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A New Source for Funding Nonprofit Mergers and Collaborations

A look into the merger of Lodestar Foundation and Sea Change Capital Partners to examine what defines "sensible collaboriation" between nonprofits.

It isn’t often that a funder calls me up to introduce himself, but that’s what John MacIntosh of Sea Change Capital Partners did when he heard that I was active in nonprofit collaborations in the Midwest. John wanted to learn what I was up to and make sure I knew about a unique philanthropic fund dedicated to enabling nonprofit collaborations. The Sea Change-Lodestar Fund for Nonprofit Collaboration is itself a collaboration between the Lodestar Foundation and Sea Change Capital Partners.

The Sea Change-Lodestar Fund‘s mission is to facilitate and fund sensible collaborations among nonprofit organizations. It is prepared to help cover a portion off the one-time costs associated with nonprofit mergers and collaborations. It makes two main types of grants:

• Exploratory grants (generally $25,000 or less) to explore and evaluate a potential collaboration
• Implementation grants (up to $250,000) to cover a portion of the one-time costs associated with implementing a collaboration

MacIntosh explained: “Implementation grants are always made alongside funders of the collaborating organizations, often specialized in sector or from the local geography where the merger or collaboration is happening. Our fund believes in having a high engagement level with the leadership of the collaborating nonprofits, quick turnaround, and a thorough evaluation and approval process.”

When I asked MacIntosh why Sea Change was collaborating with the Lodestar Foundation on this fund, he replied, “We each bring different things to the table. Lodestar is unique amongst foundations in its focus on collaboration. We were thrilled when they approached Sea Change about working together, and put the issue of nonprofit mergers and collaboration on our radar screen. The team at Sea Change has deep financial and transactional experience in both the nonprofit and for-profit worlds, so this was a very natural step for us to take in our effort to help nonprofits have more impact while also seeking opportunities to make leveraged grants. Sea Change does much of the front-end work, the analysis, the site visits, and speaking to the leadership. We have raised some outside funding for this work, though Lodestar remains the biggest funder and Sea Change the second biggest.”

But I wondered how the fund defines “sensible collaboration.” MacIntosh explained, “We define collaboration as when two or more nonprofits combine some or all of their important activities in a formal, long-term, or permanent way. It can take many different forms, including mergers, acquisitions, and various forms of alliances and partnerships. A sensible collaboration is one that has the potential to increase the efficiency, effectiveness, or sustainability with which they pursue their missions. We want to help organizations that have gotten to the point of exploring something or consummating a collaboration, to do it.”

The really nice thing about this fund is that it is set-up to fund what it calls the “unavoidable but uninspiring” costs of collaboration, such as IT integration, re-branding, severance costs, and lease-breaking—costs that many funders would find an anathema. The fund is not a passive donor, however; it gets intimately involved in some of the transactions when it feels it can add value as an outside party. If the fund feels it cannot add any value it is less likely to fund the transaction. Guidelines state: “Our due diligence process is intensive…”—so be sure you want a partner if you approach the fund for support.

And in this age of focus on cost cutting and efficiencies in nonprofit mergers and collaborations, MacIntosh had this to say: “The whole question of cost-savings is more nuanced than many people believe. In our experience, saving money is neither necessary nor sufficient motivation for collaboration. Often the level of potential cost savings wouldn’t be enough to justify the collaboration, but it’s often enough to put the transaction costs in a healthy context. The ability to save money doesn’t mean you actually save it, but instead you reallocate your resources to the program side. After all, the goal is not to reduce the budget, but to produce great contemporary dance, educate more children, etc.”

The Sea Change-Lodestar Fund for Nonprofit Collaboration, based in New York City, takes proposals on a continuous basis from across the country. It’s great to see new, creative funding opportunities like this one for nonprofit mergers and collaborations.

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COMMENTS

  • BY Martha Paschal

    ON August 8, 2011 11:17 AM

    It’s great to see funders taking on these kinds of projects.  Lord knows they’re not high-profile or groundbreaking, but they’re usually done for necessity to maintain core services to the NFP’s footprint.  Way to go Sea Change-Lodestar!

  • BY Daniele Cavallotti Indipendent

    ON August 8, 2011 11:55 AM

    Very intersting approach ... in Italy there is a lot of talking about cooperation but there are very few actions to really make it effective ....

  • Gregory Kurth's avatar

    BY Gregory Kurth

    ON August 8, 2011 08:37 PM

    A unique approach to fund upfront costs to help build longer-term efficiencies. However, I think integration would be a better description than collaboration. Lots of groups love to collaborate on information sharing and cross referrals, but few rarely are willing to alter their identity or funding arrangements for the holistic goals. I’d be curious as to whether finders will drive such discussions or actual boards

  • Jean Butzen's avatar

    BY Jean Butzen

    ON August 15, 2011 02:59 PM

    Comments from Jean Butzen:
    It’s great to get positive feedback, so thanks for taking the time to comment, Martha and Daniele. Also, Gregory, I agree with you - the correct work I should have used is “integration,” and not “collaboration.” I will try to remember that.

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