Social Currency

Today, with the help of a particular kind of money--Change Capital--Alvin Ailey American Dance Foundation is attracting new revenue by building a technology platform and internal capabilities that maximize opportunities for patron and audience engagement.  Merce Cunningham Dance Foundation is raising money upfront to wind down its operations in a graceful way and leave a meaningful legacy. 

These are success stories.  But, when grantmakers and grantseekers fail to make the distinction between different kinds of revenue and capital, the consequences can be dire: desired outcomes aren’t met, organizational infrastructure is hollowed out, and communities go underserved.  Given these risks, the nonprofit field and funder community need greater clarity about the role of each type of money and what they can separately and collectively achieve. 

First, some definitions:

General Operating Support

GOS is unrestricted revenue, meaning it can be spent at the organization’s discretion – on anything. It might be used to fund programming, to offset administrative salaries or to pay the rent.  In a universe where many grants are tied exclusively to specific programs or projects—often without paying for an appropriate share of the infrastructure required to deliver them—GOS is a rare form of flexible revenue that can pay for mission-critical expenses that few (sadly) are yet willing to support. As such, annual GOS is an essential element of a healthy revenue mix for any organization. It is typically raised from select foundations as well as individuals and corporations, often through special events.

Capacity Building Revenue

Grants for capacity building, whether formally restricted or not, are revenue typically earmarked for building new organizational knowledge, staff and infrastructure. Board development, expansion of the marketing department and the purchase of new technology would all qualify as capacity building expenses.  GOS is often but not always used to pay for capacity-building activities. In that sense, the two can overlap. The difference is that capacity building dollars usually have a specific non-programmatic intention.  They are typically raised from foundations.

Change Capital

Change capital is a concept we developed at NFF to describe a flexible form of capital, distinct from revenue.

Last week, we published a series of documents stemming from the early results of our Leading For the Future initiative, funded by Doris Duke Charitable Foundation.  You can download the Case for Change Capital in the Arts here and the companion document, Financial Reporting Done Right, right here.  Together they showcase the lessons of the work done so far and provide a road map for foundations and their grantees who might like to put some of the lessons into practice themselves.  The Case for Change Capital in the Arts made Nell Edgington's 10 Great Social Innovation Reads for May and got a thorough airing on Andrew Taylor's Artful Manager blog as well.   

In late April, we gathered the participants in the initiative together in New York City to talk about how their capitalization experiments are going.  We had a chance to interview two of the organizations in greater depth.  Earlier this week, we posted Rebecca Thomas' interview with Charles Dillingham of Center Theatre Group.   Below, you'll find Rodney Christopher's interview with Polly Carl and Martha Lavey of Steppenwolf Theatre Company who share how they've invested their change capital over the last two years.  

Nonprofits need capital to plan for and invest in strategies that will help them prepare for future growth and make changes to the way they operate. They also need reliable and recurring revenue to sustain themselves year in and year out after the change has happened.

Through our Leading for the Future Initiative, Nonprofit Finance Fund is directing more than $10 million of a specific kind of capital -- change capital -- to ten performing arts organizations* that are adapting their programming, operations and finances to ensure long-term health and vibrancy.

With funding from the Doris Duke Charitable Foundation, these ten nonprofits are working with NFF over five years to develop and implement plans for achieving this transformation. The goal is to provide these organizations with the flexibility to test new ideas, explore new business approaches, resist distraction, and even risk failure. While each participant is investing its capital differently, all seek to reaffirm the value of their art, while increasing reliable net revenue and building more liquid and adaptable capital structures.

NFF is excited to share with our readers and clients a series of new publications on the need for and uses of capital in the arts. The written and video materials convey stories and lessons learned from the Initiative thus far. Nearly three years into the program, we now have much to share with the field, both funders and nonprofits alike.

Please check out our new publications:

1. The Case for Change Capital in the Arts shares the philosophy governing the Leading for the Future Initiative and discusses the need for and application of change capital in the arts. It also outlines core principles and practices that can improve capitalization in the sector but that will require changes in behavior by both nonprofits and funders alike. The piece tells how each of the participating organizations is applying change capital to undertake meaningful artistic, organizational and financial change.

2. Financial Reporting Done Right introduces a new way of financial reporting that improves transparency around how organizations manage their capital resources. While conventional accounting and reporting treat capital and revenue in the same way, NFF recommends that nonprofits make straightforward adjustments for capital that better reveal their true operating performance and progress.

3. Change Capital in Action: Hear how three organizations are applying change capital to realize their artistic and organizational ambitions! Center Theatre Group, National Black Arts Festival and Steppenwolf Theatre Company share their stories in these short videos.

NFF has long advocated for greater access to capital for nonprofits, particularly as they invest in growth or change. We’re excited to share these real-life examples of change capital in action in the arts. To learn more about the Initiative, please check out our other recent writings:

Envisioning Success: How Funders and Nonprofits Can Lead for the Future

Chronicle of Philanthropy: Four-part Interview Series with Ben Cameron, Program Director for the Arts at Doris Duke Charitable Foundation

* Participants in the LFF Initiative include :

Alvin Ailey Dance Foundation, New York, NY
Center Theatre Group, Los Angeles, CA
Cunningham Dance Foundation, New York, NY 
Jacob's Pillow Dance, Becket, MA 
Misnomer Dance Theater, New York, NY 
National Black Arts Festival, Atlanta, GA
Ping Chong & Company, New York, NY
SITI Company, New York, NY 
Steppenwolf Theatre Company, Chicago, IL 
The Wooster Group, New York, NY