Increasing Impact with Innovation: Creative Giving Options for Families

Foundations do not need a lot of money to be effective. If, indeed, they were to exploit only a fraction of the strategies available to them, their individual and collective impact on American life would be vastly and beneficially expanded.

-Paul Ylvisaker, “Small Can Be Effective”

As families become more hands-on in their philanthropy and their personal stake in its success becomes as great as their financial commitment, the desire to observe and track discernible outcomes grows. Families are increasingly looking for new ways to be strategic in their giving and to maximize the positive effect they can have on their communities. Being strategic, however, does not necessarily mean being narrowly focused or unilateral in your giving. Instead, it makes sense to think of being strategic as employing the variety of giving options and vehicles available to you and your family to the greatest advantage in each funding situation.

One of the greatest strengths of philanthropy, and family philanthropy in particular, is its malleability in the face of constantly shifting societal needs. In fact, philanthropy exists to fund the ideas and projects that the government and private industry cannot or will not, due to bureaucratic red tape or the impractical financial risk that they pose. Because family philanthropies run as much—if not more—on heart and idealism as they do on practicality and finance, they are liberated to be creative in the projects they fund and the ways in which they fund them.

In this issue of Family Giving News we’ll examine some of the creative giving options open to families today which can help your family to maximize the impact of their grants dollars and explore the boundaries of what is possible through your giving.

General Operating Support

General operating support, loosely defined, is funding given to an organization without restrictions that are meant to cover the costs of conducting day-to-day business. These funds can be used by an organization to pay staff salaries, purchase office supplies or other items needed to run an organization, find and sustain office or operating space, seek expert advice, or any number of other vital, albeit pedestrian, tasks. While providing this kind of support to might not provide the immediate gratification as funding a program to buy picture books for underprivileged pre-schoolers or new business attire for women struggling to get off welfare, it can make a world of difference. By helping your grantees to cover their overhead costs, you free up more staff time and resources that might have otherwise been spent on supplemental fundraising, allowing them to get down to the real business of their projects.

According to the most recent issue of Key Facts on Family Foundations, released by the Foundation Center, nearly 50% of all grants dollars given by family foundations went to project support in 2004. During the same period less than half of that, a little more than 20% of all dollars given went to general operating support. The figure below, excerpted from Splendid Legacy: The Guide to Creating Your Family Foundation, illustrates some of the reasons families choose these options.

Why (Most) Grantmakers Favor Project Grants

  • Projects capture their interest.
  • The connection between projects and the foundation’s mission is clear.
  • Project grants are easier to evaluate than general support grants.
  • Grantmakers can point with pride to successful projects.

Why (Some) Grantmakers Favor General Support Grants

  • Help organizations doing good work achieve financial stability
  • Ensure that the programs they fund can continue to operate.
  • Allow grantseekers to be forthright in asking foundations for what they really need rather than for projects they think foundations will fund.
  • Allow grantseekers to concentrate on the daily business of running their organizations instead of taking time to create new programs repeatedly in order to get funding.

Before deciding to allot some portion of your available funds to general operating support, it’s important to find an organization or organizations to fund whose goals are in keeping with your philanthropy’s mission. General operating grants, in some ways, require a greater leap of faith for families than making a donation to a discrete program whose goals are explicitly stated and whose outcomes are easily quantifiable. If providing general operating support is to be a successful and fulfilling experience, you need to trust your grantee to spend your gift wisely. And you need to feel confident that your contribution, though its effects may not be immediately apparent, is meaningful.

This is not to say that your giving needs to fit squarely in one camp or the other. The key to getting the most out of your giving is to be firm in your mission, but flexible about how these goals might be achieved. Some families feel most confident restricting their giving to project support. Others, like this month’s Profile in Family Philanthropy, the Sobrato Foundation, deliberately give general operating grants only. Still others might find a comfortable, workable model in the example of the William Penn Foundation which has a policy of adding 10% on top of the requested grant amount intended to cover a grantee’s operating costs.

More Information on General Operating Support

Challenge and Matching Grants

Another useful model for families to consider, particularly those who are just starting out or working with modest sums of money, is to consider giving a challenge or matching grant. These grants involve issuing a challenge or striking a deal with a nonprofit that commits your philanthropy to a certain gift amount, provided the grantee raises a comparable number of funds or a specified amount or percentage of the total funds required to run a project.

For example, suppose your family wishes to a give a grant to a local soup kitchen, Julia’s Pantry. At an annual family meeting, some family members raise concerns about Julia’s Pantry’s long-term prospects for success. Your family has been a long time supporter of the program and wishes to continue and even increase its support, but the organization’s budget appears to have shrunk in recent years and its roster of other donors seems to be getting shorter. After much discussion, your family agrees that Julia’s Pantry is still a worthwhile program, but that it needs a bit of a shot in the arm, both financially and from a visibility standpoint, so you decide to offer a challenge grant: your family will match the total gifts that Julia’s Pantry can raise in the next fiscal year, up to $20,000.

This strategy has three advantages: first, it encourages the nonprofit to diversify its funding portfolio and intensify efforts to cultivate new donors; second, by publicly endorsing the project you potentially help the nonprofit to attract other donors; and third, it acts as a challenge to other philanthropists in your area who may have shared your concerns and hesitated to fund Julia’s Pantry. In offering the nonprofit the opportunity to double its money, so to speak, you alert other philanthropists to the opportunity to double the impact by combining their efforts with yours.

While there’s certainly nothing wrong with helping a nonprofit increase its “earning potential,” you and your family should be aware that challenge or matching grants do have some drawbacks. Before issuing a challenge to a nonprofit, be sure that you have assessed the organization’s capacity to meet the fundraising demands of the challenge. If a nonprofit is small or chronically understaffed, issuing this sort of grant can be impractical and counterproductive.

For More on Challenge or Matching Grants

Prizes

We want to find a way to pull in those pesky bicycle mechanics from Dayton. . .

-Peter Diamandis, co-creator of the Ansari X Prize,
referring to the Wright Brothers’ day job.

One effective and often overlooked method of spurring innovation or drawing attention to good work in your field of interest is to offer a prize. While certainly all of us are familiar with a handful of large and internationally prominent prizes given for achievement, such as the Nobel Prizes in science, literature, or the promotion of world peace, there are hundreds of prizes being given away each year by family philanthropies all across the nation that are capitalizing on the same advantages.

As Diamandis, whose $10 million Ansari X Prize was given in 2004 to the team that developed SpaceShipOne, the first craft designed for commercial space travel, points out monetary prizes often appeal to scientists and great thinkers operating outside the mainstream or in obscurity. Like those “pesky bicycle mechanics from Dayton” whose enterprising spirit and pioneering work changed the world, bringing us closer together faster than we ever dreamed possible, the innovators whose ideas and energy will shape the next century are out there.

Offering a prize:

  • spurs competition
  • creates excitement or buzz around the field of interest
  • draws attention to both the winning innovation and to those of other participants
  • may inspire other donors to become involved or to fund similar projects

Before offering a prize in the name of your family, foundation, or cause, be sure to think carefully about what you hope to achieve and how that will be reflected the parameters for the competition. You want to be neither too vague, nor too prescriptive as both can lead to disappointing results. Said Diamandis in congressional testimony last year: “Well-written rules will deliver breakthroughs, diversity, and innovation. Poorly written rules will result in no entries or, worse yet, trivial solutions.”

Although scholarships fall in the same category as prizes, because they are granted to individuals, they are governed by very specific government regulations. For more information, look for an upcoming issue of Family Giving News, in which we will explore this giving option.

Some Examples of Prizes Given By Family Foundations

Program-Related Investing

Another effective method of maximizing your family’s potential to effect social change is to break down the barrier between your investment strategies and your grantmaking by exploring opportunities in program-related investing. Program-related investments (PRIs) refer to a set of vehicles or strategies, other than standard grants, that foundations use to finance ventures whose goals or mission compliment their own. The majority of PRIs given today are loans, which are made to nonprofits at little or no interest, and whose primary goal is to support their work, not to yield a profit for the foundation. In fact, in order for a PRI to apply towards a foundation’s annual 5% payout, the IRS mandates that the investment: 1.) must have a charitable purpose; 2.) must not seek to produce income or property appreciation as a primary goal; 3.) and, must not be used for lobbying or electioneering.

PRIs can enable families to invest in projects that would ordinarily be too financially risky to undertake as an investment opportunity, such as providing backing for low-income housing developments, business development in poverty-plagued neighborhoods or nations, organizational capacity building for nonprofits, and land conservation purchases. Several philanthropies that have successfully used these methods to advance their philanthropy include the David and Lucille Packard Foundation which in 2005 funded 129 projects through its PRI portfolio, with a total value of $375.4 million!

More on Program-related Investments

Before You Begin

As you and your family consider the giving options available, be sure to take a good look at your overall goals and how these strategies may or may not fit in with them. Although it’s often a good idea to evaluate, or re-evaluate your giving and the vehicles and processes that make it possible, introducing new practices solely for their own sake can be a frustrating and fruitless endeavor.

While caution is always encouraged when exploring new territory, don’t let it stymie efforts to explore giving potential, because with a little risk can come great rewards for your community and your family. To ease family concerns about potential new giving strategies, get in touch with other families in your area who may have some experiences with some of these tactics and are willing to share. Your local regional association of grantmakers is a great resource in this regard and can help put you in touch with other donors with similar interests. Also, don’t forget to keep your eyes open for news on family giving in your community as you read your morning paper. You can find a lot of ideas and information about new philanthropic opportunities simply by scanning the local and national headlines or the next issue of Family Giving News.

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