First you, then us

Mission Paradox has a good post about the basics of foundation funding:

Say I have $100,000 want to start a foundation with it.

Someone will take that $100,000 and invest it.

Assume those investments get me a 10% return on my money, or $10,000.

That $10,000 is the money I'm going to give back to nonprofits in the form of grants.

If you're like most foundations, though, chances are you're going to put $5000 of that $10k back into the pile because the Feds say you only have to use $5000 (5%) for program activities - including grants. But guess what? You can also call your admin costs "program expenses." So you're going to use about $1000 for that. Now you have $4000 to grant out.

Most foundations base their giving on a 2-3 year average of their investment returns.

This means that the horrible economy of the past year or so hasn't really been reflected in the amounts that foundations give to grantees . . . yet.

But it's coming, so be prepared it.

Assume that in the next 2-3 years foundations are going to do some combo of the following:

1. Reduce the amount they give to current grantees

2. Reduce the amount of new grantees they allow in

3. Change their giving guidelines so that they are more focused in their giving.

In a bad year, the percentage return on the foundation nest egg will go down - but guess what doesn't - that's right - the foundation's administrative payroll. Remember, when the hard times come foundation cost-cutting works like this - "first you, then us." They'll keep their staff and infrastructure by reducing grants to the field.

If you're in the arts, probably 85% or more of your contributed funds come from individuals and maybe some corporations. Spend at least 85% of your time developing those relationships instead of a lot of time tracking down elusive and erratic grant funding.