“It allowed us to launch a $300 million capital campaign and stop being in a place of scarcity. When we benchmarked our peer institutions in Washington, D.C., they all have, on average, $250 million endowments, PolicyLink had zero. Think about how unjust this is.”
- Michael McAfee President & CEO, PolicyLink
The first question that comes swiftly and frequently when receiving a windfall gift is how an organization will use the funds. By receiving such an unanticipated windfall grant, organizations can unexpectedly find themselves in a situation that offers a variety of options: from spending or saving, addressing short-term needs or making long-term investments, starting or investing in an endowment, creating a Board-designated Fund or strategic innovation fund, and deciding when and how to scale.
- Build alignment among internal stakeholders on how to utilize the grant, resisting the pressure for swift decisions, and instead engaging in an inclusive, thoughtful process tied to the organization’s core mission and goals.
- Evaluate how to balance program investments with parallel investments in necessary infrastructure and human resources.
- Consider utilizing a portion of the grant to self-fund strategic and innovative work often seen as too risky for other funders.
- Think through how your organization can make long-term impact when determining how to spend or save through a financial sustainability vehicle (e.g., reserve fund, endowment).
Build alignment among internal stakeholders on how to utilize the grant, resisting the pressure for swift decisions, and instead engaging in an inclusive, thoughtful process tied to the organization’s core mission and goals
Due to the unanticipated nature of windfall grants, organizations may find themselves not immediately ready to make financial decisions. Moreover, the rarity of an unrestricted windfall grant creates a high-stakes environment to ensure that funds are pivotal and strategically utilized effectively. It was also common to hear that internal stakeholders within organizations held different opinions about how to approach using funds.
Organizations need time – up to a year for some – to 1) map the organizational needs for investment and 2) build alignment among leaders, boards, and staff to develop a sustainable financial strategy and allocation plan.
An organization embraced this as an opportunity not to change course but to reinforce the path forward, using the award as a foundational investment in our new strategic plan.
“Use this as a cornerstone investment in advancing the good work you already do, rather than needing to commit to new, untested initiatives. While many other grants require promises of innovation, this award is an investment in your core work and mission.” -Lisha McCormick, CEO, Last Mile Health
Evaluate how to balance program investments with parallel investments in necessary infrastructure and human resources.
Most organizations were committed to increasing their impact by investing in their programs allowing for scale, expansion, proactivity, and/or innovation. They shared that they could be more proactive, innovative, and strategic in their programming to deepen their work and reach more people rather than being reactive, citing that it gave them risk capital that they didn’t have to raise. To that end, to invest in deepening and expanding their core programming, organizations needed to invest in the relevant infrastructure and staff to support that work.
An organization reported quadrupling its staff from 35 to 145 people since receiving the grant. Participants highlighted key lessons on staff expansion, including a focus on structure and ways to sustain the organizational mission. Furthermore, to the point of the one-time nature of the gift, organizations spoke to dispelling the myth of overabundance and thinking through how to sustain the grant over several years and anticipate funding gaps or donor flight.
An organization focused on hiring a devoted fundraiser and grant writer to invest in long-term financial sustainability for their organization and programs. Another organization that was already in process of scaling when receiving a grant doubled their staff and deeply involved them in the expansion buildout. This relieved any tension about seeing funds invested in new staff since there was alignment about the need and vision for growth.
Consider utilizing a portion of the grant to self-fund strategic and innovative work that is often seen as too risky for other funders.
Unrestricted grants of this size create space to think expansively and innovatively. Some organizations could now self-fund strategic and innovative work that are oftentimes challenging to find funding for due to perceptions of risk. Trust-based philanthropy that provides this kind of unrestricted funding allows organizations to take risks and think innovatively, deepen their existing work, and scale their impact from a structural and systemic perspective.
Several organizations reported utilizing their financial windfall to establish innovation funds that allowed staff to brainstorm creative and new ideas. An organization used 60 percent of its grant to create a strategic initiatives fund that focused on two areas — organizational strengthening and philanthropic sector strengthening.
An organization developed a board-designated strategic innovation fund (SIF) that is led by their program and finance and operations committees. So far, the funds have gone to three things: 1) change capital funding (one-time expenses to improve organizational infrastructure); 2) research and development towards new product offerings; and 3) a self-directed portion that is shiftable as needed to self-fund new work with community partners.
An organization was able to take on risk in an emerging and innovative strategy that could get dollars closer to the farmer communities they work with—directly investing in small farmers and carbon offsets.
Think through how your organization can make long-term impact when determining how to spend or save through a financial sustainability vehicle.
Organizations have grappled with how and where to spend or save. It is helpful for organizations to understand the long-term impact they seek to make and how they are best positioned to make that impact. Organizations can then determine how to create a financial sustainability vehicle (such as a reserve fund or an endowment) that allows them to show up in more mission-aligned ways. Additionally, building reserves can mean different things depending on the size and/or type of the organization, especially if an organization is planning to scale. Recognizing that every organization pursues different organizational and funding models and priorities is important to remember when making these financial decisions.
Some organizations utilized part or all funding on reserve funds or a financial sustainability vehicle. Financial stability through developing reserves could, in some contexts, even signal health and give confidence to other donors to invest, which we heard from An organization that built a one-year reserve fund.
However, a reserve fund alone may not be a confirmation of organizational creditworthiness. Some organizations that work closely on community impact and with grassroot partners preferred to share their abundance immediately while planning for the long-term stability and amplifying systemic impact in a unique way.
“Decide on the allocation based on the “one-time” nature of the grant: The single-most important characteristic of this funding is that it is a one-time windfall. That means every dollar has to be seen as an investment that can yield mutually reinforcing dividends in terms of greater sustained impact, more resources over the medium and long term, greater ability to recruit and retain talent, [and] higher organizational profile. Beware of focusing on feelgood spending that creates higher recurrent costs unless there is a credible path to larger revenues from other sources.” – Ruth Levine (Former) Chief Executive Officer, IDinsight.
Tools & Resources
Resources to strengthen nonprofit organizational financial management. The toolkit includes tools and guidance on budgeting, cash flow, data and analysis, and audit readiness.
Fundamentals for Nonprofits: Finance Resources
Tools and opportunities to navigate change and opportunity around equitable budgeting, crafting an organization’s financial story, financial management, and cash flow projections.
The Finance Toolkit
This toolkit is designed for small and medium size organizations. Topics include accounting basics, types of finances, compliance, and a finance roadmap.
Table of Contents
If you have questions please let us know.Contact Us