January 15, 2016

Cost of Capital

As you move through the due-diligence process, your first principle should be to do no harm. Potential grantees will try to comply with most requests you make during the due-diligence process because they need the funding and it’s yours to give (or not). Beware of that power differential. At what cost to themselves will potential grantees be responsive to your requests?

Just as businesses incur a cost of capital, nonprofit organizations pay a price for the money they raise. The true costs of their fundraising are rarely as modest as the direct expenses reported on their public filings. More often, those figures provide only a baseline on which to factor in the considerable indirect costs they incur in the course of raising philanthropic funds: entertaining prospective funders, preparing and revising grant applications, complying with reporting and monitoring requirements, attending meetings, and engaging in all the other activities that are part and parcel of doing business with philanthropists and foundations.

As you design your own due-diligence process, keep these hidden costs to potential grantees in mind and be judicious with your requests.

  • First, consult reports the nonprofit already has available.
  • Ask yourself how the information you request will influence your funding decision.

For more, see "Nonprofit Due Diligence: Donor Decision Tool" >>

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