Written by: Kristi Fairholm Mader
I love a good report. I grab my coffee, close the office door, and take a moment to appreciate that thought, work, and conversations help frame something we know to be true, but have not yet articulated. This is how I felt reading the, ‘Blueprint for Enterprise Capital: A Strategy for Aligning Capital and Capacity to Magnify Nonprofit Impact,’ from Yale School of Management. Reading through the report, I kept murmuring — Right? Exactly! Yes!
Although this report is written for foundations, it captures the work that Scale is advancing — combining capacity and money to help organizations become more financially resilient, independent, and impactful. Here are some considerations from the report:
- Too often, funders “still provide short-term program-restricted grants rather than capital that helps organizations build their financial strength and resilience” — Right?
- Such “funding practices fragment effort, distract from focus, and create complexity that requires management systems for which philanthropy rarely pays” — Exactly!
- Capital and capacity building are “a critical combination that has been demonstrated to improve organizational performance and increase impact exponentially.” — Yes!
Scale works at the intersection of culture, capacity, and capital. Through programs and sector initiatives, coaching, and consulting, Scale supports organizations in shifting culture, removing barriers to capital, and helping to build capacity in organizations and their leadership.
The report aptly acknowledges that, “capacity building does not signal the view that the non-profit sector is ‘weak’ or lacks human capital… rather, it underscores the importance of having access to the talent necessary for growth or for solving a complex problem.”
Culture is integrated into all Scale’s work in encouraging the non-profit and impact sector to shift from thinking and acting from a place of scarcity to a growth and abundance mindset. The Thriving Non Profits program starts with the culture of money and weaves culture shift throughout.
Thrive Impact Fund brings flexible capital to support organizations to succeed by building sustainable and growing revenue streams, and with acquiring assets.
The Blueprint for Enterprise Capital report makes the case that organizations need access to equity. Equity turns up on balance sheets in the form of assets, cash and securities, and robust equity can unlock additional sources of capital. However, the path to building equity is a challenge for non-profits — it usually comes along with the donation of a significant asset or takes years to accumulate. There is very little funding that supports equity building, and as non-profits are unable to access venture/equity investments, the approach to building equity is attached to revenue generation.
The report states there is a “crucial difference between the roles played by equity capital and revenue in an organization — with equity used to “build” infrastructure and organizational capacity, while revenue is either earned or raised to support ongoing operations. Both of these uses drive the sector’s financial health and impact.”
TIF supports revenue generation and acquisition of assets by providing equity-like debt that mimics the flexible, patient, and long-term nature of equity — and we are seeing this approach meet a need in the sector. However, any debt financing will turn up on the balance sheet as a liability. This report calls for funders and foundations to provide enterprise capital that builds wealth, equity, and capacity for organizations to deliver their mission and mandate into the future. Of the report’s four recommendations, two concepts resonated particularly:
- Does your funding reinforce scarcity or support abundance? Does your funding put restrictions on the things that organizations need to build a strong organization- such as limiting funding to specific activities, not paying for staff wages, overhead or capital assets?
- Does your funding approach advance an organization’s mission or your own? There are a lot of competing priorities- it can be difficult to navigate and try to align to the various interests. It is a shift to focus on supporting the people on the ground to advance the solutions they have identified. I was inspired by this quote from the accompanying webinar: “We trust the leadership of the people close to the problems they are working to solve.”
The report explores strategies and actions — and I recommend funders and investors read to the very end where they drive home the report’s message that, together, we can make the movement to establish and promote enterprise capital as a widely adopted funding mechanism that sustains the sector, a reality.
Scale is interested in working with aligned partners to help elevate the role of enterprise capital and capacity to build a strong and powerful impact sector, for now, and into the future.