Giving Compass' Take:

• Grantmakers for Effective Organizations lays out how grantmakers can conduct productive due diligence that provides robust insight without hindering the work of nonprofit organizations. 

• How are you currently conducting due diligence? What shifts in strategy could provide the biggest improvement? 

• Learn how funders can hurt the nonprofits they are trying to help. 

Selecting the right grantee partners is one of the most important jobs grantmakers do. But it is hard
to tell from a written proposal whether an applicant represents a good fit and a smart investment for your foundation. You may want to learn more about the potential grantee’s strategy and goals, its track record, its reputation and leadership, its programs and their outcomes, its finances, and the capacities and skill sets it brings to its work.

The challenge for you as a grantmaker is to learn as much as you can about potential grantees without asking for more information than you really need and, as a result, placing an added burden on the nonprofit organizations you work with.

Nonprofit leaders regularly complain that they spend too much time responding to grantmakers’ requests for information — and that the due diligence process can be confusing, frustrating or worse. Grantmakers for Effective Organizations and La Piana Consulting encourage a more streamlined approach based on a thorough consideration of what grantmakers truly need to know in a given situation. We did not create this document to advocate on behalf of a rigid set of practices but to provide an overview of key issues to guide a grantmaker’s approach to due diligence.

A grantmaker’s staff members are faced with multiple challenges in assessing whether to recommend a grant to their board or decision-making committee. First, they must ascertain whether and to what extent the proposed activity coincides with the grantmaker’s guidelines and priorities. Next, they must assess the value of the proposed activity itself — does it advance the field, provide needed services or generate new learning? If the proposal survives this initial scrutiny, it often must be weighed for its relative merits beside many other worthy proposals.

Due diligence, when done well, can help ensure greater alignment between a grantmaker’s mission and grantmaking. It also helps ensure that a grantmaker understands and can manage the risks associated with various grants, and that it is working with nonprofit organizations that have a clear likelihood of successfully achieving their goals.