Capitalization: How Can Funders Help?

In our previous blog post we dove into the concept of capitalization, in the context of nonprofit financial management. Here, we continue the discussion as it relates to funders.

What can funders do to support nonprofit capitalization?

Consider the historical inequities that make it impossible for many BIPOC-led and -serving organizations to access equal and adequate resources.

  • American philanthropy around arts and culture is historically based on euro-centric ideals and excellence, with the goal of developing cities to become “world class” aka like European cities.
  • Many BIPOC led/serving arts organizations don’t fall into a traditional category, because they also work as service organizations or social-justice organizations, so they’re left out of both of those funding categories.
  • These organizations also have limited access to networks of wealth and must compete for fewer resources.
Learn that bigger organizations being stronger and better managed is a myth.

  • Funders often consider smaller and “less professional” organizations to be riskier investments. However, during the pandemic smaller organizations have maintained the most liquidity, despite higher percentage losses in operating revenue than large groups. Shifts are less costly, their business model relies less on cash and more on sweat equity, and they’re able to “hibernate.”
  • Many BIPOC-led and -serving organizations have a strong track record in managing well with limited resources. 
Abandon bad “best practices” in grantmaking.

  • Failure to cover administrative and indirect expenses.
  • Only partially funding projects, requiring nonprofits to divert limited flexible revenue to fill gaps.
  • Assuming all organizations want to grow in size, rather than focusing on what they do well.
  • Rewarding zero-ed out budgets, and the idea that nonprofits and should not make a profit.
  • Short-term grants that have an unrealistic push for self-sufficiency when the grant period is over.

What is CAC doing?

  • We evaluate grants through the lens of artistic and cultural vibrancy rather than “excellence."
  • CAC makes grants to organizations that both do and don’t have a primary mission of arts and culture.
  • We accept in-kind income to match certain project support grants and allow for indirect costs to be included in project budgets.
  • 90% of our funding each year goes toward flexible organizational grants.
  • Starting with the 2023 grants, all our primary grantmaking programs are now multi-year funding opportunities.

CAC is taking some important steps towards equitable support for organizations to build toward sustainable financial futures, but there is more work to do. CAC continues to collect data on how arts and culture organizations are faring in the COVID-recovery and advocating for federal dollars for our community. 

Special thanks to Rebecca Thomas of Rebecca Thomas & Associates for presenting around this topic, and to Assembly for the Arts sponsoring this fruitful learning session.