courtship and expectation-setting process illustrates how hard this process can be. After continued discussion and questioning to ensure alignment, better understand the investment partner’s vision and perception of the relationship, and push for clarity of expectations, our prospective partner, in a moment of sheer frustration with our process, blurted, “Just give me the #@%*! money!”
• Help the grantee succeed. Be willing and prepared to leverage your contacts and brand, apply your expertise, and work with them. Relationships with nonprofits should not be viewed as experiments in a controlled laboratory setting—they are living, breathing operations, working day after day to help children and families. I’ve yet to come across an organization—for-profit or nonprofit—that could not benefit from outside help. A leader of a well-known nonprofit shared the story of receiving a large grant—over $5 million—to grow their programs and expand nationally. After getting the award, they called the foundation for advice. To their dismay, they were told that the foundation limits all interaction with the grantee once a grant is made to avoid polluting or corrupting the outcome. That story baffles me to this day!

After some reflection, I would have added a fourth suggestion.

• Ensure you’re investing enough money. As we’re learning all too well, meaningful organizational change is difficult, yet essential for real progress, and, most importantly, it takes a lot of money and a lot of time. In the private sector, the astute investor is quick to recognize whether an investment is undercapitalized and requires a larger financial investment. Regrettably, this is not often enough the case in the nonprofit space. The old adage “you get what you pay for” holds too true. No matter what anyone says, it is always about the money. If we expect our nonprofit partners to make major strides, let’s be sure we’re giving them the funding that enables them to do so. Small grants are good and appreciated when they support service delivery directly, but when a funder seeks to have impact, it’s tough to do with small amounts of money. This may be one of the most difficult truths for many in the field to come to grips with.

The first reaction to these suggestions might be, “Sure, this is like motherhood, apple pie, and Chevrolet.” And, yes, that’s the point. All too often, these core ingredients are missed or, more generally, glossed over. How many times is a funder—even a sophisticated one—won over by a well-written grant application, a highly charismatic executive director, or an emotional appeal made on behalf of a person or family who has been helped by the organization? Certainly, these elements can’t be minimized, but they really say little about what the nonprofit does and can do. Simply put, these alone are not enough. Instead the organization itself should be assessed through an in-depth examination of its management, programs, finances, outcomes achieved, and the input and reactions of those they serve.

And, as basic as it seems, having the foundation or donor staff with the right skills and experience involved is absolutely critical to whether any of this is done effectively, or at all. There is a certainly a depth of rigor inherent in the analysis and due diligence we suggest, but keen judgment and relevant experience are absolutely vital and can’t be replaced by the most analytical processes. In the end, it comes down to judgment—the ability to “read the tea leaves” and see what others don’t; to understand and assess leadership, the readiness to change, and other areas that don’t lend themselves to simple (or even complex) rankings or checklists.

Ensure you have people with the requisite experience and skills driving your grantmaking efforts. Be thorough in your analysis and complete your due diligence up-front—cry once at the cost of doing it right, and not again and again if things go south because you didn’t take the time at the outset. Be insistent that expectations are clear and embraced by both parties, and have a shared understanding of how you both will know the expectations are fulfilled—your determination of success. Leverage your resources, contacts, and brand to help your grantee succeed. Ensure you’ve funded them adequately for what they’re setting out to do, so that they—and you—have a reasonable chance to succeed. And, hope that after all the hard work is done, good fortune shines.