Why the New Mega-Givers Are Big Believers in General Support

photo:  Kutlayev Dmitry/shutterstock — photo: Kutlayev Dmitry/shutterstock

The scarcity of general operating support grants is a perennial gripe among nonprofit leaders, and for good reason. How the heck are they supposed to build strong organizations when much of the funding they receive is restricted—and can't be used for such things as administration, development and communications? Nonprofit leaders have been making this point forever, but the behavior of foundations hasn't much changed. While some funders like Ford have lately vowed to provide more general support, the majority of grants made to nonprofits still take the form of program support.

The good news, though, is that many of the new donors now arriving in philanthropy understand the need for general support—and are writing big checks to scale the organizations they believe in.

Exhibit A of late is the Ballmer Group, the philanthropic operation of Steve and Connie Ballmer. Over the past year or two, as the Ballmers have ramped up with the large-scale giving, they've vowed to provide "long-term general operating support" to the organizations they view as strong and innovative. And why's that? For the obvious reasons we're all familiar with. As the Ballmer Group states on its website: "The nonprofit sector is working with insufficient resources. Many of the strongest nonprofits are 'starved' by over-restricted funding that does not cover the full cost of services, making it difficult to build the infrastructure for program innovation and scale."

Recently,the Ballmer Group announced it was awarding $15 million to Communities In Schools (CIS), the national nonprofit that strives to help at-risk students stay in school. In a recent academic year, CIS worked with 1.5 million students in 2,300 schools.

As it happens, Inside Philanthropy talked to Debra Montanino, the national chief strategy officer at CIS, about the group's fundraising last year. What we learned is that raising the group's annual budget of around $20 million is a serious heavy lift—and getting to that scale was a battle that took many years. But why should it be so difficult to grow and sustain an organization that's been around for four decades and has such an impressive track record of delivering measurable results in an area that so many funders care about? Apparently, the Ballmer Group wondered the same thing—and its five-year, unrestricted grant to CIS will provide critical financial stability to the group.

Earlier in the summer, the Ballmer Group made a five-year, $10 million grant to an organization working to close the achievement gaps in Minneapolis. And, in Los Angeles, it's recently become a major funder of nonprofits working to tackle poverty—making 34 grant commitments worth $40 million in the past year.

Last year, the Ballmer Group helped launch Blue Meridian Partners, an effort incubated by the Edna McConnell Clark Foundation to channel $1 billion in funding to high-impact groups working to help disadvantaged children. Blue Meridian says it aims "to discover the most promising evidence-based programs and propel them to a scale."

That makes sense: Of course funders should identify what works and then focus big money on scaling it up. Unfortunately, many foundations do the opposite—spreading program grants far and wide to grantees who find themselves unable to get to real scale. After years of this kind of thing, is it any wonder that the nonprofit sector is heavily fragmented, with too many duplicative organizations of varying levels of effectiveness and too few truly top-notch groups operating at the scale required to tackle big problems?

Among the partners in Blue Meridian are Stanley and Fiona Druckenmiller. As I've explained elsewhere, Stanley Druckenmiller has been the main donor behind the Harlem Children's Zone, building up that organization over many years with more than $100 million in gifts.

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I can think of a lot of other new donors who've focused major resources on building up nonprofits so that they can operate with much greater impact. Michael Bloomberg has given more than $80 million to the Sierra Club to finance its Beyond Coal campaign. Julian Robertson has given more than $6o million to the Environmental Defense Fund to scale up that group. Herb and Marion Sandler established ProPublic and the Center for American Progress with eight-figure gifts—and the Sandler Foundation keeps giving these groups general support, along with a range of other nonprofits the foundation has either created or boosted to scale. Cari Tuna and Dustin Moskovitz have lately been working to scale up GiveDirectly, the anti-poverty group, giving it more than $47 million. And the Gates Foundation, of course, has created or scaled any number of big ventures over the years.

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Gates also gives program grants, as does the foundation run by Tuna and Moskovitz. Other newer donors likewise do make smaller and more targeted grants—often, as part of experimentation to determine where they want to make bigger investments. So my point, here, is not that the new donors have entirely eschewed program support or that there aren't often good reasons for funding of this kind. Rather, it's that many of the new donors coming from the business world instinctively understand the importance of scale and the need for unrestricted capital to grow an organization.

The way that venture and private equity financing flows in the business world is entirely different from how it often does in the nonprofit world. VCs never restrict their investment in start-ups to specific things—say, product design. Rather, they provide chunks of capital that companies can deploy as they see fit, although with bigger investments, VCs will often demand to play a hands-on oversight role.

Nonprofit veterans, many of whom have worked in small and under-resourced organizations their entire careers, sometimes have unkind things to say about the supposedly clueless new philanthropists emerging from the business world. But while these donors may often be new to social issues, and run the risk of backing the wrong solutions, one thing they do understand is what it takes to build organizations. And as it turns out, many of these donors are on the exact same page as the nonprofit leaders who've long been begging for general support.

That's a good thing. It'd be better still if the established foundation world comes to feel growing pressure to change its own grantmaking practices.

more by david callahan