Last autumn the seed funder The Fore published a study on the impact of grants made from 2012 by its parent foundation, the Bulldog Trust. By comparing the grantees to a large control group of similar charities it is possible to see that, four years on, the charities supported by The Fore’s approach have incomes that are more than 800 per cent higher than the median charity in the control group. The grant itself accounted for only 20 per cent of this increased income growth, so it is clear that other new income streams were unlocked.
What is striking about this programme is the modest size of the grant, at a maximum of £30,000. The grant can be used over a period of one to three years and is combined with skilled pro-bono support and guidance on impact management. The Fore supports smaller charities with incomes of up to £500,000, but with potential to grow their impact.
Unsurprisingly, the programme attracts a large number of applicants in each of its three annual windows. There are no application forms. Instead, once registered, organisations can write up to three pages about how the grant will be transformational for them and their development.
The charities then go through a due-diligence process supported by a pro-bono assessor. This helps the charity to understand its challenges and areas of potential growth. Key performance indicators are then set. Some grantees report that this process was more valuable than the grant.
This venture-philanthropy approach differs from that taken by many other foundations because it is entirely focused on supporting and making a “transformational impact” on the capacity and strategy of the organisation itself, rather than funding any specific programme or outcome.
Other funders would benefit from being clearer about whether they are funding the work of a charity, essentially providing revenue to deliver a project or programme or help specific beneficiaries, or investing in the organisation itself. This would help funders to better understand the impact they are having and, crucially, would help charities to apply for the right sort of support and be clearer about what they can expect through an application and grant process.
Some foundations do a good job of combining revenue funding with organisational development. However, there are many that take a less enlightened approach by providing restricted grants to fund only specific programmes or outcomes and which do not contribute sufficiently to the core costs of the organisation. In some cases this not only ignores the development of organisational capability but can in fact harm it.
One of The Fore’s grantees highlighted how a £500,000 grant it had received from another funder came with so many restrictions that it threatened the organisation's survival, and it was the much smaller unrestricted grant from The Fore that saved it.
Greater clarity from funders would also help charities to be more conscious of these different uses of grant money and to focus their efforts on applying for the right support. At Access we fund grants that help organisations to develop capacity and capability, in our case specifically around enterprise development and accessing social investment. We try to be very clear about this, but for all of our programmes we receive applications from organisations that really need revenue funding.
If all funders were more clear about whether they wanted to fund programmes and activities or invest in the development of the organisation, it would help charities to be clearer about which they are seeking.
The emphasis of The Fore’s grants is on a broad definition of growth, ranging from increasing financial sustainability to expanding charitable activity and becoming more efficient. Of those applicants that want to become more financially sustainable, 43 per cent want to do so through developing earned-income models and a third by wining contracts. Increasing income by attracting new grants and donations was targeted by only 13 per cent.
Of the grantees seeking to develop new earned-income models, 62 per cent achieved all their targets. As those models grow those organisations might need further investment, which could be repayable. Over the past decade social investment has struggled to find resonance in the sector when contrasted with the loss of revenue grants. But in the context of supporting organisational development and growing new income streams, its use is much more obvious.
The final point, however, is that the revenue from foundations is a critical part of the sector’s funding mix. Though only a small proportion of The Fore’s grantees sought to grow income through grants and donations, they were in fact the most successful at doing so: three-quarters achieved all their targets.
So while all funders would benefit from being clearer about whether they are providing revenue or investing in organisations, they shouldn’t stop doing the former. But the value of this income is greatest where income cannot be generated from other sources such as trading or winning contracts. As a funder, understanding your role in a charity’s funding mix and making your money as valuable to them as possible should be the goal of all foundations.
Seb Elsworth is the chief executive of Access, a foundation that helps to widen access to social investment for charities and social enterprises