Small Foundations, Big Impact: The Essential Guide to Impact Investing

The Role of Upstream Funding in Supporting Sustainable Development

Giving Compass' Take: • Carol Dahl shares lessons from The Lemelson Foundation on upstream funding for sustainable development, emphasizing early innovation funding.  • Who are the upstream players in your issue areas? How can you best support them?  • Learn more about working upstream.  Upstream funders play a critical role in building a pipeline of organizations that have the capacity to absorb large grants and deliver on the promise of both scale and impact. As early funders, we must be willing to take initial risks to support innovation and invention at these beginning stages. And while those risks are high, the rewards can be great, both for the organizations and for the social impact they can generate. Through our experiences with VentureWell, Villgro, and Rice 360°, we now have perspective on how early-stage funders can help create this pipeline. First and foremost, start small with metered funding. Although large amounts of money early on might seem attractive to many grantees and funders, it can be detrimental to organizations that have not yet found their organizational foothold and the optimal model to scale their efforts. Next, take the time and expense to build relationships based on trust with grantees that are also aligned with the core capacity of each partner. Be iterative; accept risk and, especially, failure. Showing a grantee that you are in it for the long haul helps both sides create transparency. And finally, be confident in the long-term goals you are trying to achieve, and unafraid to change course or organizational structure in service of those goals. Also key for early funders: Know your limits. We cannot (and should not) always take an organization to the next stage. Dependence on one funding stream can ultimately limit the potential to achieve maximum scale and impact. Different sources of support play different roles along the pathway. In the end, you have to prepare your grantees to tap into the larger ecosystem and build relationships with follow-on funders. Relationship-building requires engagement with the entire ecosystem of partners needed to take an organization from idea to impact. By proactively collaborating with early funders, downstream funders will have a greater opportunity to identify and cultivate successful projects ready to grow to scale. Downstream funders also have a responsibility to help their grantees build capacity and prepare for the funding cliff that naturally occurs when large award programs come to a close. Ultimately, whatever our role in this funding ecosystem, we all share the same goal: creating projects for social impact that no longer rely solely on philanthropic support. Such enterprises must develop the capacity to become self-sustaining through government funding or market mechanisms so that their work for public good becomes woven into our social fabric. That is the true pathway to sustainable development. Read the full article about upstream funders by Carol Dahl at Stanford Social Innovation Review.