The concept of diversification is a widely used strategy by financial professionals and individuals to manage their investments. It allows them to find promising companies that may perform well while maintaining their positions in a relatively stable market. This approach can also be beneficial for grantmaking.
Without diversifying their grantmaking portfolios, financial professionals and organizations will not be able to meet the community’s needs fully, and they will likely underperform. The following shows how grantmakers can achieve diversification by evenly distributing their grant types into different categories.
Stability and Sustainability
Many non-profit organizations cannot meet the community’s needs without sufficient funds to support their core operations. This is a difficult task, and it requires continuous effort.
Although operational funding may seem mundane to some donors, it is vital to a non-profit organization’s operations. It can be considered an investment crucial to its long-term success. It should be regularly reviewed and maintained to ensure the funds focus on sustaining the organization’s leaders and partners.
Growing and Spreading
Many strategic grantmakers consider growth as an area of their focus where they can make a significant impact by funding initiatives that aim to improve an organization’s quality, effectiveness, and innovation. Medium-risk investments are often made in this type of funding due to the challenges it can bring to an already established program.
In the past few years, significant growth in funding has been made for health screening. This type of funding has allowed non-profit organizations to expand their scope of operations and improve their quality of service. By investing in the early stages of these programs, they have established new sustainability models and improved their effectiveness.
Risk and Change
The increasing number of complex and multi-faceted offerings by non-profit organizations has prompted the philanthropic community to pay more attention to risk capital. Fewer grantmakers are willing to lead or partner with organizations tackling major societal issues or changing fields.
One of the most significant risks grantmakers face when it comes to funding catalytic change is the potential for a high reward or no return. Diversification can minimize this risk.
Conclusion
Diversification is a crucial component of any grantmaking strategy. It requires careful consideration and planning. Since it can work in various fields, such as education, the arts, and medical research, grantmakers can create a fair allocation model that supports their chosen organizations’ goals.