I’ve been struggling with this: what do you call the thing that has too many names? I’d like your help.
There are several terms that describe what, for lack of a clearer umbrella phrase, I choose for now to call Flexible Capital Grants. When I am feeling verbose I expand this to Flexible Capital Grants for Greater Impact, but an acronym like FCGGI doesn’t really roll off the tongue.
The primary goal of my fellowship at Heron is to galvanize the nonprofit and philanthropic fields around this idea, which is too important not to be understood broadly and used wisely. But in my humble opinion, each of the various terms currently in use has deficits, and none are great as an umbrella phrase.
In hopes of clearing away confusion and sparking ideas for a great catch-all phrase, I attempt to lay out a chronological taxonomy of the terms used to date in the table below.* I am confident it is imperfect, and seek comments for possible revisions. I also encourage you to read Heron President Clara Miller’s most recent essay on the subject.
These grants tend to have in common many of the following characteristics:
The term one uses is often the result of at least two things: the term that is familiar to the user, and the term that is most likely to resonate with the audience to whom the user is attempting to communicate. As an example, users of the term “philanthropic equity” find that some folks in the world of investing and banking “get it” because they understand the concept of investing equity to grow and improve for-profit companies. But even then, this understanding is by no means universal even among for-profit investors—and some listeners may think first of the ownership stake implied by “equity”, while others may wonder what form a philanthropic “exit” might take.
So, just for fun: I challenge you to suggest a great umbrella term for this kind of money. Our attempts to re-purpose existing financial and philanthropic language have sometimes caused as much confusion as clarity, so it’s time for us to get creative—perhaps with a name like Twitter that makes an implicit reference to its own zeitgeist. Thank you and good luck! The prize is your own brilliance.
* You’ll note that the word “capital” appears frequently, but there are many other types of capital raised and used by nonprofits. To learn more, see page 11 of Nonprofit Finance Fund’s Case for Change Capital in the Arts.Each term is listed with its likely source and estimated date of origin, and some organizations you might hear using it. For each “definition”, the text in italics is quoted from the footnoted sites linked below; additional text is my effort to offer clarifying commentary.
VENTURE PHILANTHROPY |
Estimated Date of Origin: 1997Likely Source of Origin:Harvard Business ReviewUsed Today By (among others):Venture Philanthropy Partners, New Profit Inc., REDF, NewSchools | Definition:The concept of venture philanthropy was introduced in April 1997 with the publication of a Harvard Business Review article entitled “Virtuous Capital: What Foundations Can Learn from Venture Capitalists.” It asked why the trillions of dollars donated by philanthropy over the previous decades were not having greater impact in addressing the societal problems of the U.S. (1)The article speculated that foundations could glean some useful practices from venture capitalists and recommended that philanthropists consider utilizing some of the methods of venture capital including due diligence, risk management, performance measurement, relationship management, investment duration and size, and exit strategy. The approach was named venture philanthropy (VP) and received a great deal of attention both within and outside the field. (2) |
GROWTH CAPITAL(for nonprofits) |
Estimated Date of Origin: 2006Likely Source of Origin: Edna McConnell Clark FoundationUsed Today By (among others): Edna McConnell Clark Foundation, Third Sector Capital Partners, Growth Philanthropy Network/Social Impact Exchange | Definition:Growth capital fuels an organization’s expansion to scale. [It] can use these funds to support strategic planning, leadership development, staff recruitment and retention, fundraising, advocacy, information technology, evaluation or preparing for evaluation—anything and everything it takes to expand and sustain an effective program while maintaining or improving its quality. Growth capital prepares and positions an organization to secure more reliable and renewable revenue streams. (3)The Build (Capital)/Buy (Revenue) concept (4), developed by George Overholser when at Nonprofit Finance Fund, is embedded in the definition of growth capital and each of the terms that follows below. |
CHANGE CAPITAL |
Estimated Date of Origin: 2009Likely Source of Origin:Nonprofit Finance FundUsed Today By (among others):Nonprofit Finance Fund, Neighborhood Opportunities Fund, Grantmakers in the Arts | Definition:Recognizing that dramatic growth of a nonprofit is not the only way to scale its impact, and that nonprofits seeking just to be stronger and more effective without “”scaling”” could also make good use of such dollars…Change Capital is defined as an investment that is:
One might say that growth capital is a specific kind of change capital. |
RECOVERY CAPITAL |
Estimated Date of Origin: 2009Likely Source of Origin:Nonprofit Finance FundUsed Today By (among others):Nonprofit Finance Fund, Grantmakers in the Arts | Definition:Recovery Capital helps organizations recover from damaging financial shortfalls or restore an impaired capital base by: reducing debt, funding much-needed reports to facilities/equipment, and/or reducing or restructuring debt and other obligations. (6)To help organizations move forward upon the receipt of recovery capital, it is ideal that they also receive change capital to improve their business model and reduce the likelihood of repeating the issues that led to the need for recovery capital. |
PHILANTHROPIC EQUITY |
Estimated Date of Origin: 2010Likely Source of Origin:Nonprofit Finance FundUsed Today By (among others):Nonprofit Finance Fund, F.B. Heron Foundation | Definition:Nonprofit Finance Fund’s definition of philanthropic equity done right:
One might say that growth, change and recovery (when supplemented by change) can all be forms of Philanthropic Equity. |
ENTERPRISE CAPITAL GRANT |
Estimated Date of Origin: 2013Likely Source of Origin: F.B. Heron FoundationUsed Today By (among others): F.B. Heron Foundation | Definition:Heron uses the term Enterprise Capital Grant to describe its primary grantmaking tool. It is essentially a synonym for Philanthropic Equity, but intended to connect with those who may be confused by the use of the word “equity” in concert with nonprofits (which cannot be owned) or just unfamiliar with the use of the term equity in a financial context. Heron also aims to emphasize that the funds are grants and they are focused on building strong nonprofit enterprises, characterized by reliable revenue streams and healthy balance sheets. Given Heron’s focus on jobs, enterprises are at the center of its work–when enterprises are strong they are capable of hiring people and providing them with reliable incomes. |
Sources of & Links to Definitions
(1) Letts, Christine W., William Ryan, and Allen Grossman, “Virtuous Capital: What Foundations Can Learn From Venture Capitalists”. Harvard Business Review, March 1997.
(3) Edna McConnell Clark Foundation
(4) George Overholser, Nonprofit Finance Fund
Rodney Christopher is currently a senior fellow at Heron. For 15 years at Nonprofit Finance Fund, he served as trainer and consultant to more than 400 nonprofits and 80 grantmaking foundations. His clients were in 30 states and across subsectors including human services, arts & culture, education and community development.
Comments are closed here.