Donor Collaborations: Size Matters Less Than You Think
A response to a recent article on high stakes donor collaborations, highlighting the New York Merger, Acquisition, and Collaboration Fund.
The recent Stanford Social Innovation Review article “High Stakes Donor Collaborations” is important in describing how donors can come together around “a shared multiyear vision around which donors pool talent, resources, and decision making,” but I fear that it leaves the mistaken impression that this makes sense only in situations where “size matters” and also fails to consider the perspective of the underlying nonprofits for whom these collaborations are equally high stakes.
Since early last year, my organization, SeaChange Capital Partners, has been managing such a collaborative—the New York Merger, Acquisition, and Collaboration Fund (NYMAC). NYMAC brings donors together around the shared mission of encouraging and supporting mergers, acquisitions, joint ventures, and other types of formal, long-term collaboration between nonprofits in New York City. Based on the early experience with NYMAC, I agree wholeheartedly that more such donor collaborations would, if executed well, benefit society by producing results greater than the participating donors would achieve by acting alone. I like to think that NYMAC has been successful for the very reasons highlighted in the article: personal relationships, the involvement of principals, clear structure/process, flexibility, and risk-tolerance. I am also confident that NYMAC’s participants—which include five of the most active foundations in city, several wealthy individuals, and some specialized, collaboration-oriented funders such as the Lodestar Foundation—would agree that our collaborative, while requiring that everyone give up some elements of control and assume some shared risk, also gives us the opportunity to test strategies and approaches that we could not, or would not, do alone.
On the other hand, the article suggests that high stakes donor collaborations are appropriate only when there is a need to access expertise, achieve system level influence through scale, and aggregate capital. This is not the case for NYMAC. Our need is to collect expertise, achieve system-level influence through concentration, and transform capital. Here is what I mean:
Expertise: NYMAC not only offers participants access to expertise, but also collects, concentrates, and creates it. After many years of making grants, SeaChange and the Lodestar Foundation have expertise on the process of collaboration among nonprofits. At the same time, NYMAC's foundation participants bring important programmatic and organization-specific knowledge from their long experience as grantmakers in New York. And our individual donors bring yet another kind of knowledge and perspective. NYMAC gives us access to one another's expertise; it enables us to find, synthesize, and share knowledge (sometimes tacit) and experience that is latent in each of the participants. Moreover, evidence from research on “wisdom of the crowds” suggests that a diverse group—if brought together in a structure that allows discussion, debate, and dialogue—will often reach better decisions together than individual people or organizations would on their own.
System-Level Influence: NYMAC’s “systemic” influence—the influence beyond the impact of its individual grants—is the result of specialization and visibility, not size. As a specialized entity, NYMAC can dedicate staff time to field-building and advocacy that would not be sensible for individual participants. (For example, it will often make sense for NYMAC to attend a conference—in effect, on behalf of a dozen participants—that no single participant could justify attending on their own.) And as a focused, branded, single-purpose entity, NYMAC is more visible than the same volume of grants would be if made individually by the participants; this signals that this is an important area to stakeholders, including nonprofits, their boards, the media, and so on.
Capital Transformation: The SSIR article mentions only one type of capital transformation—aggregation—but NYMAC transforms its pooled capital in other important ways. The collaboration diversifies capital by giving participants participation in a pool rather than in a smaller number of individually larger grants; makes the capital faster since NYMAC makes grants on a rolling basis (whereas many participants make their non-NYMAC grantmaking on a quarterly, calendar-driven basis); it also makes the capital more efficient through joint reporting and collective portfolio management.
Finally, the SSIR article pays scant attention to the most important group affected by high stakes donor collaborations: the underlying nonprofits. We structured NYMAC recognizing that donor collaborations are high stakes for nonprofits as well as for donors, and that the wrong structure could easily make life harder for nonprofits (though they would be reluctant to complain since they still want the money!). We have tried to give nonprofits the efficiency benefit of going to one rather than multiple funders (meaning they fill out one application versus many and have one set of reporting requirements). We have tried to insulate them from NYMAC’s internal decision-making process while letting them know “where things stand.” We have been clear with them about the rules governing how any potentially sensitive information NYMAC receives will (or will not) flow to our participants. And we have tried to address their concern that NYMAC, by bringing together many important and influential funders, might put them in the position of having “all their eggs in one basket.” These are important issues that every high stakes donor collaboration needs to address; serving funders at the expense of nonprofits would be a hollow victory.