• A Farewell from Our President, Kristen Burns
• Stepping Out of the Maze: Aligning to Improve the Nonprofit Capital Market, by Cynthia Gair
• Welcome to Our New Staff Members, Emily Bolton and Esther Kim
• REDF Launches Training Series with CompassPoint

Dear Friends,

After nearly five years at REDF, and three years as its President, it is with mixed feelings that I announce my upcoming departure later this summer. I have found such inspiration in being part of REDF’s work, and am grateful to have had so many thoughtful, dedicated — and of course fun — colleagues and partners along the way! I will remain at REDF until August 1st; at the end of the summer, I’ll be moving with my husband and daughter to Pittsburgh, Pennsylvania. My husband has accepted a new and promising professional role there, and we’re looking forward to being just a few hours away from my family.

REDF has much to be proud of: the social enterprises we’ve funded have now helped more than 3,000 people turn their lives around; we’ve strengthened our nonprofit grantees’ effectiveness in meaningful and lasting ways; and through publications and speaking engagements, we’ve added valuable perspectives to field-wide progress in social enterprise, social outcomes measurement, and high-engagement philanthropy.

Particularly in recent years, we’ve made a successful transition to independence as a 501(c)(3) organization, we’ve diversified our own funding base through the creation of partnerships with such funders as The William and Flora Hewlett Foundation and The UPS Foundation, and we’ve launched a sound, innovative strategy for increased impact that is generating an enthusiastic response from our stakeholders.

As proud as I am of all that REDF has accomplished, I’m even more confident about its future. We have an outstanding staff, a wise and dedicated board of directors, and a robust network of partners and supporters who all share a common goal: to move more people out of poverty. I will be eager to hear about REDF’s future successes, and those of its portfolio members and partners, in the months and years to come.

REDF will soon launch a search for my successor; please check our website for more details as they become available. While I’m excited about this new adventure for me and my family, I’m also sad to leave behind the organization and the colleagues who have fulfilled, challenged, and inspired me for the last five years. Thank you for being a part of that group!

Warmly,
 
Kristen Burns

The types of funding available to nonprofit organizations and the processes for accessing funding are limited, restrictive, and confusing. The nonprofit capital market requires that nonprofit grant seekers undertake more idiosyncratic, circuitous, and expensive fundraising activity — with more uncertain and impermanent results — than for-profit firms must undertake. All of us who are concerned with the social causes our community nonprofits take on need to be concerned about the funding environment in which they must operate. This article is a preview of REDF’s upcoming “Stepping Out of the Maze” series, in which we will explore the ways private sector financing practices can be adapted to improve the nonprofit capital market. In the coming months, check our website for the series.

Those of us who make grants to nonprofits can better serve our grantees and ourselves by adopting three alignment practices used by professional venture capital investors:

• Risk/return alignment — make investments that fit our risk/return goals
• Lifecycle alignment — understand each potential investee’s long term lifecycle and the role our funding will play in it
• Co-funding alignment — welcome and seek out opportunities to be part of pooled funding arrangements that ensure each investee’s full funding

By adopting and adapting these practices, we will build a more functional nonprofit capital market while we improve the quality of our individual grantmaking.

Living in the Maze
The nonprofit capital market’s dysfunctionality, duplication, and gaps in the types of nonprofit funding available, versus those needed, have been discussed extensively.¹ Increased social need is met by nonprofits with very limited funding options. Grant seekers must navigate unclear and unpredictable restrictions and limitations, with little connection between the services they are asked to provide and the investments they receive. CompassPoint and the Meyer Foundation’s 2006 study of nonprofit executives found that “frustration with capital markets” and the funder-nonprofit dynamic is a leading cause of fatigue and burnout among nonprofit executives.²

U.S. nonprofit capital market barriers are part of a complex legal/tax/cultural structure. Paths through these barriers will likely come from a mix of changes; one set of valuable tools can be adapted from private investment practices.

Stepping Out of the Maze: 10 Suggestions for Nonprofit Grantmakers
Align grantmaking with risk tolerance and desired return

1. Identify our organization’s risk/return profile(s); ask ourselves what returns we seek and what level of risk we are willing to take on (for nonprofit grantmakers, return is social outcomes, while our primary risk is the opportunity cost of having invested in a program that produces low or no social outcomes)
    
   Too many grantmakers do not acknowledge that, just as in private investing, there is a risk/return trade-off: we cannot have it all. If we want social outcomes that involve far-ranging and long-term investment and the greater risk associated with innovation, we need to provide the investment needed and take on the associated risk, or we need to find others to join with us in doing so. If we are not ready to take on higher risk grantmaking, we should tailor our return expectations accordingly.
2. Align our program goals and grantmaking with our risk/return profile
3. Make our grantmaking strategy and its underlying risk/return profile clear to grant seekers and other funders

Align grantmaking with grantee lifecycle stages that fit our risk/tolerance preferences

4. Learn about general and mission-specific organizational lifecycles; identify key lifecycle stages as well as the needs, risks, and potential returns that come with each stage
5. Identify grantee lifecycle needs, risks and return combinations that best fit our organization’s program goals (derived per #2 above)

Align grantmaking with other funders

6. Identify other funders involved in our mission area(s); get to know them and understand their risk/return profiles and grantmaking strategies
7. Identify potential co-funders whose risk/return profiles are similar to ours; identify potential co-funders with differing, potentially complementary profiles and tools (e.g., program related investments, [PRIs], or commercial loans) to fill funding gaps our funding limitations prevent us from covering
8. Assess potential grantees' near-term funding needs and gaps; assess our organization’s ability to fill them
9. If total need exceeds our ability to fund, rather than cutting the amount funded, seek out other funders to join in meeting grantee needs
10. If we seek outcomes that are best accomplished by long-term, sustained effort, realistically assess grantees’ future funding needs and gaps and our ability to fill those gaps; join with grantees in seeking out funders with risk/return profiles that are aligned with future needs

Some of these steps have been core to REDF’s approach since 1997, while others are on our list of things to be achieved. Other grantmakers, some of whom have joined us in pooled funding of portfolio organizations, are concerned and looking for a way out of the maze. We hope this article, and REDF’s upcoming “Stepping Out of the Maze” series, will generate more discussion, solutions, and collaboration. If a critical mass of grantmakers takes steps together, we have the opportunity to bring about systemic change.

¹ For detailed analyses of nonprofit capital market issues, we especially recommend Bernholz, Lucy. Creating Philanthropic Capital Markets. Hoboken, New Jersey: John Wiley & Sons, Inc, 2004; Carttar, Paul, and Jed Emerson. “Money Matters: The Structure, Operations and Challenges of Nonprofit Funding.” The Bridgespan Group (2003); Miller, Clara. “The Looking-Glass World of Nonprofit Money: Managing in For-Profits’ Shadow Universe.” Nonprofit Quarterly 12.1 (2005); Ryan, William P. “Nonprofit Capital - A Review of Problems and Strategies.” The Rockefeller Foundation & Fannie Mae Foundation (2001).

² Bell, Jeanne, Richard Moyers, and Timothy Wolfred. Daring to Lead 2006 - A National Study of Nonprofit Executive Leadership. CompassPoint Nonprofit Services & the Meyer Foundation, 2006.

REDF has two new team members who will be providing business assistance to our portfolio. Emily Bolton has recently taken over the Enterprise Development Manager position and Esther Kim has filled a new role at REDF — Portfolio Manager. Together with Cynthia Gair, REDF’s Director of Portfolio and Field Advancement, they are working with our current portfolio and ramping up for a new one.

Emily also manages REDF’s Farber Interns and Fellows Program for MBA students and graduates. Prior to joining REDF, Emily spent four years as a strategy consultant in London, and worked at Charles Schwab & Co. She graduated with a BA in Natural Sciences from Cambridge University, and earned her MBA from the UC Berkeley Haas School of Business, where she was a Haas Merit Scholar.

Esther Kim, who is developing REDF’s portfolio assessment and outcome-tracking approaches in addition to providing portfolio business assistance, spent four years with McKinsey & Company, an international management consulting firm. She also has experience in economic consulting, government programs and international development. She holds a Bachelor of Science in Environmental Engineering and dual Master of Science degrees in Technology Policy and Environmental Engineering, all from MIT.

In an interesting turn of events, both Esther and Emily are former Farber Interns. We happily welcome both to our staff!

We recently finalized a partnership with CompassPoint, a San Francisco-based consulting, research, and training organization for nonprofits, to pilot a training series about social enterprise. CompassPoint is well-known in the San Francisco Bay Area and beyond for its high-quality training offerings for nonprofit managers; they will provide marketing and logistics for our joint training sessions. REDF, with our extensive experience in the social enterprise field, will develop the content and lead the sessions.

If you’re in the Bay Area, please join Cynthia Gair, REDF’s Director of Portfolio and Field Advancement, for our first seminar titled “Earned Income to Social Enterprise: A Bird’s Eye View” to learn about the range of strategies and how your organization can (and can’t) apply them to meet program goals and expand revenue streams. The session will be held September 29 from 10am-12pm at CompassPoint’s San Francisco location. Concurrently, we’re also exploring relationships with other potential partners and are excited to develop a new way to reach out to nonprofits beyond our portfolio, in order to share the lessons we’re learning about running social enterprises.