The myth of risk

How to make good on the promise of “big bets” in philanthropy

There are no bad grants. Period.

My hope is not just that funders remember that, but that they believe it – and then act accordingly.

There’s an interesting phenomenon that takes place when someone says something to you that you often say to others. Last October, I was speaking with Hanh Le as she was preparing to depart her post at the Weissberg Foundation and I was just arriving as the new CEO of PEAK Grantmaking. When she said to me, “there really are no bad grant investments,” I felt the room light up: Did I just hear her say what I also know to be true – what I myself have said again and again?

Our conversation turned naturally to the role of funders in supporting organizations right now – and with urgency. If a funder desires to not only support a program, but to see a nonprofit thriving when the grant term ends, write a bigger check! If you are worried about risk, then cover the full programmatic costs and add a healthy dose of capacity building or general operating support dollars on top. After all, what exactly is stopping you?

I am a Black woman who grew up in Akron, Ohio. From an early age, I learned that there were always people, often friends of my parents or folks from church, who needed us kids to help them “get the word out” about something important. Maybe a family had survived a house fire in which all the children’s clothes and toys had been destroyed, and we were needed to help raise money for the nonprofit assisting  them – typically a small, local organization operating out of unused space at a local church or co-located with another organization like the Y, run primarily by volunteer or people receiving a modest salary of a few thousand dollars (in a time when the average income for a family of four was just above $21,000).

These are the nonprofits, run by and focused on BIPOC (Black, Indigenous, People of Color) communities, that have been chronically underfunded for decades. Typical funder perceptions – that a nonprofit needs to “pass” a risk assessment or meet a funder’s “risk tolerance” to receive a grant – reek of misapplied principles. Risk assessment models were not invented to help philanthropy advance their work: They were created for businesses most intent on protecting their profit margins and financial standing. This doesn’t mean you shouldn’t think about the risks involved in a particular project as a way to determine how providing extra support may help mitigate that risk, but don’t import risk assessment models and jargon from industries that are not in the business of providing for the public good.

Surely, these terms ring a bell: Sustainable. Evidence-Based. Traditional. Proven. Well-resourced. Familiar. We now call these descriptors “micro-affirmations,” bywords that signal a nonprofit is “ready” for investment. Less-resourced organizations, as well as newer nonprofits are often labeled differently (in the rare cases they even get to speak to a funder): Untested. Risky. Nontraditional. Typically, what they hear is this: “Thank you for completing our risk profile, budget outline, grant application, demographic survey, and anticipated outcomes form, and for providing two years of audits and your board list. However, because we were hoping to make a ‘big bet’ with this investment, we  are concerned that your organization might be overwhelmed by our support.” With all due respect, nonprofits are left with only one thought: “How can you make a ‘big bet’ if you’re unwilling to take a risk?”

As someone who speaks on behalf of an organization that recently received a significant grant investment, I can tell you first-hand: We’re not overwhelmed. We’re executing.

Unlike nonprofits and those they serve, funders have the resources and flexibility to take risks – but far too many are only comfortable investing in either known entities or programs of the funder’s own design. Kresge Foundation CEO, Rip Rapson, at a recent event for PEAK, reminded foundations, “You’re not Fidelity.” Though his comment was aimed at community foundations, it applies broadly: Being a great steward should not be about how big your endowment or portfolio gets, or how well they might be “managed.” Rather, it should be about how seamlessly (and quickly) financial resources are deployed to advance the mission and support community.

Approaching grantmaking primarily as a risk avoidance exercise – by micro-analyzing each nonprofit and potential grant looking to uncover faults – appears to be more of a “weeding” tactic than a plan to sow community dividends. Cue the timeless words of the Ford Foundation’s Darren Walker: “It’s not your money.” This kind of “weeding” approach leads to missed opportunities and poor grantee-grantmaker relationships.

Instead of starting with concern for the endowment, concern yourself first with the challenges the nonproft is facing and how you can help overcome them. The nonprofit sector is bursting with new energy, new approaches to old problems, and newly diverse leadership, staff, and volunteer support. As substantiated in a 2020 Echoing Green and Bridgespan Group report, leaders of color are uniquely situated to help advance social justice – and narrow the equity gaps prevalent in funding practices – because “these leaders often bring strategies that intimately understand the racialized experiences of communities of color and the issues these communities face.”

The simple reality is that funders don’t have all the answers and those most impacted by an issue often have the solutions, if we just make the space to listen. Nonprofits in our communities are doing the hard work involved: creating partnerships, gathering constituents, and engaging them to ensure we provide the resources they actually need. Unfortunately, the power gaps inherent to the funding landscape mean that, far too often, nonprofits must direct their energy to meet funder expectations, when it could be put to much better use supporting our teams, going deeper to meet our own core goals, and pursuing objectives that are responsive to our communities. And even after we’ve shifted to your direction, completed all the paperwork, attended the meetings, and hosted your board, our dedication does not always result in funding.

One might even conclude that risk assessment and mitigation has become hopelessly entangled with compliance requirements. Yes, compliance requirements and IRS guardrails are mandated by law for certain types of funders. But once those basic requirements are met, and nonprofit eligibility is established, the only question remaining is the grant amount decided upon by the funder.

The bottom line is this: Providing a $20,000 grant to an organization with a $300,000 budget is not risky, especially considering the reserves held by most foundations. As Nonprofit AF’s Vu Le would say, “Come on! You can do better!”

If, as a funder, you feel a little uncomfortable looking at a nonprofit’s programs because they’re operating via new norms or otherwise upending how things have “always” been done, my advice is to lean into that discomfort. That grant might be the best one your foundation ever makes.

At this precarious moment, the biggest risk that funders face is not doing enough. If GuideStar gives the nonprofit the green light, consider general operating support, write the check, and send it electronically!

Behind the best of funders’ intentions, there remains a storehouse of bad grantmaking processes. Our goal at PEAK is to be the partner that helps funders see, and adopt, operating methods that are more efficient, effective, and equitable. Thankfully, we are joined by amazing peer organizations like Candid and Open Road Alliance, philanthropic industry leaders, and grants professionals, all pushing back against bad processes and entrenched biases often hidden in funders’ “best practices.” That’s why I was excited to help Candid and Open Road Alliance develop a new online eCourse, Risk & Reward: Safeguarding Impact in an Uncertain World. The course helps funders avoid the common pitfalls of risk assessment I’ve just described and reframes risk conversations to be about providing a safety net to the grantee rather than a gotcha.