More Foundations, More Competition for Grant Dollars

Over the past 20 years, the number of foundations has nearly quadrupled, with more than 66,000 foundations in operation today, distributing more than $32 billion each year. Two-thirds of those foundations were created in the 1990s, largely as a result of vast fortunes made during the dot-com revolution. However, the proliferation of nonprofit organizations needing those funds has been just as dramatic; there are roughly 1.5 million nonprofit charities in America today, 500,000 of which were established in the last ten years.

Moreover, foundations demand more from nonprofits in demonstrating how grant dollars create measurable change. So despite the increase in giving from foundations, there is overall more competition for grant dollars among worthy nonprofits. If a nonprofit hopes to grow its grant revenue, the importance of cultivating relationships with a wide range of foundations (corporate, family, community, etc), intensive and thoughtful program planning, and the development of compelling and thorough grant proposals cannot be overestimated.

While large foundations, like the Ford Foundation, the Lucille and David Packard Foundation, and the various Rockefeller funds are perhaps the most visible grant-givers, most foundations are much smaller. Community foundations -- formed to serve specific regions, counties, and cities -- are usually relatively small, but are increasingly seen as powerful agents of social change.

The assets of community foundations are comprised of contributions from numerous donors that are distributed either as donor-advised funds or independently by a governing board made up of community leaders. According to the Foundation Center, there are more than 700 community foundations in existence today, and in 2004, giving from community foundations increased by 8.6 percent, a significantly greater increase than from any other kind of foundation.

Moreover, many community foundations invest in social change in myriad ways -- from bringing together different interest groups, to advising and shaping public policy initiatives, to training nonprofits in fundraising. As an institutional fundraiser, it is important to understand the role of community foundations in your region and to build relationships with governing members of foundations, as well as donors that contribute to them.

The proliferation of nonprofit organizations and greater competition for grant dollars has also led many grant-makers to strongly encourage (or even require) partnerships among nonprofits that work on similar issues or provide similar services. Given that grant-makers are deeply invested in issues and communities, they have a good sense of where there might be duplication of effort. For the grant writer, it is important to understand a nonprofits unique role around an issue or within a community, and to be familiar with the range of partner groups with which the nonprofit is affiliated. Often, the grant writer reminds program staff of other nonprofits that perform similar work, and can help program staff identify the services and expertise they provide that complements community-wide efforts to affect change.

Scrutiny on Foundations and Nonprofits

From The Nature Conservancys questionable loans to board members to embezzlement at the United Way, a number of scandals have turned the spotlight on nonprofits, grant-giving organizations, and their financial and administrative practices. Over the past two years, there have been a number of Congressional hearings focused on many different aspects of charitable giving and nonprofit accountability.

A range of proposals are under consideration by Congress, from changing tax law to limit deductions on certain kinds of contributions to greater disclosure by donor-advised funds and corporate giving programs to an overhaul of the 990 tax form, the key document outlining the financial state and practices of foundations and nonprofits. The direct impact on grant-giving is that foundations require more information from nonprofits on their financial status than ever before, and are turning greater attention to the management of grants.

Since the emergence of foundations after the Civil War, foundation officers have seen themselves as much more than administrators of grant-giving programs, but rather leaders in social change. This is as true as ever, especially as public funding at the local, state, and federal level shrinks and as foundations scrutinize their grant-making practices to evaluate impact. Large foundations and community foundations especially are looking for a variety of ways to invest in nonprofit organizations beyond grant-giving, from hosting strategy sessions with different interest groups to defining advocacy, communications, and outreach strategies themselves.

The risk for nonprofit organizations is that they allow foundations to define the direction of work, rather than investigate and evaluate their own strategies to promote social change. The grant writer is often caught in the middle of such situations and may be able to provide some leadership with program staff in helping them distinguish work that the foundations think is necessary and work that fulfills the mission of a nonprofit.

For all the reasons discussed above, foundations are requiring grantees to evaluate the effectiveness of their work and to provide qualitative and quantitative measures of impact. For service organizations -- such as hospitals, schools, and counseling centers -- this may be a relatively easy exercise; they can measure the number of people they serve and track the health and progress of patients, students, and clients over time.

Evaluating impact is more difficult for advocacy groups and arts organizations, where change can take decades or where the final product is somewhat ephemeral (such as a theatrical or dance performance). It is important for the grant writer to be familiar with the particular evaluation tools that a nonprofit uses, or should use, to assess impact.

There are also various program planning models that can assist nonprofits in identifying measures of success. A popular tool used by the foundation community is the program logic model, a system of diagrams to identify and describe relationships between different program components defined as inputs, outputs, indicators, and outcomes.

Do these terms sound fuzzy? They sure are, and foundations themselves struggle to define what they mean. The impact on the grant writer can be measured in the frustration level felt at program staff who can not explain how they evaluate their work and in struggling to understand what evaluation measures the foundation wants a nonprofit to adopt.

Creative Giving and Venture Philanthropy

Foundations and many individual philanthropists are exploring a number of new ways to invest in nonprofits beyond awarding a grant. Program-related investments -- loans to nonprofits at below-market rates -- and recoverable grants where nonprofits return funds with no interest payments are two such examples. The third kind of experiment, ventures to establish an earned income base for nonprofits, has received more attention in the press than other forms, especially as a number of high-profile business leaders adopt this model for their charitable giving.

Certain foundations are keenly interested in this kind of approach, and it is important for grant writers to identify those potential grantors whose giving interests match the mission of their organizations. There also needs to be a serious discussion among board members and senior management of an established organization to determine if a social venture model will substantially increase a nonprofit's capacity to do its work; such a decision should not be based on potential grant revenue alone.