Your Grantee May Need More Than a Grant

Funders frequently hear some version of we need more funding if you want us to scale.

A solid partner would ask how much their grantee could use. But what a donor then fails to explore is the "type" of funding that would help their partner grow.

An organization might need working capital. It might need money to expand into a new geography. It might need to hire ahead of expected revenue. It might need capital for infrastructure or equipment. It might need to test a new product. It might need grant funding to subsidize services that will never generate sufficient revenue on their own.

Those needs shouldn't automatically receive the same funding type.

As an example, I worked with an East African social enterprise that was expanding into new products and markets. The organization needed additional capital to support expansion and operations.

To determine which capital mix made sense, and also which fundraising approach would sustain their growth expectations, we began by trying to understand specific programmatic funding needs, prioritizing capital providers whose funding mix would allow them to reach their programmatic goals, and then gathering market intelligence around which donors fit those opportunities.

Several new donor conversations advanced, and the organization subsequently adjusted its operational approach to expand.

But consider that situation from the funder's perspective.

A growing social enterprise comes to you seeking support.

The decision is fund or not to fund.

The more opportunistic decision is: What does this organization need to become sustainably capitalized for its next stage?

That could lead to a very different conversation.

I'd like to see more funders ask prospective and existing grantees questions such as:

• What specifically will this capital finance?

• Is the need one-time or recurring?

• Which activities generate revenue and which inherently require subsidies?

• What capital does the organization expect to need after ours?

• What prevents commercial or impact capital from being used?

• Could our capital help remove that barrier?

• Is there a portion of the funding that could be repayable?

• Could we use our balance sheet (not just our grant budget) to help?

• Who else should participate alongside us?

This moves the conversation from grantmaking to capital strategy. And it can reveal opportunities that neither the funder nor organization initially considered.

The donor doesn't have to provide all the capital

A foundation can determine that an organization needs a combination of capital without providing every piece itself.

Perhaps the foundation provides grant capital for technical assistance and introduces a lender for expansion capital. Perhaps it provides a guarantee that makes another investor comfortable participating. Perhaps it makes a recoverable grant to test a revenue model. Perhaps several funders take different positions based on their respective risk tolerance. Or perhaps the foundation simply helps the organization understand what it needs and introduces the right partners.

In that model, philanthropy isn't necessarily the largest source of capital. It can be the catalytic source of capital.

This requires a different definition of donor success

The question becomes less: How much did we grant?

And more: What did our capital make possible?

Did it allow an organization to reach a new population? Did it enable another investor to participate? Did it reduce risk? Did it help prove a model? Did it create a pathway toward greater financial sustainability? Did $1 of philanthropic capital help mobilize several additional dollars?

Not every grant needs to do these things.

But when an organization is seeking funding for growth, funders should at least ask whether the grant is the end of the capital strategy or the beginning of one.