A New Kind Of Grant
By
George Overholser
Founder &
Managing Director, Nonprofit Finance Fund
Introducing
the Sustainable Enhancement Grant: A New Funding Tool for Building
Organizations
While no person can own a nonprofit, many nonprofits nevertheless have a
desperate need for the type of equity-like investment that business
owners generally provide their companies. Today even very talented
nonprofit teams are often unable to raise the equity-like nest egg of
general operating funds they need before they can bring their visions to
life. Instead, they become caught up in a never-ending cycle of
fundraising, with each grant restricted to a different slice of the
effort, each requiring a separate reporting scheme, and, often, each
tugging the organization toward a different strategic direction. As one
frustrated executive director put it, “I started with a clear strategy,
but the chronic need to raise funds turned us into a permanent chameleon
machine!”
Funders are frustrated too. Many
confide that they don't write large checks because they wish to avoid
creating dependency relationships. Others have lamented how difficult
it is to join forces with other funders, even when a grantee’s strategic
plan clearly calls for more money than one philanthropic budget can
afford to provide.
Introducing
the SEGUE
To remedy these problems, the Nonprofit Finance Fund in 2006 invented
the Sustainable Enhancement Grant (SEGUE for short). The SEGUE uses a
new accounting treatment that distinguishes money to build a nonprofit
organization rather than money to fund a program. The SEGUE provides
the structure and technical assistance to support nonprofit
organizations in raising this type of investment.
In many ways, SEGUEs resemble the
multimillion dollar campaigns that pay for permanent things like
buildings and endowments. In this case the “permanent thing” is a
nonprofit organization that continues to provide vital services long
after SEGUE funds have been exhausted.
How the SEGUE Works
When employing the SEGUE approach, a nonprofit uses a capital
campaign format to engage a syndicate of investors. The syndicate then
funds the execution of a strategic plan. A single shared reporting
regimen communicates results to the investors, and, perhaps more
important, a clear metric tracks the organization's progress toward
sustainability.
Unlike
for-profit equity, however, the money raised is purely philanthropic and
never “comes back” to investors – 100 percent of returns on investment
are social.
The SEGUE
in Action: Year Up
Year Up, a Boston-based nonprofit group founded by Gerald Chertavian,
recently underwent a successful SEGUE campaign. Year Up delivers
spectacular work-force development results – an 87 percent success rate
at landing $15/hour average wage jobs that stick– to a population of
young people who are very much at risk of unemployment. Year Up’s team
has a clear vision for both how the program can be replicated in at
least seven cities and how, once it is scaled, the Year Up enterprise
can be sustained by a business model that combines corporate
fee-for-service revenues with reliable grass-roots philanthropic support
from each city.
Before its programmatic and
financial vision can be fully realized, though, Year Up needs to burn
through a large amount of growth capital. For the first few years each
city's program is up and running, it won’t generate enough money to
fully pay for day-to-day operations. And until all seven of those
programs are functioning up to capacity, the organization won't be able
to keep going without other funding. All told, it will consume $20
million of equity-like growth capital before Year Up will be able to
sustain itself.
The Nonprofit Finance Fund helped
Chertavian and his team design a SEGUE campaign that raised $20 million
of equity-like funds over a nine-month period. Now, freed from
fundraising burdens, they can focus on achieving Year Up’s mission.
The SEGUE Process
The Nonprofit Finance Fund’s typical SEGUE engagement entails seven
phases, which are lead by NFF staff:
Phase 1: Reviewing and
refining the economic model WHO Phase Phase 2: Determining a
capitalization plan
Phase 3: Facilitating due diligence on long-term business model
and expansion economics
Phase 4: Assisting in drafting the SEGUE prospectus and
presentation materials
Phase 5: Implementing the SEGUE accounting treatment
Phase 6: Determining detailed SEGUE investor terms
Phase 7: Developing the ongoing reporting package
Good Candidates for SEGUE
The SEGUE is designed to serve those mature and “later-stage”
nonprofits that seek to continue significant organizational growth.
Good SEGUE candidates have:
-
Strong track records of
execution
-
Fully formed management teams
-
Stable finances
-
Well-documented strategic plans
-
Clear pictures of a sustainable
business model
-
Active and engaged boards of
directors
-
Cultures of performance
measurement
-
A need for at least $5 million
in growth capital
-
The potential for tremendous
impact
One of the nation's leading
community development financial
institutions (CDFIs), the Nonprofit Finance Fund supports " nonprofits,
strengthens their financial health, and improves their capacity to
serve their communities. While the Nonprofit Finance Fund does not fund
the SEGUE projects it supports, nor does it conduct the projects’
fundraising campaigns, it does help to equip and coach nonprofit
management teams for success in their own capital campaign efforts.
»
BACK TO FRONT PAGE |
