Giving with impact: smaller organisations, bigger outcomes?

Small charities have played key roles in the pandemic, delivering food, medication, transport and other vital assistance at short notice and direct to areas of greatest need. The response has highlighted some of the strengths of small non-profits, in particular their ability to switch activities to match evolving needs, and their hyper-local knowledge and networks.

But the crisis also highlighted the precarious position of many smaller non-profits, according to Mary Rose Gunn, Chief Executive of The Fore, a trust which seeks to identify and fund the most effective charities and social enterprises.

She points out that of the UK’s 170,000 charities the vast majority, 93%, are “small” – defined as having an annual income of less than £500,000. Yet these organisations receive in total only 7% of the sector’s income, and funding is decreasing.

Large charities are few in number, but control the bulk of the sector's income

^{Source: Charity Commission July 2021}

Make your gifts work harder by giving the organisations a free hand…

Non-profit organisations are frequently given funding on the proviso it is used for specific, high-profile activities. But this can prevent charities from doing other urgent work or pivoting their strategy to respond to a sudden demand – as arose with the pandemic. By prescribing how their money should be used donors unwittingly reduce their impact, Mary Rose argues.

The Fore believes that the donor should adopt more of the stance of an investor, broadly backing the non-profit to make its own front-line decisions, and helping develop the required skills, rather than demanding specific end results.

“It’s important to see these organisations as investees rather than beneficiaries,” she said. “The danger is that some donors are seeking to buy outcomes.”

The Fore gives unrestricted grants of up to £30,000 to UK non-profit organisations that are having a transformative impact. This hands-off approach – sometimes described as “venture philanthropy” – has been extremely successful to date, as demonstrated in a recent benchmarked analysis. The Fore looked at its investees’ turnover for four years before and after they received The Fore’s grants. It then compared this to a benchmark group of charities. On average (see chart, below), organisations supported by The Fore demonstrated a far steeper growth in income than their benchmark peers.

How enlightened giving creates more impact

^{Source: The Fore}

“It's all about trust,” Mary Rose said. “The best way to make an impact is to find someone who really knows what they’re doing and to support them. We don’t assume that we are the experts in their field – they know far more than us.”

…and don’t rule out smaller non-profits that aren’t “professional” fundraisers

Many foundations and trusts put in place long, complex application forms, partly to ensure that they’re giving to the right organisations, and also to avoid being swamped by requests.

However, this can limit the impact of donations and result in money going to the best fundraisers, rather than the most impactful organisations, says Mary Rose.

Complex applications often exclude organisations that can’t spare the staff, including many smaller, frontline charities.

Non-profits generally do not qualify for equity investment in their early stages, meaning funding and grants are the likely options. The sums do not need to be large.

The Fore invested £30,000 into homeless charity Settle, for example, over two years (see below). “It might sound like a small amount of money, but for us back then, it was critical,” says Rich Grahame, the charity’s founder.

CASE STUDY: Settle, seeking to prevent homelessness at the source

Over 37,000 children and young people enter the care system every year. A quarter (25%) of them will end up homeless*. Settle supports 18-25-year-olds as they transition out of care to stop this from happening.

From a position of supporting 40 young people as they make this transition, The Fore’s grant enabled it to grow to support 110. This includes offering food parcels and mental health support as well as practical assistance including financial skills.

Settle Founder, Rich Grahame, said: “Lots of funders require you to do a very specific thing with their money, which is fine if all goes to plan. But in life things don't always go to plan.

“Having unrestricted funding allowed me the freedom to grow the organization the way that I thought was best, instead of holding us to account for something that we submitted two, three years ago that might have changed,” he explains.

The funding being given over two years provided Settle with additional stability. “Often grants are given in one-year instalments, so each year we had the same uncertainty of raising £100,000-200,000 to pay the staff that work with these young people. The fact it was a multi-year grant gave us a huge amount of stability, allowing us to leverage funding from other organizations,” explains Grahame.

It enabled the social enterprise to access loans from banks such as JPMorgan, Lloyds and NatWest as The Fore’s backing gave Settle credibility, allowing it to grow.

^{*Source: https://homeforgood.org.uk/statistics}