2010 Capital Partners Portfolio Performance Report: Philanthropic Equity Pays Off for Nonprofits

2011 Portfolio Performance Report is also available here

Since 2006, Nonprofit Finance Fund Capital Partners has supported 16 campaigns for philanthropic equity, totaling $312 million in financial investments.

The Capital Partners Portfolio Performance report analyzes: the role of philanthropic equity in the nonprofit sector, results associated to-date with philanthropic equity investments, and key challenges to developing a robust capital marketplace for philanthropic equity. Below, you'll find a summary of the report's key findings.

The Role of Philanthropic Equity in the Nonprofit Sector

Many nonprofits with strong programs and great results fail to thrive. One reason is the way the sector is currently financed. Nonprofits are rewarded for keeping margins tight, and few have access to the type of capital needed to explore better business models, scale impact, and create lasting change. In contrast to the money needed to fund “business as usual,” philanthropic equity can radically improve our ability to address society’s critical needs.

Nonprofit Finance Fund’s definition of philanthropic equity done right:
  • Is capital consumed on the path to sustainable growth or change.
  • Is an enterprise-level investment that is discrete and distinct from other forms of (still-important) funding, such as program and operating support.
  • Creates a dramatic increase in social benefit.

Results to Date

Philanthropic equity investments are high-stakes investments that have the potential to dramatically improve social outcomes, but are subject to the risks inherent to substantial change. Among NFF Capital Partners’ nine comprehensive philanthropic equity campaigns for which multi-year data are available, the impact-to-date resoundingly makes the case for further philanthropic equity investments. The bottom line: Annual program delivery has grown on average by a factor of 3.1x, with a compound annual growth rate of 57%.

CPPRSummary_Metric

Philanthropic equity exists to transform nonprofits in a way that sticks, which means that organizations must be able to attract reliable revenue on an ongoing basis: Annual business model revenue for these nine organizations has grown on average by a factor of 2.0x, with a compound annual growth of 36%. In aggregate, business model revenue, which excludes Philanthropic Equity, has expanded by $30 million compared to pre-campaign baselines.

Key Challenges

While the results make a strong case for further development of a capital marketplace for philanthropic equity, many challenges remain, including:

  • Clarifying the role of the “philanthropic equity” stakeholder. This is a new way for funders to behave, and most do not yet have a shared view of what it means to participate as a nonprofit “equity” stakeholder.
  • Building syndicates. True syndicates act on a single set of metrics, goals, and reports. These exist, and are critical to adoption of philanthropic equity “done right,” but are still not the norm.
  • Maintaining rigor. Some nonprofits have begun to raise operating funds in the name of philanthropic equity, but without sustainability plans. Without the benefits of rigorous planning and transparency, these “knock-offs” could hurt more than help.
To see the 2011 report, please click here.

*For more information, see George Overholser's seminal piece "Building is not Buying."

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Related Articles

  • "Building is not Buying" by George Overholser in NFF Paper