How to sustain minority-led and locally led nonprofits? Endow them

It’s time for philanthropists and nonprofits to move beyond just talking about providing more funding for social equality-focused organizations led by people of color and to actually consider how endowing them would help sustain their work over the long term, according to a research team from nonprofit advisory firm The Bridgespan Group.

Bridgespan’s William Foster and Darren Isom recently published research on endowments for Black-led nonprofits in the United States that focus on social change, finding that organizations headed by people of color generally do not receive the same levels of endowments as white-led institutions.

“We found that, on average, the endowments of organizations led by people of color were nearly four times smaller than those of white-led organizations,” Isom told Devex.

An endowment is a pool of donated money, property, or other investments generating returns for nonprofits or other organizations. That income can be used for future operations and to help sustain the organizations into perpetuity.

Just 5% of philanthropic “big bets” — contributions of $10 million or more — are given to social change causes and organizations as endowments, Isom and Foster said. They said endowments are even rarer for Black-led organizations, and the level hasn’t increased even amid a surge in donations to social justice organizations in the wake of 2020, when many in the U.S. and around the world reacted to the murders of George Floyd by Minnesota police and other Black Americans by calling for greater racial equity.

Isom and Foster said that while their research focused on endowments for U.S.-based organizations, they believed that locally led social change nonprofits abroad would also benefit from an increased rate of endowments. That kind of funding would provide a “critical institutional anchor” to help them grow and endure, Foster said.

It could also be part of broader discussions about “decolonizing” philanthropy, Isom suggested, as well as conversation around maximizing the proximity that many social change nonprofits have to their communities and “transferring power” from international donors to local nonprofit leaders, according to the duo.

“That power conversation is one that needs to be talked about,” Isom said. “Ultimately, as we think about successful philanthropy, it’s about getting the people who are doing the work as much money as you can to make sure that they’re able to carry out the work in a meaningful way.”

Endowments are the “ultimate form of trust-based philanthropy” and can improve a smaller social change nonprofit’s ability to absorb philanthropic dollars in the future, according to the Bridgespan research.

Still, the authors acknowledged that endowments can be seen as “old-school” among a new wave of donors who are rejecting many of the traditional tools of philanthropy as they seek to be nimbler in their response to global needs. For example, philanthropists coming from the tech industry tend to rely on data and evidence that may evolve from year to year.

“But an endowment — which, again, is this super old tool — is literally the most profound way of transferring power,” said Foster.

He called it a “radical” tool for philanthropists seeking authentic engagements with communities. By transferring assets to the nonprofits, donors allow them to be the decision-makers, he said.

Among the other barriers that social change organizations face in getting philanthropists to contribute to endowments are enduring “myths,” such as the idea that small organizations cannot manage or effectively absorb large donations, Isom and Foster said.

Organizations led by Black people or other people of color are also often disadvantaged by being kept outside of “trusted networks” of philanthropists and nonprofits, where an enormous amount of fundraising is done but which tend to be predominantly white and white-led, they said. That helps to preserve the status quo and gives those organizations less access to sources of wealth, Foster said.

For their part, smaller nonprofits also should work to “normalize” the idea of endowments as something that could happen for them in the same way that some already have normalized building funds and “have a number in mind” when asking donors to help build an endowment, they said.

For example, organizations based in the U.S. should try to secure endowments large enough to provide at least half, if not three-quarters, of the organizations’ annual revenues after the withdrawal of the 5% payout that foundations are required to pull from their endowments each year under federal law, they said.