It's Time for "Flexible" Philanthropic Funding to Go Beyond Grants

Putting too much pressure on philanthropy to solve all of our systemic challenges facing the planet is not going to help make any of those problems disappear, nor will it encourage donors to ante up more resources.

And yet, there have been more honest conversations about whether philanthropic funders have a role to play in distributing capital more quickly, and at higher levels, than in any of the my last two decades in the funding space.

These are worthwhile discussions. But even if every major philanthropist dramatically increased their grant making, we would still face a fundamental challenge: Traditional grant making alone is unlikely to meet the scale of today's social and environmental problems.

Additionally, with the seemingly endless cycle of fundraising, time spent, resources used and dependency created, there is just so much vulnerability baked into moving from one grant application to the next.

The question many organizations are now asking is not just "how do we raise more money?" They are now asking "how do we build more sustainable funding models?"

This is where the conversation becomes interesting.

Now is an incredible opportunity for philanthropic donors to shift the way they fund.

We've been calling for flexible funding for years. But what if donors look at flexible funding from the eyes of the implementers they aim to support, and consider flexible capital that goes beyond grants where it makes sense?

For starters, philanthropy and non-grant funding (ie "products that operate more like debt or even equity") have largely operated in separate worlds. Philanthropy has been all about grant making and charitable giving. Debt and equity, used largely in impact investing, has focused on generating both social impact and financial returns.

The result has been an artificial divide between two funding communities that are ultimately trying to solve many of the same problems.

Today, that divide is beginning to blur.

Increasingly, philanthropists are exploring tools that historically lived within the impact investing world. These approaches fall under a broader category often referred to as non-grant capital.

At its core, this flexible approach is simple. It involves combining different forms of funding (grant and non-grant) to help organizations achieve both impact and long- term growth based on the types of funding THEY are seeking.

Some of the non-grant tools used may be recoverable grants, concessional loans, revenue-sharing agreements, loan guarantees, low-interest loans, or outcome-based financing structures. Bringing these types of capital mixes together with grants gives the ultimate level of flexibility to an implementer.

Note: these approaches are not appropriate for every organization. Nor should they replace traditional philanthropy. But they do expand the toolkit. And that may be exactly what the sector needs right now.

Ultimately, given how implementing organizations are aiming to shift how they use funding, testing new operating models, engaging differently with funders, and still calling for more flexible funding, the future of social impact funding simply can't just be a choice between grants or investments. It will increasingly involve a spectrum of capital solutions that recognize the different stages, needs, and opportunities organizations face.

Some challenges will always require grant funding. Others may benefit from flexible financing structures that help organizations grow, innovate, and become more resilient over time.

The most important shift is not financial. It is philosophical. For decades, much of philanthropy has focused on the question: "How much should we give?"

The emerging question is different: "How can we deploy capital in ways that create lasting impact and long-term sustainability?"

That conversation is already underway. And the organizations and funders that engage with it now may help define the next generation of philanthropy.