February 3, 2016
Recently, we shared some insight for organizations looking to leverage data in building relationships with funders (read the full post here at Data and Donors, Part I – Tips for Organizations). Now, we’re turning to the other side of the table to speak to the funders of the world!
If you’re a funder looking to invest in an organization, how should you be using data in your funding decisions and relationships?
Here are three short Q&As to know who you should fund, how you want to direct your funding, and what you should expect after making an investment:
A great place to start is understanding an organization’s financials – where they spend money highlights where they see priorities. Check out their audited financials and, for non-profits with offices based in the States, their 990s specifically (CharityNavigator and Guidestar are good initial resources).
However, many funders place too much significance on overhead ratio – this doesn’t tell the full picture of an organization’s health or impact! An organization could have an “acceptable” overhead ratio (usually deemed to be 20% or lower), but negligible programmatic impact. The overhead ratio has long been a topic of discussion in the social sector. If you want to know more, check out this well-known TED talk by Dan Pallotta.
Beyond financials, ask an organization how they monitor their programs, what KPIs do they track, and ideally have they done any longitudinal evaluations? Do they have clear visibility into their goals, their current state, and ways to identify operational strengths/weaknesses for immediate addressing? What is their plan for the future and what are the numbers to back it up?
Case in point: a major philanthropic collaboration, Blue Meridian Partners, was just announced with the commitment of investing at least $1 billion in high-performing non-profits. Key partners include Steve Ballmer, Stan Druckenmiller, and the Hewlett and Packard Foundation – major heavy hitters in the philanthropic field! And according to this Forbes article, they’ve decided to grants to organizations who have “demonstrated their effectiveness and a potential to do much more if given the resources.”
In other words, you’re following in the footsteps of the best if you focus on programmatic evidence and growth potential – not just financials.
If you are looking to make a significant investment in an organization, dare to give a transformative gift! Ask what needs an organization has that are “unsexy” and consider funding those. Transformative gifts are often unrestricted funding – the most appreciated type of investment. This reader-friendly blog post by Vu Nguyen (recently named to The Chronicle of Philanthropy’s 40 Under 40 list!) explains why unrestricted funding is the best kind. And the Blue Meridian Partners mentioned above? Their focus is on capacity building and funding entire organizations, not specific programs.
Is the organization you’re considering in a start-up stage? Consider funding the development and launch of its monitoring & evaluation program. If you’re on the board, consider coming together to fund technology like mobile tools to enable efficient, scalable operations and tracking.
Is the organization well-established? If it already has set KPIs that it regularly monitors, consider contributing to a longitudinal evaluation to investigate long-term programmatic impact. The results will provide key visibility to you and the organization on how to improve, as well as provide fodder for the organization to attract other funders – thanks to your investment!
Either way, investments in an organization’s operations and data management are often overlooked but can be the most impactful type of funding. They can save staff hours of manual work, alleviate frustration due to living in multiple data collection and reporting systems, and set up an organization for success in scaling.
Transparent reporting, of course! Whether you are giving a $10 monthly gift or a six-figure donation, as a funder, you have the right to know what is being done with your funds. No matter its size or age, any respectable organization will communicate clearly with its investors. This could be by web posts, updates at events or via email, individualized reports, conversations with staff members, open webinars…
But it’s worth noting that transparent reporting does NOT mean an organization will measure and share every little detail. Unfortunately, sometimes funders can pressure organizations into tracking metrics that aren’t, well, all that meaningful for either party – or even worse, a resistance to trying to track what actually is meaningful.
The Stanford Social Innovation Review recently published a guide to “Measuring What Matters” that is a great resource for funders. I especially love the conclusion of this guide, which mentions that whatever type of reporting you receive after investing in an organization, it should help you answer two questions – “How will we know [our work is successful]?” and “When will we know?”.
For more tips on using data to determine and develop your funding relationships, reach out to Brenda directly at brenda [at] taroworks.org.
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