Funders need to embrace such grant requests with the same — or even greater — level of interest and appreciation as requests for programmatic support.
During my short time in philanthropy, I have been privileged to conduct site visits all across the country. Without the latter, the former does not exist. In order to assist our grantee partners in reaching their greatest potential, we as funders must obliterate power dynamics and embrace our funder privilege from a genuine place of humility.
Anthony Richardson, J. Private foundations and public charities are both classified as c 3 organizations by the IRS and are tax-exempt. Both exist to serve the public good. However, private foundations and public charities have different means of accomplishing and supporting their work, as well as governing themselves.
Here are some examples:. Komen Foundation. These nonprofit organizations rely on donations from individuals, the government, corporations, and private foundations to fund their operations and programs. A private foundation, like a public charity or public foundation, is dedicated to carrying out a charitable mission. However, a private foundation is not a public charity because, instead of receiving public support, it is funded and controlled by an individual, family, or corporation.
Non-Operating Foundations : These foundations typically make grants to public charities, and they make up the vast majority of the private foundation community. These foundations are the kind that Foundation Source establishes and supports.
Operating Foundations: An operating foundation predominantly undertakes charitable activities and must be significantly involved in its own projects in a continuing and sustaining fashion.
Examples might include the operation of a museum, zoo, library, or research facility. Essentially, an operating foundation makes direct charitable expenditures by conducting its own charitable projects rather than by making grants to other organizations. For instance, rather than give a grant to a food bank, an operating foundation might purchase food directly and hire a driver to deliver it.
Because private foundations are established for charitable purposes, they must comply with IRS rules to ensure that they are active, and their expenditures benefit the public. They are also entitled to significant tax benefits. A donor may be able to take advantage of three main tax benefits when he or she gives to a private foundation:.
In addition to a deduction for income taxes on gifts to a private foundation, donors may also be able to avoid paying capital gains taxes by donating highly appreciated assets to a private foundation. For example, if a donor were to give appreciated stock to a foundation, he or she would be entitled to receive an income tax deduction for the full, fair-market value of the stock. When the foundation decides to sell the stock in the future, it will pay only the nominal excise tax of 1.
For high-net-worth individuals who have a strong charitable interest, private foundations offer an opportunity to avoid paying estate taxes while simultaneously creating a lasting philanthropic legacy.
According to the National Center for Charitable Statistics, there are approximately 1,, public charities in the United States, and perhaps just 90, private foundations. The reason why public foundations vastly outnumber private foundations is largely explained by financial considerations: A public charity can solicit support from the general public, government, and private foundations whereas a private foundation is funded by an individual, family, or corporation.
Public charities must pass various support tests to qualify for their IRS status. However, compared to private foundations, public charities do have a somewhat higher limit on how much a donor may give and still receive a tax deduction. In practice, however, tax deduction limitations rarely present a barrier to private foundation donors.
First, many donors do not reach AGI limits on tax deductions. If they do, however, contributions that exceed annual limits may be carried over to subsequent years.
Beyond these differences, private foundations enjoy important advantages over public charities. Like venture capitalists and startups, foundations and nonprofits share a goal: theirs is to improve conditions in the social sectors in which they operate. Although it can be difficult to quantify such goals—for example, when the program is targeting inner-city development—the foundation and the nonprofit usually agree that the problem needs attention.
However, foundations do not share one important goal of nonprofits. The nonprofit has a very explicit need to keep its organization healthy in terms of staff, revenue, and basic operating systems; the foundation, with its focus on program efficacy and its practice of making one-, two-, or three-year grants, does little to support those long-term goals.
The sad irony is that although the nonprofit may serve its clients well in the short term, it may end up lacking the organizational strength it needs to continue its work. To enhance the prospects for growth and sustainability, the venture capitalist offers a range of noncash, value-added assistance.
Furthermore, the venture capitalist gets involved in critical hiring decisions, such as the succession that takes place when some of the early founders are replaced with professional managers.
Once a grant has been made, the foundation assumes an oversight role to uncover poor management rather than a partnering role to develop capable management and adaptive strategies. For example, foundations require periodic financial reports but are unlikely to contribute the services of an expert to work with the nonprofit on financial planning. Most foundations never take a seat on a nonprofit board or act as mentors or partners: in fact, they believe that such involvement would be intrusive.
Foundations assume an oversight role instead of a partnering role that would develop strong managers. Hence the foundation loses the opportunity to learn about organizational needs or to respond effectively to them in the future.
The typical foundation officer handles hundreds of grant requests and scores of actual grants each year, as opposed to the venture capitalist officer, who manages maybe five or six companies at a time. Clearly, this oversize load of grants is something that foundations need to attend to if good organization building is going to take place. As an industry, venture capitalist firms fund a very small percentage of the businesses that are started each year, but the impact that venture capitalists have on their start-up companies is quite significant.
That is because the venture firm, once it has made the commitment, can help the start-up get the funding it needs to grow. Although the CEO is involved to a degree in fund-raising, he or she can count on venture investors to help raise money for the next stage of growth—and hence can concentrate on managing the growth. Foundations, too, fund only a small percentage of the thousands of needy nonprofit organizations because there is only a limited amount of funding dollars.
However, the common practice for foundations is to parcel out those limited dollars to a much higher number of recipients than a venture business would.
Nonprofit executives, therefore, are forced to spend a large part of their time raising money year after year; some report spending more than half of their time on fund-raising.
Under the circumstances, it is not surprising that many nonprofits are not managed well or that good managers may not be attracted to or willing to stay in nonprofit organizations. Venture capitalists usually are engaged with a start-up for five to seven years, and some relationships last even longer. Of the more than 35, grants made in in the five states with the highest number of foundations, only 5. On average, the multiyear grants were only 2. Many foundations simply state that they will not fund any program for more than two or three years.
Most of them believe that to offer support for a longer period would make the recipients overly dependent and that nonprofits should become self-sustaining in that time. Venture capitalists invest with the understanding that, ultimately, they will sell their stake to a takeout investor. And, of course, there can be no sale unless the start-up seems to have a strong organization and a viable future.
The nonprofit world has no such mechanism for passing the baton. Few national foundations want to be takeouts for their peers; because of their devotion to innovation, most want to be in on the ground floor.
In some instances, foundations are able to structure a series of milestones to govern the release of installments over the life of a large grant. The nonprofit has to demonstrate a new level of performance—operating in a certain number of sites, for example, or serving a certain number of people.
But there is often no logical process for one foundation to step back and the next one to step in. In other instances, foundations will challenge nonprofit organizations to demonstrate that they can sustain a program after a grant terminates.
But unlike businesses, nonprofits cannot expect to have investment bankers and their clients waiting to step in with another infusion of capital. Thus when the grant runs out, nonprofit organizations are left to mount a time-consuming search for funds to cover ongoing operation and expansion of programs. Comparing venture capitalists and foundations can be a useful starting point for a reassessment of foundation practices.
Such an assessment may yield a new set of practices that foundations can use to build stronger nonprofits. We would like to suggest preliminary queries for foundations and nonprofits to ponder. If foundations and nonprofits agree in advance on organizational requirements in addition to desired program results, the grant has a much greater chance of having a sustained impact.
Hopes for sweeping social change will need to be converted into a series of clear interim results that the grantee and the funder can work toward together. The GE Fund established a clear goal for its education improvement program: to double the number of college-bound students at selected public schools in towns with General Electric Company facilities.
It indicated that it would be willing to support local schools over the long term—up to five years in one case—if the schools met certain milestones along the way. As long as the principal is leading the school in new efforts and there are signs of improvement, the GE Fund will stay with the school. GE employees are closely involved in mentoring of students and thus add additional value to the grant. Foundation managers and boards will need to reassess their own capacity for a hands-on, organization-centered approach.
Many will need additional staff with more experience in organization building to ensure that intelligent bets are made and sound strategies are developed.
Foundations can consider recruiting officers with varied backgrounds—in business, institution building, and consulting.
0コメント