Philanthropic equity yields big returns

PJ staff report

Philanthropic equity, the charitable equivalent of venture-capital investment, more than triples program delivery and doubles revenue for nonprofits that conduct comprehensive campaigns to secure equity funds, a new report says.

Among 16 organizations that worked with consultant NFF Capital Partners to secure and invest a total of $312 million, nine of them increased their annual revenue by a total of $30 million, says the Portfolio Performance Report by the consultant, a division of the Nonprofit Finance Fund.

Philanthropy equity investments typically are significant, multi-year investments a nonprofit uses in trying to grow or change in a way that is sustainable.

“Like for-profit companies, nonprofit organizations need access to capital investments so they can explore better business models, scale impact and create lasting change,” George Overholser, founder of NFF Capital Partners who is stepping down as managing partner, says in a statement. “We cannot wring more ‘results’ from an overburdened sector without addressing fundamental flaws in the way nonprofits are financed.”

Launched in 2006 as a consultant to nonprofits, NFF Capital Partners has worked with nonprofits such as YearUp, and VolunteerMatch to support their fundraising process by writing case statements and structuring their accounting in a way that shows whether they are making progress toward sustainability, Overholser says.

According to the report, based on philanthropic equity campaigns for which multi-year data are available, annual program delivery tripled, with a compound annual growth rate of 57 percent.

Annual revenue from the business models for the nine organizations with which NFF Capital Partners worked doubled on average, with a compound annual growth rate of 36 percent.

Three of those nonprofits – GlobalGiving, Ashoka’s Changemakers, and VisionSpring – posted five-fold growth in the programs they deliver.

Philanthropy equity represents “enterprise growth-level capital,” Overholser says. “It pays for the deficits incurred on route to sustainability.”

Akin to venture capital, but without investors taking an equity stake in the nonprofits, philanthropic equity is “money that can be used to build an enterprise, that other people then use to turn their money into program execution,” he says.

“It’s not program funding,” he says, “It’s for the whole organization.”

A sustainable organization, Overholser says, “is one where funders come back over and over again because they like what the organization does.”

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