As US aid dwindles, more turn to restructuring to stay afloat

Today, more than one-third of aid organizations are considering a restructure — and by early September, even more may be forced to shut their doors. That’s according to a survey from the Accountability Lab and Humentum, which have been tracking the impacts of the U.S. aid freeze since the unraveling of the world’s largest donor began. “For some organizations, it is an incredibly daunting time,” said Cheri-Leigh Erasmus, the co-chief executive officer of the Accountability Lab, a nonprofit dedicated to open governance. “And for others, it's a time of opportunity. It all boils down to how much you have in the bank.” Over the last several months, that’s exactly what Erasmus and Blair Glencorse, the Accountability Lab’s other chief executive officer, have witnessed firsthand. In March, the organization launched a new program — now known as Civic Strength Partners — to help those in the sector recalibrate. That might mean exploring a merger, creating a joint venture, coming up with a new fundraising approach, or winding down operations all together. “Many organizations in the social sector have not had to look at their work through the lens of transition, merger, and succession,” reads the Civic Strength Partners’ toolkit, which was developed by the program earlier this year. “This guide is designed to provide rapid support to leaders to use relevant tools to preserve, protect, and grow the value of their work.” Now four months in, the amount of interest in the program has only grown. Within weeks of its launch, 80 organizations — ranging from nonprofits to contractors — had signed up for the service; by early August, that number had swelled to more than 150, according to Erasmus and Glencorse. “It’s come quite a long way,” Glencorse told Devex. “We have a shared fund now, which donors have put money into, and we have a pool of technical expertise that we’re farming out to help organizations do what they need to do.” At first, it began with the Accountability Lab’s recognition of the immediate need in the sector. Then, it morphed into a fundraising ask — one that ultimately attracted $1 million in support from the Hewlett Foundation, Packard Foundation, Hilton Foundation, and others. That pooled fund makes the service free for organizations, as it is used to pay for the services of the team behind Civic Strength Partners, and the consultants they work with. That means, for example, the lawyer fees an organization would typically need to pay to walk through the intricacies of a merger would be covered by the program. Now, the Accountability Lab is working with Development Gateway and Digital Public, two other nonprofit organizations, to match groups that might work well together and coach those thinking through an operational reshift. That may include mergers between organizations with aligned missions to pool resources and avoid closure; strategic partnerships to jointly deliver programs or share administrative systems; succession planning to ensure smooth leadership transitions when founders or key staff depart; or legacy planning to preserve an organization’s tools, data, and community relationships if it winds down. The goal is to help organizations preserve their impact — even if their structure, leadership, or operations must change. “We went to donors and said: The ecosystem needs this,” said Erasmus, who explained that money is now being used to help organizations cover legal fees, technical fees, and other types of support to transition their processes. “It was clear that there was no other way for many organizations to survive.” For many donors, the argument clicked. Michael Jarvis, the head of the Trust, Accountability and Inclusion Collaborative — a donor collaborative that includes many of Civic Strength Partners’ funders — said the last several months had revealed a gap in the sector, and something that perhaps should have been funded all along. “There’s been an interest in thinking about how we build stronger support for the nonprofit sector to think about its own sustainability. And then of course, one of the key options becomes how to help groups think about strategic partnerships, mergers and acquisitions within all this flux,” Jarvis told Devex. “Hopefully, this is going to help some groups make smart decisions and actually survive.” It’s a lot for the team of eight, all of whom are taking on the project on top of their full-time jobs. But much of the work is also being done by consultants with specific expertise, as they can coach organizations through the legal or financial complexities of a restructuring. The money for these processes comes from the pooled fund, Erasmus and Glencorse explained, though the amount — which is in the tens of thousands per group — would differ depending on an organization’s restructuring needs. “This process usually takes organizations between six months to a year, not just to think through not just the legal and financial integration, but also to figure out whether there’s a fit for two organizations to come together and form a major strategic partnership,” Erasmus added. “Currently, no one has that sort of timeline — so we’re thinking about how to provide, in a more agile, faster way, the type of support, information and resources organizations need to make those decisions faster.” Four pairs of organizations involved in the project are in the final phases of merging, while another four pairs are beginning to explore that process. But most organizations aren’t looking for full-scale mergers, Glencorse said; they’re landing somewhere in between. That might mean handing off pieces of work, consolidating backend functions, or developing alternative revenue models. Ten to 15 organizations, for example, are now working with the program to figure out what their next steps are, such as evaluating their readiness for a merger, mapping matches for partner organizations, and identifying the type of support they need to move forward — even before pushing ahead with a new type of structure. “What we’re discovering is that often, organizations come in thinking they want a merger. But actually, what they need is something quite different,” Glencorse said. “If we can support organizations to understand their value and engage in the right kinds of generative conversations now — before it’s too late — we might be able to protect more of the value that they bring.” Six months after the unraveling of USAID, there’s little time to waste. In May, the Accountability Lab and Humentum found that 45% of more than 260 survey respondents had between one to three months of financial resources remaining, meaning that without additional funding, those organizations would be out of cash between June and August. At the time, 35% of those surveyed were considering restructuring or merging their organizations, while another 19% were open to doing so. Each week, Glencorse said another three to five organizations sign up for support through Civic Strength Partners. “This is a moment where the rug has been pulled out from under us,” Erasmus said. “But we do have a blank slate here, and you can take it as an opportunity to rebuild anew. Or you can not do that, and wait for the ecosystem to be shaped in ways that you might not like.”