Grantmaking 101

A few words about the nonprofit sector

What is a 501(c)3?501c3 is the tax code that defines what we

call “nonprofit” organizationsMust operate only for exempt purposes No earnings to shareholders/individualsMay not attempt to influence legislation

as a substantial part of activitiesNo participation in campaign activity

related to political candidates

Nonprofit StructureBOARD OF DIRECTORS

Executive Director

Staff Members (and

volunteers)

Staff Members (and

volunteers)

Staff Members (and

volunteers)

Staff Members (and

volunteers)

“Nonprofit” is a broad categoryReligious InstitutionsSchools, Universities and Summer CampsHospitals and Medical CentersHuman Service Providers (housing, food,

clothing, tutoring, after-school-enrichment)

Environmentally-Focused Organizations

What does the nonprofit “sector” look like?In California, there are almost 140,000 nonprofits totalOf those, only about 25,000 filed the tax return forms

required if your budget is >$25,000 most are very small!

Source: www.canonprofits.org

Where does nonprofit revenue come from?

Source: www.canonprofits.org

54% sales, fees,

earned income

36% governme

nt funding

philanthropic donations

from individuals

& foundations

10%

Where do philanthropic dollars come from?

30% foundatio

ns 70% individua

l donation

s

Main Goals

$$ In $$ Out

Profit driven Sales of good and services –fully taxed

Money left over can be distributed to owners (private or public)

People/Society driven within specific domains

Taxes- Employer-Employee- Sales- Property-Etc.

No owners, but can pay down debt, invest in projects, etc.)

Mission driven

(Often fills a gap in services by the other two)

Grants, donations (tax-deductible to donor) & Sales of goods and services --not taxed

No owners of a nonprofit – Money left over can’t be distributed to anyone

For Profit

Government

Non Profit

Key things to rememberNONPROFITS

… are mission-driven organizations focused in lots of different areas

… can earn money just like for profits, as long as it’s in line with their mission, and they don’t pay taxes on the money they take in

….can accept donations and certify to donors that their contribution is tax-deductible

… can pay people reasonable salaries and bonuses, just like for-profits, but there are no “owners” and thus no extra payouts to anyone

A few words about fundraising & revenue models

Nonprofit Revenue ModelsEvery nonprofit should have a revenue planAre “diversified sources of donations”

important?We’re seeing a possible trend toward revenue

models that rely less than 100% on philanthropy

Fundraising in one slide!It’s a reality of the nonprofit sectorImportant as an engaged funder and advisor

to understand an organization’s fundraising plan

What makes most people uncomfortable is “solicitation without cultivation” or cold-calling – with cultivation, fundraising is much less stressful

A few words about the lifecycle of a nonprofit

Lifecycle Stage Matters Because…Organizational capacities, needs, and foci vary

and change at different stages in the lifecycle – what may be an appropriate strategy in one stage can be a problem in the next!

The lifecycle stage of a nonprofit has implications for strengths, weaknesses, opportunities and challenges that an organization will have and face

Nonprofits may need to address “gating items” of organizational capacity to move through the lifecycle from one stage to the next

The Nonprofit Organizational Lifecycle Model

And now more about SV2’s grantmaking process

What does a grant round look like?Kickoff meeting – broad field updates,

inspirationLots of learning at all stagesSelecting a focusFinding great potential Grantee nonprofits –

usually a closed process, we do the researchDue diligence – internet research, phone

calls, site visits, proposals, presentations by finalists, reference calls with board members, funders, etc.

Selection of a Grantee

SV2 Grantmaking CriteriaSV2 funds organizations that:Are 501c3 nonprofitsAre based in the Bay Area (extent to which programs are in the Bay

Area varies by group)Are at a lifecycle point where our dollars and time are significant

(proxy is budget size of $250K-$2million)Have high potential Executive Director & Board leadershipHave a well articulated/thought out model, approach, impact and a

focus on outcomesAre at an inflection point where they are ready for and interested in

scaling (definition of scale can vary)Want SV2 Partner involvement beyond the dollars (thought partners,

advisors, connections, etc.)SV2 Partners are interested in working with as Lead Partners and

advisors to that nonprofit

Details on our Grantmaking GroupsEducationEnvironmentHealthInternational

HOW IT WORKSGroups rotate through a strategy/learning yearWe give 3-year, $100-150K grants (so $30-50K/year)

– means 9 active grantee in the portfolioGrants focus on capacity building

What is capacity building?Strengthening the infrastructure/core of an organization in areas such as:Mission/vision/strategyBoard leadershipStaff leadershipProgram design and evaluation Financial managementFund developmentMarketing and communicationsITHRLegal

What happens after the grant?Lead Partners & staff do OCAT & orientationGrant Agreement (goals/outcomes) finalized Open Advising Meetings held quarterlyLead Partners:

Ensure accountability to grant goalsAct as ongoing connectors to SV2 Partners,

resources within and outside SV2, etc.Annual Investment Review by Board

Committee

How SV2 differs from a foundationGRANTMAKINGGroup process and vote to decideCombine analysis and passion to make decisionRelatively long due diligence processMulti-year, non-renewable capacity-building fundingGrant funding raised annually; no endowment

AFTER THE GRANTWant hands-on engagement/personal relationshipEager to be engaged in the challenges, not just see

successes

How SV2 differs from an individualGRANTMAKINGGroup process and vote to decide; might involve

compromiseLearning/access to information and diverse

perspectives from fellow Partners to inform decisionIncreased access to organizations and informationAll Partners are invested in the full grantee portfolio

AFTER THE GRANTMore avenues to engage with leadership

Avenues for Engagement at SV2GrantmakingEducational events – First Fridays, Chew on

This Dinners, tours, etc.Open Advising Meetings with GranteesSV2 Teens and Kids programsAnnual (Fall), Holiday and Spring meetingsLeadership roles – Grant Round Leader, Lead

Partner, Board Member, etc.

Due Diligence

Looking on a nonprofit’s websiteWhat do they do/how do they do it?Impact they’re makingLeadershipBoardLocation(s)Annual Report/990 (more rare)Let’s check out a website or two!

Guidestar.org for initial financialsRevenue & ExpensesScroll through for anything else you notice A word on % to programs vs. overheadLet’s check out a real 990

Reading a grant proposalNow let’s look at a real SV2 grant proposal

and discuss as a group