Giving Compass' Take:
- Vu Le discusses how the pressure on nonprofit organizations to find diversified funding sources is harmful to nonprofit growth and progress.
- How can donors help alleviate issues within the nonprofit funding system? What are the root causes of these issues?
- Learn how to support nonprofit leadership.
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We need to discuss the idea of “diversified funding.” It is one of those concepts—like putting out campfires fully and not microwaving metal—that is just taken as gospel. Funders ask about it all the time. Development staff create plans around it. Fundraising gurus hold workshops about it. EDs look at what percentage of their revenues come from grants, and if it’s too high, start panicking.
I don’t like it. I think the whole concept is problematic and it’s time we move away from it. Yes, I know the main argument for having diversified revenues. What if you rely too much on a foundation, and that foundation decides—like foundations often do—to shift priorities? Well, you and your nonprofit are screwed. Just like with buying stocks (whatever those are)—it’s bad to have all your eggs in one basket and whatnot.
But is this how it should be? Is this working for our sector? I keep seeing our work held back by these ancient ideas that we think are immutable. With the pandemic and everything being on fire, the increase in demands for nonprofit services, and funders seemingly more open to change, we need to reexamine these philosophies and practices. Here are a few problems with having nonprofits constantly chasing after funding diversification:
- It forces nonprofits to spend time, energy, and money on ineffective strategies.
- It punishes organizations led by and serving racialized and marginalized communities.
- It distracts us from challenging the fundamental awfulness of the nonprofit funding system.
- It lets funders off the hook so they can continue doing ineffective stuff.
- It reinforces the toxic idea of nonprofits as “dependents” of funders.
Foundations, you need to stop creating the very conditions that require the strategies you recommend to deal with the conditions you create. For instance, you create funding instability by giving inadequate one-year grants, then ask nonprofits how they will diversify revenues to deal with funding instability. Instead of asking how nonprofits are diversifying and punishing the ones that don’t, be authentic partners by giving out more funding and doing it in a way that allows nonprofits the resources and stability to get stuff done.
Read the full article about diversified funding by Vu Le at Nonprofit AF.