How a Unique Funding Model Aims to Strengthen the Link Between Giving and Impact

Lindsay Beck and Catarina Schwab started their company, NPX, with a not-so-modest vision: to transform the way nonprofits are funded. The duo came up with a unique donation vehicle called a donor impact fund, which combines impact investing and philanthropy to fund the work of nonprofit organizations and prioritizes impact for donors and investors looking to support them.

Donors agree to give a set amount, contingent on certain outcomes. Investors lend upfront money to the nonprofits to carry out the work. Then, as funding achieves the desired impact, donations are unlocked to pay back investors. It’s a clever concept that likely won’t win fans among those pushing for greater unrestricted support for nonprofits, but could open up new avenues of funding for the right organizations.

One of NPX’s recent projects, the Bay Area Donor Impact Fund, has raised $4.5 million in donations and selected three nonprofits to receive funding: 10,000 Degrees, Mission Asset Fund (MAF) and Rivet School. Twenty-three philanthropists, all of them women, contributed money to create the fund. NPX is now pitching a group of separate investors to provide the upfront funds that will support the nonprofits’ work in advance.

How it works

A donor impact fund (DIF) brings together donors, investors and nonprofits. Funds for the nonprofits’ work are provided by investors who purchase performance-based bonds. The DIF only releases funds from donors after the nonprofits show that their work has generated impact. “The DIF allows donors to donate if and only if impact happens,” explains co-CEO Beck.

The financial risk, then, falls on the investors rather than the donors or the nonprofits. If an organization falls short on its targets, investors may lose all or some of their investments and the donated funds can be redeployed to other recipients. If an organization hits its targets, donations are released, and investors take home a return.

Beck says NPX conducts a rigorous vetting process and works closely with participating nonprofits to identify and zero in on achievable and measurable impact metrics. All parties agree to specific milestones, and the nonprofits’ impact is regularly and independently audited by a third party.

The Bay Area Donor Impact Fund started with a small social gathering. “We invited women from our networks to my home and presented our idea,” says Schwab. “All the women were frustrated by the lack of opportunities available to people in underserved communities and wanted to do something about it. In our experience, when you meet one woman, you meet her whole tribe, and that is exactly what happened.”

The original group of women grew to 23, among them prominent Bay Area philanthropists, including Julia Hartz, who founded Eventbrite, Advent Software’s Stephanie DiMarco and Katie Schwab Paige of the Charles and Helen Schwab Foundation.

To choose the organizations that would receive funding, NPX started with a group of about 50 nonprofits, and ultimately selected three. During the five-step selection process, NPX gathered information from the nonprofits, consulted outside experts and conducted due diligence. “On paper, our process looks similar to that of every other nonprofit funder,” Beck said. “The criteria is the same but the key difference is that we optimize for impact above all else. Other factors that funders look for—a charismatic leader, marketing and celebrity, and economic factors—are less important to us than impact.”

Delivering on college outcomes

Terms like “impact metrics” may sound like technocratic Silicon Valley speak, but NPX’s approach could tangibly improve lives and communities on the ground. In the case of 10,000 Degrees, one of the fund’s three grantees, the metric the organization is working toward is 160 college diplomas. The organization will use the DIF funding to support 160 low-income community college students as they transfer to and graduate from four-year colleges.

10,000 Degrees helps low-income students attend and succeed in college. All the students they work with are low-income; most are from communities of color and are first-generation college students. The group provides wrap-around services and peer support to help students navigate the college admission and financial aid process, awards scholarships, and continues to provide guidance and support after the students reach college. This work is even more important given the financial and academic toll the pandemic is taking on schools and communities, according to 10,000 Degrees President and CEO Kim Mazzuca.

“The need is so great,” she said. “Nonprofits like ours have to be the safety net right now. The schools are looking to us and saying, ‘Can you help with these college services? We don’t have the capacity; we have to focus on online learning.’”

By the numbers, the accomplishments of 10,000 Degrees are impressive. Over 80% of the college students the organization works with earn bachelor’s degrees versus 31% of their peers around the country, and assume 85% less student loan debt. 10,000 Degrees students who start at community colleges graduate from four-year colleges at three times the national average. “We have a track record for delivering on college outcomes,” Mazzuca says.

That track record helped make 10,000 Degrees an excellent candidate for DIF funding, and as Lindsay Beck points out, a college diploma provides solid, measurable evidence of impact. Graduation from college, she says, “is a clear and easily collectible impact metric. It has also been rigorously researched as the most effective way to break the cycle of intergenerational poverty.”

“The funding conundrum”

For Mazzuca, NPX’s funding model provides a refreshing contrast to the traditional relationship between nonprofits and their funders. “The great thing about NPX is that they recognize the funding conundrum for nonprofits: To move ahead, there needs to be an adequate amount of capital to get the work done,” she said. “With this kind of support, we can spend less of our resources fundraising and more on the actual work. And it’s the work that will create lasting and sustainable change.”

NPX co-founders and co-CEOs, Beck and Schwab, have both worked in the nonprofit world. In fact, it was their nonprofit experience that motivated them to create NPX in the first place. “We have lived the problem,” Beck said. “We were both frustrated with the status quo in fundraising, with the limited funding and the constant need to keep approaching funders. We were frustrated with the fact that, too often, funding isn’t connected to impact. In fact, there are often inverse incentives: The more successful a nonprofit is from an impact standpoint, the less funding is available. Funders say, ‘You don’t need my money anymore, you’re doing great,’ and take the funding somewhere else.”

Alternative to charity galas

NPX’s inaugural project, launched in 2018, supported The Last Mile, a nonprofit that provides technology training for incarcerated people. The funding enabled the organization to create a web development shop at San Quentin, the first such project ever established at a U.S. prison. Two years in, the four-year project has been successful; it has generated positive impact reports and released money to investors.

NPX has won support from marquee names in the world of philanthropy, including the Virgin Group’s Richard Branson and eBay’s Pierre Omidyar, as well as awards from Goldman Sachs and the Financial Times. The company recently launched a donor impact fund in Colorado, and Beck says they have a number of other projects in the works.

The model won’t be a good fit for all nonprofits, particularly for those in fields like advocacy or organizing, where goals can be ever-shifting and difficult to measure. In fact, the very concept may irk the nonprofit leaders who, for many years, have been calling on far fewer metrics attached to funding and greater unrestricted support. But for certain organizations with clear-cut deliverables, an option like NPX’s funds could present an appealing alternative for securing a large chunk of long-term funding.

Its founders say the model has received an enthusiastic response from both nonprofits and the philanthropists who have participated.

“Nonprofits are tired of the gala model of fundraising, and donors are, too,” says Beck. “Donors say, ‘I don’t know the impact of my giving. Is this community better off after all the donations?’ In many cases, the answer may be no, but the bigger problem is that we just don’t know. With the donor impact fund, your money doesn’t move until impact happens. Money and impact are explicitly linked.”

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