Owners of for-profit businesses can sell ownership shares or "equity" and use the proceeds to enhance capacity. However, equity in this form is unavailable to nonprofits, in part because by law no one can own or directly profit from a nonprofit enterprise. Meanwhile, philanthropic equity along with rigorous business planning, allows nonprofits to handle the inevitable deficits incurred on the way to an enhanced and durable level of operations. Just as traditional capital investments are intended to enhance revenue growth, investors providing philanthropic equity should expect revenue growth, either earned or contributed, in the nonprofit. The main difference between traditional and philanthropic equity is that the investor allows that revenue to be retained by the nonprofit. Learn more about Heron's Enterprise Capital Grant practice.
Nonprofit Finance Fund’s definition of philanthropic equity done right includes:
- capital consumed on the path to sustainable growth or change.
- an enterprise-level investment that is discrete and distinct from other forms of (still-important) funding, such as program and operating support.
- a dramatic increase in social benefit.
- transforming a nonprofit in a way that sticks, which means that organizations must be able to attract reliable revenue on an ongoing basis.