Picture this: You’re running a tech startup. Your proof-of-concept works. Customers clamor for more. But financially, you’re running on crumbs. Investors are eager but putting up less than $200 in capital. Yes, you read that right. And yet, they expect big ROI. Sound impossible? Welcome to the nonprofit sector.
The growth capital gap
What’s missing from this absurd anecdote is something every business leader knows. After proving your model works, you raise Series B funding — the growth capital that transforms promising startups into market leaders. It’s patient, flexible and focused on scaling impact, not just sustaining operations.
Nonprofits, it turns out, need the same sort of long-term, flexible funding to build the infrastructure, capacity and partnerships to maximize their impact and resilience.
What businesses call “Series B” funding is called “durable capital” in nonprofit parlance. Same concept, different vocabulary. Both mean large, flexible investments in infrastructure, capacity and partnerships that can multiply impact.
The durable capital imperative
Here’s the rub: Typically, nonprofits receive most of their funding in small, short-term, one-time gifts earmarked for specific projects – essentially the opposite of durable capital. Recent research indicates that 96.9% of donors give less than $5,000 a year. The average first-time donation to a nonprofit organization? Just $187.
That’s the equivalent of seed funding. It may be enough to keep the doors open. Barely. But it won’t move the needle.
This modest and short-term funding model simply isn’t capable of delivering impact at scale, never mind the transformative impact many donors crave.
And it isn’t enough to meet this moment.
The abrupt and near-total elimination of USAID funding, deep cuts to overseas development aid by the United Kingdom, France, Germany and Switzerland, among others, combined with trims to domestic social protection programs, have frayed social safety nets the world over and led to surging demand for services.
A new survey of nonprofit leaders in 27 countries found that 78% have seen increased demand due to economic hardship, social crises or the withdrawal of public services. Nonprofits in lower-income countries were even more likely (84%) to report an increase in demand. Only 22% of the 3,000 nonprofit leaders surveyed were confident that they could meet the growing need.
Recent surveys of US-based nonprofits have found similar results, with 85% of US nonprofits expecting demand for their services to increase this year. At the same time, 36% of the US nonprofits surveyed are running deficits – the highest level in ten years of survey data.
Solving this challenge doesn’t just require more money. It requires a different funding model.
The impact of follow-on funding
Too often, when business leaders, innovators and entrepreneurs take up philanthropy, they think of their philanthropic investments, including donor-advised funds and the like, as entirely different from their money-making ventures.
Our research and experience at Lever for Change indicate that tools and strategies from the for-profit sector can help inform and supercharge philanthropic investments in the nonprofit sector, not just in times of crisis, but durably in ways that will last well into and shape our future.
Series B funding is a powerful example of a tool from the private sector that should be repurposed and leveraged by business leaders, innovators and entrepreneurs when they engage in philanthropy. By shifting their philanthropy towards investments that resemble Series B funding (a.k.a. durable capital in the nonprofit sector), philanthropists can help nonprofits meet this moment and whatever challenges still lie ahead.
This is not just a call for larger gifts. Durable capital requires larger, more strategic and catalytic gifts. To better illustrate what these investments look like in the nonprofit sector and understand what makes them uniquely powerful, we examined seven underappreciated and overlooked functions of durable capital investments that hold the promise of strengthening nonprofit resilience and sustainably deepening or expanding impact:
- Endowments: Once limited to universities, hospitals, and museums, endowments can help nonprofits weather sudden policy or funding shifts and give nonprofit leaders the stability to plan for the long term.
- Deepening Work: Durable capital can help nonprofits deepen their work by expanding the types of services they provide communities. For example, a nonprofit arts organization might begin loaning books or art supplies.
- Reaching Critical Mass: Major capital infusions can push initiatives to the tipping point where they become mainstream, such as a radio campaign that helps expand knowledge of and access to community health services.
- Financial Infrastructure: Nonprofits often underinvest in non-mission-critical expenses such as financial systems. They are, nonetheless, important for optimally tracking and effectively deploying funding. Often small nonprofits face a catch 22: They lack the financial systems larger funders require but can’t afford to build them without a large infusion of cash.
- Measurement and Evaluation: Both new and established organizations need durable capital to invest in evaluation systems that identify what works. Feedback loops for continuous improvement are critical for maximizing or even quantifying impact.
- Traditional Scaling: The most common type of durable philanthropic capital enables nonprofits to expand their impact by growing their footprint. This might mean covering the costs of opening a new office to expand to serve a new geography.
- Strengthening Partners: Durable capital can help nonprofits build capacity for collaboration with aligned organizations. This can be particularly impactful when nonprofits partner with governments, working upstream to strengthen the delivery of government services at scale.
The potential of the series B/durable capital playbook
Examples of durable capital philanthropic investment include Co-Impact’s $20-million big bet on The Global Fund and Last Mile Health in 2019. This was a strategic long-term investment of durable capital to connect rural communities, many of them for the first time, to critical healthcare, including family planning, vaccinations and treatment for common but deadly childhood illnesses, across rural Liberia.
The results show the potential of the Series B/durable capital playbook. The Liberia Ministry of Health obtained the funding to train, establish supervision for, equip and deploy more than 5,000 community and frontline health workers. As a result, treatment for pneumonia, malaria and diarrhea increased by over 40 percent. And the proportion of Liberian women using skilled birth attendants increased from 55 percent to 90 percent. The initiative connected more than one million people to lifesaving care.
That’s not incremental improvement — that’s systems change at scale.
Leverage learnings from your Series B playbook
The lesson here for business leaders, innovators and entrepreneurs: Right-size your philanthropy to meet your vision, and leverage your private-sector smarts to meet the moment.
You’ve seen Series B funding transform startups from proof-of-concept to market leader. Durable capital can help nonprofits move from surviving on crumbs to delivering transformative impact. Whether through endowments that weather funding storms, infrastructure investments that break the catch-22 facing small organizations or strategic partnerships that enable systems change at scale, this approach multiplies impact in ways that $200 donations simply cannot.
Today, as the world around us — with its growing unpredictability — appears intent on demonstrating the use case for durable capital, we hope business leaders, innovators and entrepreneurs transfer their learnings from the for-profit sector to their philanthropic investments and think big.
Cecilia A. Conrad is the CEO of Lever for Change and a senior advisor at the John D. and Catherine T. MacArthur Foundation. Kristen J. Molyneaux is President and Co-founder of Lever for Change
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
