No matter the size of the ambition, every donor collaboration has to answer this question: How will the money move? It is not who will set up the nonprofit, because the truth is: that is one path, but not the only one. And it might not even be the right one, depending on what the partners envision for the collaboration.
Here are the early questions to ask about the Fund (though it can be called anything!):
Resource mobilization
- How much is expected to be committed at launch?
- Who are the target partners? Individuals and foundations? Governments?
Scale and scope of grantmaking
- How much is anticipated in grantmaking/year?
- How long will the Fund exist?
- Will there be cross-border contributions or grantmaking?
Infrastructure needs (via host):
- Payroll, benefits for staff?
- Financial support?
- Dedicated relationship manager for collaborative?
Implementing support needs (via host):
- Grant management
- Report processing
- Donor
- Anything else?
Three Models for Hosting Donor Collaboratives
You can skip any of these models and build a new nonprofit for your donor collaborative. But there are reasons you may want to consider other options. Here are some models I’ve seen work.
Within an Anchor Donor
The Fund is built on the existing infrastructure of one of the anchor donors. New staff may be hired to support the new collaboration or existing donor staff may be re-assigned.
Trade offs:
- In the US, giving to a foundation won’t offer donors the same tax benefits of giving to a charity vehicle; generally needs to be paired with a charity mechanism (like a donor-advised fund) for tax purposes
- This model requires all donors to agree to level of control exerted by anchor donor that owns the Fund
Cost structure: The donor that hosts the Fund pays the costs, usually by re-assigning a percentage of existing staff time across programmatic, finance, legal, and other teams to support the Fund.
Take-away: Can work well as a low investment/low-risk method to get a collaboration kicked-off.
At a Donor-Advised Fund
The Fund sits at a donor-advised fund, or DAF, for all financial transactions.
Trade offs:
- This is an inexpensive method to gain access to a charity to accept donations to the Fund
- It does not offer the infrastructure to build out an organization, if that’s the aspiration
Cost structure: One-time set up fee, annual fee often based on a percentage of the account balance
Take-away: Cost-effective option for uncomplicated collaboration with financial infrastructure only.
At a Fiscal Sponsor
The Fund becomes a project of a fiscal sponsorship provider and is built on the infrastructure of that nonprofit.
Trade-offs:
- All infrastructure needed to build a nonprofit is available, if that is an aspiration
- Support and services are customizable to the level allowed by the fiscal sponsor provider
Cost structure: One-time set up fee, annual percentage fee based on the size of the Fund, potential for additional services like HR, fundraising, or other advising for additional fees
Take-away: Robust option for hosting complex donor collaboratives and launching a future 501(c)(3)
If you’re exploring a collaboration or are already in one, congratulations! Teamwork makes the dream work. If you’re looking for more tips, check out these reflections:
Or feeling chatty? Reach out to me. There’s nothing more a nerd like me enjoys than talking about what makes philanthropy work!
