Worried about shrinking foundation endowments? That’s going to happen during a recession, but that doesn’t mean you should pull back.
Fundraising from grantmaking foundations can be one of the best opportunities for nonprofits. It’s probably no surprise to hear that foundations account for at least 19% of all charitable giving in the United States.
However, when we hear about record inflation and notice that the S&P 500 is down over 15% year-to-date, we might hesitate to reach out to foundations. In our free ebook, Fundraising When Times Are Bad, we help you understand why fundraising in uncertain times can be difficult—but that with the right approach, your nonprofit can weather the storm and come out even stronger.
When it comes to grants and foundation fundraising during tough times, keep in mind the following.
DON'T ASSUME A FOUNDATION IS SUFFERING
Most foundations operate based on endowed funding. Whether it’s a small family foundation, a community foundation, or that mega-whale foundation that your nonprofit has dreamed about winning a grant from for years—endowed dollars are likely funding the bulk of operating expenses and grant dollars.
Don’t assume that the foundation you would like to approach has seen its endowment drop to the same degree as the stock market. Perhaps the foundation has a very conservative portfolio. Or maybe a generous donor has recently added funding for the grantmaking operations. A foundation could also be entering a sunset phase and heavily spending down.
Or even if its portfolio is down, that contraction may shrink the overall giving amount, but it won’t eliminate the foundation’s grantmaking (in virtually all cases). Foundations (as I’ll discuss more below) are in fact the only entities that have to give money away, regardless of market conditions. Even your most loyal donors can choose to hold back on their giving for a year; foundations cannot.
Keep in mind, too, that we are typically about two years behind when it comes to knowing a foundation’s financials based on 990 reports. The truth is, unless you are on the board of a foundation, you do not know its current grantmaking capacity or financial health.
If—especially if—the foundation you hope to apply to is experiencing financial challenges due to the economic conditions, the fact remains that relationships matter. Long-term relationships and professional connections are invaluable. This is a reminder to stay in touch with your current foundation connections, and to keep focusing on making new connections. That connection might not pay off this year (perhaps the foundation is focused on grantees with long-term personal relationships), but a warm connect with a program officer might pay off down the line.
Inevitably, inflation will ease and the economy will recover. Putting your foundation funding efforts on pause while times are tough only makes the process more difficult in the future when relationships might be stale.
FOUNDATIONS EXIST TO GIVE
Finally, and perhaps most importantly, we need to remember that charitable foundations exist to make grants. This is true regardless of whether the market is bullish or bearish. Generally, outside of some complex exceptions, a foundation must pay out 5% or more of its investment assets annually in the form of grants and operating expenses.
Unless a foundation has some exceptional circumstances, it will be operating as usual this year and awarding grants. A weakened investment portfolio might slightly limit its total award amount, but the decrease might be less than you think—especially if a foundation board sees value in making grants when nonprofits are truly in need, which is not uncommon (as we saw during the Covid pandemic and lockdowns).
Furthermore, the current state of economic affairs may present you with an opportunity when it comes to foundation funding. If your nonprofit has a programmatic idea that addresses the timely consequences of an economic downturn—something that helps your nonprofit, or the clients you serve, continue to succeed during a time of inflation—then a foundation grant could be a lifeline.
Clearly, every fundraising attempt has an opportunity cost. Crafting a ten-page full proposal for a charitable foundation without a prior conversation or well-received letter of inquiry may not be a good idea in this market. But the simple act of reaching out to a foundation now—at a time when other fundraisers might pull back—could pay huge dividends in the future.