The Backstop: An Underused Tool for Overcoming the Chicken and Egg Challenge
Nonprofits and their funders know this challenge all too well—an organization has a great idea, so they begin to seek capital from funders or foundations. They hear the same answer regularly – “It sounds like a great idea. Come back to us after you’re further along.”
This presents a chicken and egg problem – the organization cannot secure funding until they launch the project, but they cannot start the project until they secure funding. This dilemma has proven especially difficult as nonprofits have struggled to raise money during a global pandemic. During moments of uncertainty, finding creative solutions to funding challenges is even more necessary.
Last year, the Council on Foundations issued a call to action urging philanthropy to commit to practices that support the long-term success of nonprofits, including loosening or eliminating restrictions on current grants, reducing reporting requirements and communicating proactively and regularly with grantee partners. In addition to committing to these baseline practices, according to a study by The Council on Foundations, Dalberg Advisors, and Philanthropy California, in the face of the crises of 2020 some funders also experimented with other creative approaches to funding, such as initiating or expanding mission-related investments and/or turning to debt financing options, such as issuing bonds.
One creative tool that the Mayberg Foundation found to be particularly effective was to fund an initiative as an early investor and mitigate risk by providing a “backstop” rather than (or in addition to) making a grant. Backstops serve as a guarantee, or funding of last resort, a type of “insurance” in case the full amount of funding is not raised for a project. They give a funder the opportunity to offer a safety net with the confidence that the organization will raise the money over a realistic, specified period of time. It also gives visionaries an opportunity to initiate programs and build successful track records, which they then leverage to secure additional funding. Managed well, including a hands-on approach in interactions, expectations and follow-ups to ensure accountability, this can be an effective tool for getting a new program off the ground.
The Mayberg Foundation successfully implemented a backstop in its funding of the Jewish Learning Initiative on Campus (JLIC), a program of the Orthodox Union (OU) that places rabbinic couples on college campuses in North America to serve as Torah educators and role models. When JLIC wanted to expand their programming to the IDC Herzliya campus in Israel – their first international campus – the Mayberg Foundation offered a grant plus a backstop so they could build a track record while seeking other funding sources.
In addition to mission alignment, clearly defined needs, goals, outputs, outcomes and a realistic fundraising plan, trust was vital on both sides. The Mayberg Foundation already had confidence in the self-motivated JLIC personnel and program model, as they had already seen it to be proven and successful on other campuses. The Foundation saw that their non-donative revenue was predictably solid, as they collected fees consistently from memberships and programs. This gave the Foundation confidence that JLIC would be less dependent on other major funders over time. Additionally, the organization was backed by a larger nonprofit, with which the Mayberg Foundation has an established relationship – underscoring a sense of trust.
At the same time, JLIC was clear that their goal was not to use the ‘insurance plan’ they had been given with the backstop; but instead to use it as wind behind their backs to accelerate the program launch and fundraising efforts.
In interviews about the backstop with the director of JLIC in Israel, Rabbi Jonathan Shulman related that this trust paid off. “A lot of the independence and the confidence that they gave us spilled out into the actual character and nature of the program in the community,” he said, also noting that they would not have been able to start without the help of a backstop, as they had tried fundraising, unsuccessfully, prior to receiving that assurance from the Mayberg Foundation.
The guarantee of funding proved successful, both quantitatively and qualitatively. The JLIC community on campus grew beyond expectations, from 80 to 400 people in four years – exceeding initial goals, becoming a well-known draw for prospective and current students. Nathaniel Mayberg, a rising trustee of the Mayberg Foundation and then IDC Herzliya student, who became involved in the fundraising efforts at the grassroots level, added, “It’s very cool hearing people say, ‘I came here because I heard there was this nice community.’”
While the backstop helped to launch the project and the organization secured outside funding to get the initiative off the ground without tapping any backstop funds, it does not guarantee that an organization can easily secure funding beyond launch. According to JLIC leader Margot Botwinick, even after four years of running the program, they are still working to secure a stable donor base and are still reliant on grassroots donations – a challenge for many organizations.
What can we learn from this backstop approach? If funders are creative with their approaches, such as a backstop, they can give proven projects or organizations the boost they need while being disciplined about how the money is used and following up on the execution of the plans in play.
According to Mayberg Foundation executive director Todd Sukol, a simple shift in mindset such as a backstop can transform the effectiveness of the philanthropic field. True partnership, plus a results-driven mindset, he maintained, can propel a paradigm shift that could result in a higher likelihood of returns on investment and, more importantly, impact.