Aligning Philanthropy & Nonprofits: How Foundations Can Improve the Funder-Grantee Relationship

Nonprofits and funders aim to accomplish the same goals, tackling tough social challenges and moving the needle to affect real change. Despite these shared objectives, funder-grantee relationships can often feel more adversarial than collaborative. And while there have been recent changes in philanthropy to help foundations better support nonprofit organizations, much work remains to improve the funder-grantee relationship.

Addressing several key nonprofit challenges will help improve funder-grantee relationships and make grant partnerships more effective. The biggest challenges cited by nonprofits include: outsized grant applications, lack of funder transparency, overly restrictive funding with limited timelines, the imbalance in the funder-grantee power dynamic, and a lack of regular communication. Below, I discuss these challenges and offer ways that foundations can work to address these issues.

Challenge 1: Outsized grant application and grant reporting requirements. Grantmakers create application requirements and processes that give their boards and staff the information they need to inform funding decisions. Unfortunately, the grant application process often places an undue burden on nonprofits. In addition to organization, program and budget information, funders request theories of change, qualitative and quantitative indicators, strategic plans and even risk mitigation strategies. Although funders need to develop consistent, rigorous criteria for funding consideration and reporting requirements, there should be a balance between the effort spent on the application and the amount of the award. Unfortunately, this does not seem to be the norm, especially when it comes to smaller grants.

Addressing the challenge: Funders should aim to ensure that the effort grantseekers expend to receive a grant is proportionate to the size of the grant, a concept known as 'right size grant expectations'. Simplification of grant applications can include creating a shorter, streamlined application and reporting form for smaller grants. It could also include requesting existing organizational materials, like annual reports or prior grant applications, as an initial assessment. And as a general rule, funders should request only information that will be used in grantmaking decisions.

Challenge 2: Restricted Funding. Foundations often prefer to fund specific activities, initiatives or programs. Restricted grants, however, do not allow nonprofits to choose the best use of resources. With the limitations placed by many foundations, nonprofits have a difficult time funding general operating expenses, building a reserve and growing their organization in a deliberate manner. Restricted funding also reduces support for capacity building, an essential long-term organizational investment strategy that enables nonprofits to build skills, leadership and organizational infrastructure.

Addressing the challenge: Foundations should work with nonprofits, engaging in conversations to discuss where funding is most needed and how they can help to support that work. These conversations will help funders understand that supporting staff salaries and salary increases, fundraising and marketing activities, and leadership development can advance a funder’s objectives and ultimately strengthen programmatic activities. Such conversations can also help nonprofits to prioritize organizational needs and provide an opportunity to align funding with organizational strategic plan objectives.

Challenge 3: Short funding timelines. Foundations often disburse one year or 18-month grants. These short funding timelines make it difficult for nonprofits to plan their longer-term budgets effectively or improve organizational sustainability. In addition, because the timeline for driving impact can take years, or longer, short timelines set unrealistic expectations for measuring change.

Addressing the challenge: Multi-year grants serve several purposes. They help nonprofits plan their organizational and programmatic growth, they improve sustainability, and longer grant periods can be better aligned with the time it takes to create and measure change. Developing collaborations of like-minded funders can further strengthen this tactic by providing a robust source of long-term funding, giving nonprofits the lifespan to demonstrate impact, share best practices and strengthen their organizations.

Challenge 4: Imbalance in the funder grantee relationship. The relationship between funders and grantees can be challenged by the inherent power imbalance between those with resources and those who need them. The power imbalance often makes grantees feel beholden to funders or unable to have honest conversations for fear of losing funding. 

Addressing the challenge: To address the imbalance in power dynamic, foundations need to create authentic relationships with grantees, improve decision-making transparency, and empower nonprofits and the communities they serve. Creating authentic funder-grantee relationships is difficult, but regular, candid communications are a start. Improving transparency includes communicating how a Foundation’s agenda is set and how foundations make funding decisions. Empowering nonprofits can include inviting previously funded nonprofit partners to help set agendas, be involved in creating grant-making rubrics, and participate in driving the direction of philanthropic work.

Challenge 5: Lack of effective, regular communication. Foundations and nonprofits generally communicate only when grant applications or grant reports are due. However, consistent and regular communication helps create the authentic relationships between funders and nonprofits discussed previously. Regular communication also builds trust and enables funders and nonprofits to be aware of each other’s challenges, accomplishments, and needs.

Addressing the challenge: Informal conversations, brainstorming, and learning together help facilitate more authentic relationships. In addition to one-on-one conversations, cross-sector conversations deepen collective expertise, allow funders and nonprofits to explore new strategies, and help them understand other points of view. Honest conversations help foundations gain the expertise of those on the ground and enable nonprofits to learn from the broader, strategic view of funders. Regular, open communication, also builds trust, enabling funders to take risks with grantees.

Conclusion

To effectively drive social change, nonprofits and grantmakers need to have a dialogue about the most pressing challenges of funder-grantee partnerships and how best to address those challenges. While this paper focuses on ways funders can better support nonprofits, nonprofits also have a role to play in strengthening this relationship, bolstering philanthropic initiatives by sharing best practices and creating social sector collaborations, among other strategies. Creating a shared framework of challenges and mitigation strategies will strengthen philanthropic partnerships and improve the social impact sector.