According to recent surveys of nonprofit leaders by the Center for Effective Philanthropy, many foundations ask and express concern about the challenges that their grantees are up against. Yet the number that have translated that concern into a robust capacity-strengthening grantmaking program with substantial resources behind it has not changed significantly. The Hewlett Foundation’s 2022 Field Scan found that “the field of nonprofit capacity strengthening is vibrant but still relatively small.” General operating support still only represents around 20% of all grant dollars and most organizations are managing grants that don’t cover their true full costs. Moreover, only about a third have received dedicated capacity funds — and even fewer have received such funds regularly over time.  

Despite positive results and glowing feedback from their grantees, staff who make capacity grants find themselves regularly having to make the case to foundation leadership for why these investments remain important. It is all too common for them to hear skeptical responses such as:

• “We don’t know what difference these grants make — how can we track impact?” 
• “We made a grant a few years ago to an organization and they still seem to have problems.”
• “The need for program funding is so intense, it is hard to justify funding capacity instead.”
• “We have been doing this for a few years now, why do we need to keep it going?”
• “It might be really good to do, but it is just not one of our grantmaking strategies.”

So we asked funders what motivated their foundation to make these offerings in the first place, why making such grants matters to them personally, and why it should matter to others. Here are the five most powerful and recurring “cases for investment” that we heard, with some of the evidence and arguments for each one.  

1. Organizations say that capacity investments are sorely needed and make a real difference. We should believe them.

Yes, we should trust what leaders tell us about what their organizations need. But when pressed to provide so-called “hard” or “objective” data to justify capacity investments, there are a growing number of useful resources and evaluation reports showing tangible and powerful results. For example:

We would contest, though, that while these resources (particularly those with lessons learned on how to invest effectively) are very valuable, we shouldn’t actually need them. 

If funders want to be in a responsive and trust-based relationship with organizations, the simple fact that nonprofit partner leaders tell us a) they need capacity support¹, and b) it made a difference when they got it, should be more than sufficient. And funders confirm that this is what organizations are telling us² through grantee perception reports and in the many conversations they have had with organization leaders. Yet, this individual input from leaders’ personal experience, despite revealing consistent patterns and themes clearly adding up to quantifiable evidence, is too often dismissed as “anecdotal.” 

What could be possible if foundations were to take leaders’ word for it and then fund them at the scale they tell us they need?  

“We’ve literally gotten the feedback from leaders that these investments keep them at their organizations, and when they’re there, then their organizations and teams thrive and are impactful.”

— Funder

2. Capacity funding is not a remedial strategy, but a good-sense investment in a core cost of doing business for nonprofit organizations — just as it is for the private sector.  

Our funder interviewees spoke passionately about reframing the discussion about capacity strengthening from one that assumes deficits in nonprofit management and leadership that need to be fixed, to one that celebrates and further invests in the abilities of social change leaders and what their organizations continue to achieve despite mounting external challenges and chronic underinvestment.  

In that reframing, organizations would be able to include capacity strengthening as perennial well-funded line items in their budget, enabling them to maintain their current levels of programming in a more sustainable and healthy way, and to plan for and manage growth. This consistent investment in people and infrastructure is what occurs in the for-profit sector as a matter of course — and at a much higher level than among nonprofits. Private sector organizations can also do this capacity strengthening without second-guessing from investors or boards, and with minimal if any hand-wringing about tracking a direct line from specific interventions to specific outcomes.  

“Only 1% of foundation dollars was allocated annually for nonprofit leadership development over the last 20 years. This percentage computes to $29 spent per person, while businesses spend at least $120 per person.”  

— “Top Reasons to Invest in Nonprofit Talent,” by Fund the People

Interviewees also noted that any foundation’s case for support for their capacity-strengthening grants and resources should not only look at the ROI, but also consider the opportunity cost of NOT investing in the ability of organizations to (for example): pay and retain their staff, address generational differences in expectations of the workplace, or improve organizational culture and equity.

“Burnt out staff are leaving the sector and not returning. We have all these vacancies. We’re heading towards a labor shortage crisis. If this comes to pass, then we don’t have a sector to be able to provide the support and services that people in our communities need, and that we care about.”  

— Funder

Capacity strengthening, paired with multi-year general operating support, is a particularly smart investment in key grantees for funders who are thinking strategically for the long term. Offered at scale and over time, this support is crucial for helping organizations and leaders not only to avoid drowning today but to develop the relationships, sustainability and clout needed to have built the powerful movements of tomorrow. 

“There is a mentality in philanthropy that we expect to know what the product [of a capacity grant] is — as opposed to understanding that this is a practice. Instead, I feel like we need to ask how capacity strengthening is an integrated part of support for an organization, rather than an intervention for a specific need. In a perfect world, everybody has access to this always: we all need to keep growing and learning and getting supported.” 

— Funder

“It also helps when capacity strengthening is understood [as being] not about ‘more’ or ‘scale’ but about ‘better,’ ‘easier’ and ‘smarter.’ 

— Funder

3. Support for capacity strengthening is a potent expression of a foundation’s values and mission, and an effective route to being in a deeper relationship with grantees. 

Increasingly, foundations wish to shift power to, and be in deep relationship with, their grantees by employing trust-based principles in their grantmaking. In “Reevaluating Practices: Reimagining Philanthropy,” the Edward W. Hazen Foundation shares how they tackled this as part of their spend-down strategy. They recommend acknowledging and reassessing the inherent power dynamics in grantor/grantee relationships, resourcing movement organizations at scale, and offering funding for capacity and peer connection, noting that “a funder who cares enough to listen to grantees, learn about their concerns, and invest in their longevity is a true partner.”  

Caring about grantees and treating them as equal partners is a powerful way for funders to make their values statements real, visible and felt. As the high marks given in many foundations’ CEP grantee perception reports can attest, one of the easiest ways to make that happen is to provide organizations with unrestricted funding as well as capacity building funds and resources. 

“I think funders should shift the conversation from ‘return on investment’ to one about values and mission, and what your foundation says about itself in the world, and whether or not what you say about yourself is actually true.”   

— Practitioner

This is not a feel-good tactic. It delivers results for organizations and funders alike. When funders get more proximate to grantees, through understanding their realities and helping them meet their organizational needs, it increases the likelihood for deeper collaboration and honest engagement on their shared goals, leading to more impactful philanthropy overall.

“There is a need for a different, full relationship between philanthropy and its partners. And that’s very exciting. Many of us are exploring how far we are willing to go to truly give up power as an organization, in ways that center the voice of communities – not just in the what, but in the how, and particularly how the money is allocated.”  

— Funder

The importance of capacity strengthening to foundations’ missions is particularly strong among funders whose values include a commitment to racial justice and equity.  Equity in the Center and many other organizations have shown us the ways in which operationalizing equity requires shifts in behaviors, systems, practices and processes within every facet of an organization. This is hard to do without dedicated time, resources and expertise. One practitioner even asserted that “capacity strengthening is the one thing that funders can do now that will help immediately to mitigate race-based disparities and structural inequities.” 

4. Traditional philanthropic practices are at the root of many of the challenges that organizations face. It is incumbent on philanthropy not only to change those practices but to offer specific resources that mitigate their impacts. 

The philanthropic model of short-term restricted funding still prevalent in the majority of foundations contributes to many of the sustainability hurdles that organizations face. Thorough research on the importance of understanding and covering full cost and on the myth of “high  overhead” abounds, including this very thoughtful research and discussion from Arnova and this one from the Nonprofit Finance Fund. Foundations’ reluctance to make multi-year funding commitments can stymie organizations’ ability to plan ahead. Inflexible grant renewal cycles can leave poorly timed gaps in funding. And foundations are generally disinterested in supporting grantees’ endowments or reserves. These funding practices are, each and all, eroding organizations’ long-term sustainability and they contribute to suppressing wages in the nonprofit sector. 

“How would I make the case? I’d zoom out to first point to the nonprofit starvation cycle and how we’re squeezing nonprofits of the ability to be able to run their organizations effectively, by leaving them without the staffing and infrastructure resources they need.” 

— Funder

5. Organizations need this support more now than ever.

Yes, capacity funding should be a regular investment in organizations’ ability to sustain themselves and their programs and to prepare and plan for their future. That said, these investments have a heightened value and importance right now, given all that organizations have navigated in recent years and are still faced with today.  

We know that funders can make changes when the moment calls for it. In response to COVID, many funders loosened up grant restrictions and gave more flexibility for organizations to put their money where it was needed most. And after the murder of George Floyd, many invested more deeply in organizations’ transformation to center racial equity in their programming and operations. However, while CEP’s 2024³ report finds that some of these funder practices are holding strong, others — particularly around funding for racial equity — are losing ground rapidly.  

A return to the status quo would be short-sighted, particularly as current challenges continue to mount. In the midst of a polarizing election year, organizations are facing attacks on policy related to reproductive rights, transgender youth, and even on their own ability to advocate for their communities. These external pressures are even harder to navigate when coupled with internal issues such as managing across generational differences, unionization efforts and leadership transitions.⁴

While these challenges impact all nonprofits, the stakes are particularly high for social justice groups and those led by BIPOC and LGBTQ communities, and even minimal support for their wellbeing and sustainability can be transformational. 

“There’s probably a more eloquent way to say this, but these investments save the lives of leaders. We want our leaders to stay and our organizations to thrive and their leadership teams to thrive.” 

— Funder

Clearly, the case can be made for trust-based capacity strengthening — but how do program staff make it heard — and sustain energy and interest for this work over time and across their institution’s strategy evolutions? 

Having a compelling argument for capacity strengthening is only half of the recipe. Foundation staff spoke to the difficulty of wielding influence and moving change in their foundation (on any issue), citing risk aversion, tightly-held traditions for how things are done, and cumbersome decision-making processes. 

So we asked them to help discern the factors that maximize the chance that the arguments for capacity funding will be heard and stick. Their responses mirrored the much-researched key tenets of effectively managing change: creating awareness and energy for it, having a clear plan, communicating often, addressing the head and heart, finding early adopters, allowing for resistance and debate, and ensuring sufficient resources to make it happen. 

Their examples of how these success factors for change play out in making the case for capacity strengthening were similar across foundation “types,” regardless of their mission, culture, size or history. They include:

• Knowledgeable staff who are talking about capacity all the time, keeping it front and center and ensuring it becomes part of the foundation’s language and culture.  

• The support of philanthropic peers via learning communities and affinity groups committed to evolving practice, and access to philanthropic support intermediaries with research, tools, training and advising services.

• Resolute, convinced leadership and trustees — even just one or two — championing this work at the highest level.  

• Foundation trustees and staff who are proximate to the work and can speak to the need for the shifts directly, often owing to their direct experience as leaders of organizations or movement groups, and/or experience with structuring capacity strengthening. 

• Board members and foundation leadership who trust the staff they have hired to imagine and organize new directions and new work, without second-guessing them or demanding evidence beyond the testimony of organization leaders. 

• Information and stories about impact and new practices directly from organization leaders holds more weight than any amount of evaluation data and can be even more powerful when complemented by stories of peer foundations that are investing in capacity, and doing so in new ways.    

Finally, a good number of the foundations we interviewed emphasized that moving this work internally has required skilled “case-makers” within the foundation, who were able to apply empathy, and powerful subtle organizing and influencing skills, in bringing their colleagues along.

“We had committed leadership for our capacity program, but getting ‘the case for it’ embedded broadly throughout, we needed skilled empathetic people on our team to work with all the foundation’s teams intensively and walk them through every element of the change. We needed to know when to exercise soft power. Then we needed to follow up with clear policies, procedures and rules. Both were needed.” 

— Funder

1. 73% of nonprofit executives feel they do not have the resources they need to develop their own leadership, and they say this is one of the top three challenges they face that their funders don’t understand. Fund The People – https://fundthepeople.org/toolkit/casemaking/myths. ↩︎
2.  73% of nonprofit executives feel they do not have the resources they need to develop their own leadership, and they say this is one of the top three challenges they face that their funders don’t understand. (Source: Fund The People – https://fundthepeople.org/toolkit/casemaking/myths).  ↩︎
3.  “State of Nonprofits 2024: What Funders Need to Know,” Center for Effective Philanthropy, (Finding 3, pgs 20-21) https://cep.org/wp-content/uploads/2024/05/NVP_State-of-Nonprofits_2024.pdf ↩︎
4. “Building Resilient Organizations,” by Maurice Mitchell, in The Forge, November 29, 2022 https://forgeorganizing.org/article/building-resilient-organizations  ↩︎