What Are Capacity-Building Grants and Why Are They Game Changers?

I am all for the most recent developments in philanthropy. For example, I like data: It helps us measure things like program quality and even overall impact. It helps the social sector do better work. And I think transparency is critical: Sharing what we learn from our successes and failures creates a much stronger sector. And no, I’m not just a fairweather fan of these trends, I have witnessed the long-term benefits of transparency and data-driven grantmaking. They’re here to stay – and for good reason.

One other development in philanthropy I love? Capacity-building grants. More and more foundations are offering this game-changing support, and I believe the social sector is stronger for it.

First, a definition of capacity-building grants found in  the recent report, Supporting Grantee Capacity: Strengthening Effectiveness Together, from GrantCraft, a service of Foundation Center: “Capacity building is fundamentally about improving effectiveness, often at the organizational level. The term is sometimes used interchangeably with other terms like organizational development, institution building, and funding plus.”

Susan Chandler, writing on The Grantsmanship Center’s (TCGI) blog adds, “The purpose of capacity-building grants is to help organizations make good operations better, not to rescue organizations from bad planning or to rehabilitate bad management.” According to Chandler, capacity-building grantmaking areas can include:

• Organizational assessment
• Evaluation of overall effectiveness
• Strategic planning
• Board development
• Staff training
• Fund development planning
• Success planning
• External communications strategies
• Mergers and other restructuring efforts
• Membership development
• Technology improvements

As a former grant writer, I can’t overemphasize how beneficial this kind of funding is for nonprofits. Sometimes, for a nonprofit organization, programmatic funding can feel like you’re spinning your wheels. You’re always offering something to beneficiaries, which certainly supports your mission, but doesn’t afford your nonprofit the means (or time) to grow. Similar to general operations funding – which allows nonprofits to address their needs as they see fit, and ultimately focus on overhead, rather than programs – capacity-building grants allow nonprofits to focus on sustainability and organizational health.

Despite the benefits, capacity-building grants are relatively new to philanthropy. Or at least, they are under this nomenclature. Certainly, the practice of assessing needs of nonprofit organizations has been around since the beginning of what we recognize as modern philanthropy. But this iteration is trendy – sexy even – according to Jen Bokoff, director of knowledge services at GrantCraft. I asked her recently, what is so great about capacity-building funding?

“Foundations aren’t just throwing money at an organization,” Bokoff says. They’re building something along with the grantee. The allure of collaboration is certainly one of the driving forces behind the capacity building trend. “It starts with a conversation,” Bokoff says. “The foundation asks what the nonprofit needs to move the dial.”

The concept of open nonprofit/foundation dialogue came up again when I spoke with Doug Bauer, executive director of the Clark Foundation (which, by the way, allocated 87 percent of its funding last year to general operation support and the remaining dedicated to capacity building). Bauer says that the Clark Foundation knows it can trust its grantees with something as broad and, in some cases, fluid as a capacity-building grant. “We are long term funders, and we have some 50-year-long relationships with our grantees,” Bauer says.

To hand-hold one of these organizations through a grantcycle would be patronizing. Instead, the Clark Foundation gives its grantees money, and it trusts they will know best how to spend it. And, Bauer says, this strengthens the social sector at large. “In order to move the needle, we support the best groups,” Bauer says. “We trust that they can do the work well. We give them funding, and they can utilize those grant dollars the way they want.”

This kind of relationship between nonprofit and foundation can’t exist without transparency. In fact, Bauer states that capacity-building grants are “born out of transparency.” To express what they need in order to grow, nonprofits must be able to share openly and easily with their funders. And funders, in turn, need to be willing to listen – and accept that their grantees can always iterate and improve. “Things change,” Bokoff says. Nonprofits alter their tactics, expand, downsize, etc. – this is OK, and should be encouraged.

Capacity building means that nonprofits can address their needs and find ways to meet them. They can work with evaluators and consultants to get better at their work, and ultimately serve larger and larger communities. They can get more adept at measuring and illustrating their impact. They can more easily secure grant dollars for programs and general operating costs. And all the while, they can move that dial – as Bokoff says – and strengthen the social sector long-term.

Eliza Smith is frequent contributor to Fluxx and media strategist at Foundation Center.