Which nonprofits would benefit from endowments?

Imagine a world in which the toughest multi-decade long problems; whether it's racial injustice, poverty, or the preservation of democracy, were resourced in the same manner as a legacy institution. It’s a radical idea that would rely on what many would consider a “stodgy” grantmaking practice. We’re talking about endowments.

Untapped Philanthropy Season 2, Episode 3: Which nonprofits would benefit from endowments?

“You think about endowments as something that happens for the biggest established organizations like universities, art museums, or medical research,” said this week’s Untapped Philanthropy guest, The Bridgespan Group's Managing Partner William Foster. “But it's radical because there is nothing more clean and complete in the trust-based philanthropy world than creating endowments, right? It's the ultimate shift. Dollars and assets are power.”

The Bridgespan Group is a leading social impact consultant and advisor to nonprofits and NGOs, philanthropists, and investors. The firm's latest research shows that fewer than 5 percent of endowments made in the U.S. went to social change organizations. And this percentage is bleaker when you examine BIPOC-led organizations. William reports that “endowments are rarer still across legacy, Black-led social change organizations. As of 2018, the “endowments” of the NAACP, the Equal Justice Initiative, and Community Change, three of the most prominent Black-led nonprofits, amounted to zero.”

“It’s a vicious cycle of resourcing or lack of resources that prevent accruable change,” William continues.

So, let’s say we live in a world where funders endow nonprofits the same way they do universities, hospitals, or museums. What does that really look like for a nonprofit? How does this play out?

Naturally, nonprofits stand to benefit, and so does society. “Right now, a lot of nonprofit CEOs spend 50% or more of their time raising money. If a nonprofit could get 20%, 30%, of its revenue from an investment stream of an endowment that they themselves control it all changes,” said William.

Therefore, William is advocating that yes, nonprofits should be endowed, and many organizations would benefit from this style of funding. And sure, a nonprofit with an annual budget of $500,000 could become overwhelmed with a windfall grant of $10 million. But if that same grant was offered as an endowment of $10 million, suddenly that funding can be effectively distributed year over year in perpetuity.

The organization would then possess the capacity-building funds needed to supplement their work, attract top talent with fair wages, and be able to spend more time doing the work they actually want to do.

“Imagine if we had the equivalent in democracy, in climate change, in economic mobility. The landscape could look very different. And there's money sitting on the sidelines, it's not like people don't want to give away more money — they do,” William concludes.

Click the link above to listen to William's Untapped Philanthropy episode and tell us what you think on Twitter.

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Download transcript here.