Part 4 in our series on private philanthropy's obligation to support high-impact nonprofits.

Institutional foundations have a problem: they, like much of the nonprofit sector, are optimized for avoiding mistakes, rather than generating impact. Committee structures, risk-averse boards, and bureaucratic processes create institutions that are excellent at avoiding embarrassment but terrible at solving problems. As the adage goes, nobody ever got fired for avoiding failure. Of course, being unwilling to fail usually means you’re not succeeding to the extent you could be.

What does this mean in today’s political climate? While nonprofits struggle with declining government funding and individual donors who fear an uncertain economic future, many foundations prefer to grow their endowments while minimizing deployment. 

They continue to fund safe, established organizations doing incremental work rather than taking calculated risks on innovative approaches or emerging organizations with the potential to drive transformational change. 

The irony is, in trying to avoid risk, they’re guaranteeing that the problems they claim to care about will persist because they refuse to fund solutions that might fail. Now, we’re not suggesting that foundations become reckless with their spending - but with year-over-year grant renewal rates north of 90% industry-wide, there’s next-to-no funding available for innovation.

If you're working at an institutional funder, and tired of making grants that feel more like charity than strategy, here are a few tips for transforming your approach from risk mitigation to impact creation.

The Committee Problem (And Why Your Board Structure is Broken)

Most institutional funders make decisions through committees, which sounds responsible until you realize committees are designed to find reasons to say no, not reasons to say yes. When five people need to agree on a grant, the safest decision is always to fund the established organization doing predictable work. Compounding this problem is the fact that most of these committees are made up of the foundation’s top donors, who are typically not subject-matter experts, and thus ill-equipped to make bold, and data-backed grantmaking decisions without help.

This creates what philanthropic insiders call "the paradox of institutional giving": the organizations that most need support—emerging nonprofits, innovative approaches, marginalized communities—are exactly the ones that can't survive committee-based decision-making. 

Some foundations attempt to get around this issue by creating special innovation grants for scrappy young orgs, but many of these are structured as reimbursement-only, which is ultimately self-defeating. A volunteer-run startup organization can’t spend money they don’t have, and therefore, can’t claim reimbursement money they’ve been promised, but that’s a story for another day.

The real cost of committees: While your board debates the risk of funding a promising but unproven organization, that organization either finds funding elsewhere or stops existing. Your "prudent" process becomes someone else's missed opportunity.

What works instead: Empower program officers to make smaller grants quickly, reserve committee approval for only the largest grants, and create clear criteria for what constitutes an acceptable risk rather than debating risk tolerance case by case.

Five Ways Institutional Foundations Can Stop Playing Defense

1. Fund Capacity, Not Just Programs (Like You Actually Mean It)

Every foundation claims to support capacity building, but most still allocate 80% of their grants to specific programs. This is like buying someone a car but refusing to pay for gas, insurance, or maintenance—technically helpful but practically insufficient.

The capacity investment that actually matters:

• Technology infrastructure that allows organizations to operate efficiently

• Leadership development for nonprofit executives who are drowning in operational demands

• Organizational systems that enable nonprofits to scale their impact

• Emergency reserves that provide stability during funding fluctuations

Institutional foundation advantage: You have the resources to make capacity investments that smaller funders can't afford. A $500,000 capacity grant might seem modest to you but can transform an organization's effectiveness.

Implementation strategy: Require that 30% of your grantmaking goes to capacity building, and track outcomes based on organizational strength, not just program metrics.

2. Make Multi-Year Commitments (And Honor Them)

The nonprofit sector is littered with "multi-year" grants that got canceled after year one due to budget constraints, strategy changes, or new leadership priorities. Agility is crucial for young organizations, and this effectively handcuffs them - forcing them to plan conservatively and build minimal organizational capacity since funding could disappear at any time.

True multi-year funding means:

• Legal commitments, not just intentions

• Built-in cost-of-living adjustments

• Renewal conversations based on organizational development, not just program metrics

• Clear, transparent criteria for what would trigger funding changes

Why institutional foundations fail here: Most have annual budgeting processes that conflict with multi-year commitments. Fix your internal processes to support external commitments.

The accountability question: Yes, some organizations will underperform. Build evaluation and support systems to help them improve rather than defaulting to funding cancellation. To really maximize impact, incorporate an expected value analysis into your grantmaking.

3. Support Policy and Advocacy (Without Apologizing for It)

Many institutional foundations avoid policy and advocacy work because it feels "political" or risky to their reputations. This is strategic malpractice. The biggest problems foundations claim to address—inequality, climate change, health disparities—require policy solutions, not just service delivery.

Legal reality: Foundations can fund substantial advocacy work as long as it's not lobbying for specific legislation or supporting political candidates. The legal boundaries are broader than most foundations assume.

Strategic advocacy investments:

• Policy research that provides evidence for effective solutions

• Advocacy organizations working on systemic change aligned with your mission

• Civic engagement efforts that strengthen democratic participation

• Movement building that creates political will for change

The reputational consideration: Being criticized for funding advocacy is less damaging than being irrelevant because you only funded Band-Aids.

4. Take Geographic and Issue Risks

Most institutional foundations concentrate their giving in established nonprofits in major metropolitan areas, avoiding rural communities, smaller cities, and emerging issue areas. This geographic and thematic conservatism limits impact and perpetuates existing power structures.

Geographic diversification strategies:

• Fund organizations in underserved communities where foundation dollars can go farther

• Support regional nonprofits that understand local contexts better than national organizations

• Invest in communities recovering from economic transitions or environmental challenges

Issue area expansion:

• Fund work at the intersection of your current focus areas

• Support emerging issues before they become mainstream philanthropic priorities

• Invest in prevention rather than just treatment of social problems

The innovation imperative: The most effective solutions often come from unexpected places and unusual approaches. Your job is to find them before everyone else does. Use platforms like Altruous to help surface these opportunities and understand the context in which they work.

5. Embrace High-Integrity Philanthropy, and Build a Culture of Learning

Institutional foundations often treat evaluation as compliance rather than learning. This creates elaborate reporting requirements that waste nonprofit time while generating data that doesn't improve decision-making or impact.

High-integrity evaluation focuses on:

• Collaborative metrics development with grantees

• Understanding context and community needs, not just organizational outputs

• Learning cycles that improve strategy for both funder and grantee

• Data collection that serves strategic decisions, not just board presentations

Implementation approach:

• Spend time in communities where your grantees work

• Ask grantees what data would help them improve their work

• Share evaluation findings across your portfolio to promote peer learning

• Use evaluation to improve your grantmaking strategy, not just to judge grantee performance

The Regulatory Environment (And Why It's Your Friend)

Some foundation leaders worry that increased scrutiny of charitable sector tax benefits will constrain their operations. The opposite is true: foundations that can demonstrate clear impact and community benefit will thrive under increased accountability, while those that can't will face pressure.

The strategic opportunity: Position your foundation as a leader in effective philanthropy by adopting high-integrity practices before they're required. This builds credibility with policymakers, and trust with peers, donors, and the general public.

Practical preparation: Document your impact measurement systems, community engagement practices, and decision-making processes. Transparency becomes a competitive advantage when accountability increases.

Your Implementation Plan (If You're Ready to Lead)

Moving from risk-averse to impact-focused grantmaking requires specific organizational changes:

1. Evaluate your decision-making speed. How long does it take from application to grant award? If it's more than 90 days for established grantees, you have a process problem.

2. Analyze your funding distribution. What percentage goes to capacity building, multi-year commitments, and advocacy? If the total is less than 50%, you're playing it too safe.

3. Assess your risk tolerance. When did you last fund an organization that ultimately failed? If you can't remember, you're not taking enough risks. Normalize failures, and turn them into learning opportunities.

4. Review your geographic and demographic patterns. Are you funding the same types of organizations in the same communities repeatedly? Diversification reduces risk, it doesn't increase it.

5. Examine your evaluation practices. Do you learn from your grants, or just measure them? Learning requires different data and different relationships.

6. Look for synergistic funding opportunities, even if they fall outside your core mission areas. Many education organizations also build wraparound services like clean water projects, nutrition programs, and health clinics, in order to help students maximize their attendance and ability to focus during class. What additional programs can you fund that will help your existing portfolio have greater impact and efficiency?

The Urgency of Now

The confluence of social challenges, political uncertainty, and economic pressure creates an environment where incremental grantmaking is insufficient. The problems you're trying to address are accelerating faster than the solutions you're funding.

Institutional foundations have resources and credibility that other funders lack. You can take risks that individuals can't afford and make commitments that corporations won't sustain. But these advantages only matter if you use them.

The Choice

Every institutional foundation faces the same fundamental choice: optimize for avoiding mistakes or optimize for creating change. You can't do both.

The safe grants you make to established organizations doing predictable work might protect your reputation, but they won't solve the problems that justified your tax exemption in the first place.

The risky grants you avoid making to innovative organizations trying new approaches might have failed, but some of them would have succeeded in ways that safe grants never can.

The biggest risk isn't funding an organization that fails. The biggest risk is failing to fund the solutions that could work.

__________

Check out Part 5 of our series: How corporate CSR can move beyond employee feel-good activities to drive real social impact (and why most programs miss the mark).

Altruous provides institutional foundations with the research and analysis needed to identify high-impact opportunities while maintaining fiduciary responsibility. Our platform helps foundations balance risk and impact by providing comprehensive data on nonprofit effectiveness, community context, and strategic opportunities. Because responsible philanthropy requires informed risk-taking, not risk avoidance.