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Over the past few months, a buzz has been created by the fact that some of the largest philanthropies in the United States have decided to increase their general support awards to their grantee organizations.

Similarly, people have also been discussing Amazon founder Jeff Bezos’s award of unrestricted funding through his Day 1 Families Fund to organizations working to provide shelter and hunger support services to young families across the country. Specifically, they are in awe of the autonomy Bezos has allowed these organizations to retain over the expenditure of the funds; the minimal amount of diligence the Fund required of the organizations; the streamlined application process; that Bezos holistically invested in organizations he did not have a long-standing relationship with as a way to ensure they realized the grant purpose; and that he awarded millions of dollars to these organizations, largely based on trust.

To be clear, many who were in awe of this process and raised questions about it included the same organizations receiving grants from the Day 1 Families Fund. In fact, one recipient reportedly called the entire thing “puzzling.”

Puzzling.

Take a minute and think about the grant-making and funding reality in which we find ourselves:

• • even grantees expect a prolonged series of questions, many strings and conditions, restricted funding awards, and intensive monitoring, and when those elements are absent, they find it “puzzling;”
  • convincing foundations to provide flexible funding to grantees to ensure their sustainability to do their best work is seen as newsworthy;
  • foundations must embark on a “major campaign” and an “uphill battle” to encourage other funders to join them in funding general operating costs;
  • a funder deciding to invest in an organization’s sustainability in order to carry out a project or work that a funder thinks is critical to its own theory of change is out of the ordinary; and
  • when a funder regularly provides flexible funding, that approach is so novel that we should dissect and discuss, at length, its decision to holistically fund, its strategy, its approach, and its reasoning.

This reality simply underscores what I wrote about flexible funding being the new unicorn.

Having spent over a decade structuring grants and other funding awards, I have always thought grant making should be a holistic investment in an organization, even if the grant is not for core operations and is instead for a project or program. After all, these organizations could not carry out these projects without the non-programmatic infrastructure that flexible funding covers, such as electricity, heat, information technology, rent, and people (salaries and other human resources costs), you know, that same “overhead” that is often frowned upon, and that many funders have stringent policies about.

So, why are some funders reluctant to provide unrestricted or more flexible funding to their grantees? Why are some grantees hesitant to request more flexible support?

This reluctance, hesitation, and, quite frankly, aversion towards flexible funding primarily stems from two issues: (i) measuring social impact largely through outputs instead of outcomes; and (ii) a lack of mutual trust between grantee and funder.

Until a funder identifies and addresses these two issues, it will struggle to make the transition from solely project-based funding to more flexible or unrestricted funding. I highlight both issues here to provide a starting point for that internal analysis.

Measuring impact
I can understand why a funder might be reluctant to holistically invest in an organization because it is measuring its impact largely through outputs (deliverables) instead of outcomes (overall results). Without these tangible outputs, the funder is concerned about how it can successfully measure impact or evaluate performance. Understandably, this type of funder wants “proof” that its investment is going well instead of looking beyond outputs and towards often longer-term outcomes.

This outcome-based approach is something that a funder must deliberately stretch into as it determines its own grant-making and funding approach and determines the kind of change it would like to see in the world. If its strategy is primarily output focused, it will struggle to embrace the more flexible funding approach that does not explicitly promise outputs as part of the funding.

Mutual Trust
It is challenging for a funder to provide holistic funding to bolster an organization’s sustainability when it has not established trust with the organization in which it is investing. This lack of trust then translates into fear – the fear of believing that the grantee will actually carry out the work that aligns with the funder’s strategic priorities; fear of the grantee’s ability to wisely build its infrastructure to support and implement its work; and fear of the funder’s ability to truly understand the qualitative goals of the grantee’s work.

So, in order to make up for this fundamental lack of trust, which, by the way, neither the funder nor the grantee explicitly admits exists, the funder makes only investments that it can closely monitor, that it can closely track, and that constantly reassures it that it has made a good investment. After all, the funder does not trust that the grantee’s risk management aligns with its own and wants to see tangible proof of its investment. Similarly, the grantee proposes projects it believes the funder wants to fund, underestimates the parts of the grant that are not explicitly in line with the funder’s programmatic goals, and is reticent to articulate that its overall sustainability is what, in fact, will make this project work.

Without a firm foundation of trust, the funder does not understand why it should provide unrestricted or flexible funding as it believes there is no accountability with this type of funding and thus no impact; and the grantee does not request it as it cannot find the “space” within the relationship to do so.

Transitioning to flexible funding
When a funder’s strategy contemplates that outputs are part of the outcome and that outcomes are the ultimate goal, it changes its perception of how it should fund. The funding becomes more about helping the organization achieve its outcomes, which necessarily involves outputs, but is not entirely about achieving outputs. Measurement in turn becomes more about ensuring that impact is occurring in a way that advances a charitable purpose and mission and less about using a checklist to ensure that a particular thing has occurred.

This approach is further bolstered when mutual trust exists between funder and grantee. Trust is built through the interactions occurring within the building of the relationship and the relationship itself, instead of solely through the funding. It takes commitment, collaboration, and plain hard work to build this type of trust, but it can substantially improve grant outcomes.

With this latest buzz about unrestricted funding, many funders will inevitably start to dip their toes in the water, so to speak, moving from largely project-based support to more holistic investments in their grantees. This transition is critical to strengthening organizational infrastructure and ultimately grantee sustainability.

Therefore, we should turn these conversations about unrestricted and flexible funding into action as quickly as possible so we can “get to doing.”

Next up: In our next article, I will provide practice tips for funders who want to provide more flexible funding for grantee sustainability.