Should you invest in a particular nonprofit organization? To help you answer that critical question, every week over the next four months we'll share a new tip or trick to assist you with the process called due diligence: learning enough about the results, leadership, financials, and operations of an organization to make the right investment decision, while respecting the limited time of its busy leaders. We're calling this our #NonprofitDueDiligence campaign.
During the campaign, we'll spotlight materials from our Donor Decision Tool, as well as publish guest posts from professionals and philanthropists with experience vetting nonprofit organizations.
Before we get started, we’d like to propose four principles for researching potential grantees. Given the power dynamics between donors and grantees, it may be useful to keep these tips in mind when you are initiating your research.
- Above all, do no harm. Be aware of the vast difference in power between you and the nonprofit organizations you are thinking about funding. They will try to comply with your requests because they need the funding and it’s yours to give (or not). Responding to your requests can be a time-consuming, costly process. To whatever extent possible, ask for materials that already exist—every hour nonprofit leaders spend formatting data to fit your templates is an hour they are not spending on their mission.
- Be rigorous, but don’t overdo it. Pursue your research only to the extent that the information you are gathering is necessary to make a decision. Again, it takes time to answer all of your questions. Match the depth of your process to the size and riskiness of the grant you’re considering, and focus on what you don’t know. For example, if you have a high degree of confidence in the organization’s leadership and strategy, focus on what you’d like to learn more about, such as the nonprofit’s current financial situation. Don’t feel you can (or should) know everything before you make a grant—a fair amount can only be learned along the way.
- Be realistic. Expect nonprofits to have weaknesses as well as strengths. Context matters: Depending on the size, age, and growth trajectory of a nonprofit organization or a particular program, its capabilities will look quite different. For example, don’t expect a startup to have efficient systems or CEO-succession planning.
- Be forward-thinking. As you discover weaknesses, ask: What can I do to help this organization improve? For example, your grant dollars could help to develop future leaders or purchase new technology to measure results and improve performance over the long-term. On the other hand, be realistic about the limits of what your funding could provide.
What do you think of these tips? What do you find the most challenging? Are there any you disagree with?
We'll dive deeper into the point over the coming weeks, but if you'd like to explore more on your own, take a look at the following: