Opinion: Funders should support nonprofit transformation

“We’ve done a reduction in force and are now exploring three things in parallel: raising a ton of money; finding a merger partner; or closing. Everything is on the table and the clock is ticking.”

We heard this verbatim from the executive director and board chair of a mid-sized nonprofit recently. They are far from alone. We’ve connected with numerous groups in the same situation over the past few months.

As they grapple with what to do, nonprofits ask us, often pleadingly, “What are funders doing?” Perhaps because SeaChange Capital Partners is positioned between nonprofits and funders, they seem to think that we have some privileged view into what funders are up to. But we don’t, for the truth is that we have much more familiarity with the hundreds of nonprofits we’ve supported than with the few dozen who support us.

However, the question keeps coming, and funder strategies have become clearer, so we’ve taken a stab at an answer in a new field note: “Transformation-Oriented Philanthropy If Not Now, When?” Over the course of the year, we have seen five basic responses by funders: double down; make new friends; hibernate; stay the course; and support transformation. These are often mixed and matched – for example, doubling down in some areas while hibernating in others. But for every grantee that receives additional support, others lose out unless funders increase their aggregate spending – which only a minority have announced plans to do.

Of these, supporting transformation seems to have piqued the interest of many funders. However, far fewer are actually doing what we have labeled “Transformation-oriented philanthropy.” So what is transformation-oriented philanthropy? It’s providing a combination of funding, expertise and even governance to help nonprofits significantly and sustainably transform (or in some people’s parlance, “restructure”) to better advance their missions in response to the current environment.

Nonprofits can transform through collaborative arrangements (e.g., mergers, space sharing, back-office consolidations and programmatic joint ventures); by spinning off or divesting certain activities; by reorganizing (e.g., closing programs, breaking leases, selling assets, restructuring loans); or even by winding down responsibly.

It’s easy to understand the gap between funder interest and funder action.

Transformation-oriented philanthropy poses emotional, logistical, and risk- and power-related challenges that many funders find daunting. But it can be done, as several funders are demonstrating on their own or by working with others. Inspiring examples of transformation-oriented philanthropy include the Skoll Foundation’s “pivot fund,” the Public Media Bridge Fund, and the growing breadth of issue- and geographic-based funds – such as the members of the Sustained Collaboration Network.

Foundation leaders privately acknowledge that we are on the brink of widespread nonprofit distress. They know that the long-term damage will in part depend on the decisions that they make to mitigate the harm and, where possible, preserve assets.

Regardless of their strategy, funders should be transparent with their grantees about their plans. Nonprofits have enough challenges to contend with; they should not be forced to “guess” whether a grant will be cut, grown or renewed if a funder could just tell them. For funders curious about transformation, it is time to enter the fray – whether on their own, through an existing pool or intermediary, or by working to create one in their area of interest. Those who are already funding transformation should encourage their colleagues and peers to join in. If not now, when?