Innovative approaches to funding

Explores funding approaches such as venture philanthropy and the 'engaged approach'.

In preparing your fundraising strategy it is worthwhile being aware of new and innovative funding approaches that are being developed and used by funders who are interested in exploring alternatives beyond a traditional arms-length, money-only approach.  

In this section we introduce some of these newer methods, including: 

• The 'Engaged Approach' to Funding
• Venture Philanthropy
• Programme Related Investment
• Outcome Funding

The engaged approach

Over the last few years a growing trend has emerged whereby some funders are keen to develop a constructive dialogue with grant recipient in order to ascertain what kind of funding best meets the organisation's needs, and where appropriate, to provide resources to enable the organisation to grow and develop. This is called 'engaged funding'.

Julia Unwin identified the three key approaches to funding in her 2004 publication, The Grantmaking Tango: Issues for Funders. The three approaches are: 'giving' which is a grant with none or few expectations in return; 'shopping' where a tendering or commissioning process is the norm; and 'investing' whereby the focus is more on developing a long term relationship. To obtain a copy of The Grantmaking Tango, contact The Barings Foundation on 020 7767 1348.

To explore these approaches further, NCVO's Sustainable Funding Project commissioned Julia to write Fruitful Funding - A guide to levels of engagement, to illuminate and appraise the range and different levels of 'engagement' that funders can adopt when funding voluntary and community organisations. The 'engaged' approach is demonstrated through using case studies illustrating how and why engagement was suitable for both funder and recipient. For a copy please contact publicationsorders@ncvo-vol.org.uk or you can view a pdf version.

Funders who have used an engaged approach include the John Moores Foundation and the Northern Rock Foundation.

Venture philanthropy

Venture Philanthropy is a way of supporting organisations through the provision of   management and technical support in addition to financial resources.

Venture Philanthropy takes the principles of venture capitalism and applies them to philanthropy. Just as Venture Capitalists take an active approach to funding businesses (investing management time and expertise as well as money) so Venture Philanthropists invest time and skills (perhaps taking a position on the board of trustees) alongside cash to support voluntary and community organisations.

Venture Philanthropy's financial input is sometimes described as 'Patient Capital'. This is becuase the Venture Philanthropist is willing to fund organisational as well as project costs for longer time periods than traditional trusts and foundations in order to see the organisation as a whole develop. The Civil Renewal Unit report Patient Capital - a new approach to investing in the growth of community and social enterprise explores and explains the concept and it's application further.

Commonly associated with wealthy business people who, having made their money, wish to invest for social return. They will often then take an active stake (perhaps a board position) in the voluntary organisation.

Our section on Venture Philanthropy discusses this further.

The Impetus Trust are pioneering a new type of highly engaged relationship between funder and recipient, and offer donors the opportunity to feel they are making the biggest difference with their money.

Programme related investment

Programme Related Investment (PRI) is when charities invest in other charities that share their primary purpose. 

One way in which charities may pursue their charitable purposes is through the provision of loans, loan guarantees or the subscription or purchase of shares or through the letting of land and buildings. This is a form of social investment. Such investments may generate a financial return, but the charity's main objective in making them is to help its beneficiaries and further its aims and mission.

The Esmée Fairbairn Foundation's Loans Programme is an e xample of Programme Related Investment. 

Outcome funding

Over the last three years or so there has been much talk about outcome funding. In essence this means funding an organisation in relation to what impact they have rather than just focusing on the activities they do, or products they produce.

To explore this approach further, the former Community Fund (now the Big Lottery Fund) in 2002 published The Investor Approach - a way forward for the Community Fund (pdf 236KB) and examines the case for outcome funding. It is very readable, and has an excellent executive summary.

 Explore our section on Outcome Funding for more on assessing your outcomes and why an outcomes funding approach is helpful for an organisation's own development and monitoring and as well being a useful tool for promoting yourself to funders.