Funding plateaus at the mezzanine level

Jacob Berkman, The Fundermentalist

Funding plateaus at the mezzanine level: Over the past several weeks, the waters have been churning over whether the Jewish community invests enough money in start-up nonprofits.


Much of the debate has focused on the incubators, like the newly reformed Joshua Venture Group and Bikkurim, which try to help social entrepreneurs get their new initiatives off the ground. Some have questioned whether they actually offer enough cash to make starting a new a viable proposition for anyone who either isn't independently wealthy or willing to live in squalor during their nonprofit's infancy. But after speaking with a half-dozen alumni of those incubators -- people who have started some of the organizations that are now seen as darlings of the Jewish innovation field -- there is a serious undercurrent to this conversation.


With only one exception, each said that the real threat to Jewish innovation is that young .orgs cannot find so-called "mezzanine funding," the dollars that can secure an organization's long-term existence.


The interesting part of this is that the half-dozen funders with whom I spoke acknowledged the issue and also consider it a problem.


While 10 years ago it was tough to get funders into a new idea, now it seems they are addicted to the new and sexy, with the donor attention span often only lasting three years. After that, many donors just move on to something else newer and sexier.


For an organization past the startup phase, finding a donor for what was once someone else's philanthropic baby -- even for organizations that have proven their value and viability -- can be near impossible.


"It's terribly unfortunate, because these organizations need funding for ongoing growth," said Rabbi Jennie Rosenn, Program Director for Jewish Life and Values at the Nathan Cummings Foundation. "Our trustees have been very understanding that long term social change and the transformation of the Jewish community takes sustained funding. But it's a hard concept for many because it flies in the face of wanting something new and exciting. The challenge is that we need to be looking at funding holistically as a Jewish community."


The conversation among funders on the lack of second-level funding has clearly started, if only informally, and we could see an actual policy shift within the incubator system in the near future.


Nina Bruder, the executive director of Bikkurim, said that when she wrote a piece in the journal Sh'ma several years ago calling for more mezzanine funding -- before the economic downturn and before Bernard Madoff -- it went largely ignored.


Now, however, her organization is thinking seriously about how to spur second-stage funding.


"The Jewish community just doesn't know how to service these groups," Bruder said. "We want to spearhead a research undertaking to really understand and learn what are the options for an organization that has a strong program that is gaining traction and resonating with participants, and what it means to go to scale... How much money is needed? How can they grow past the start-up phase and grant dependency? We have never really looked into it. Some of this is known outside the Jewish community. But we want to bring it into the Jewish community."


Fundermentalist Take: I'll have a broader story on this at in a few days, and probably more on The Fundermentalist blog in order to get as many voices out there as possible.


For now, one of the more interesting ideas that I have heard came from Mark Charendoff, the president of the Jewish Funders Network.


On the one hand, Charendoff said he feels that some of the problem with mezzanine funding lies with the nonprofits themselves. Funders want to fund these projects because they involve less risk than straight start-ups. But, he said, in many cases the .orgs have not figured out how to tell their story well enough to potential donors.


"I think there are plenty of foundations happy to provide mezzanine funding," he said. "I just don't believe [the young organizations] are making the right case."


When an organization is in start-up mode, people can sell it as initiative that will change the Jewish world. But once it becomes more established, it tends to talk more in terms of how it can survive. Organizations need to keep alive that entrepreneurial spirit, Charendoff said, and figure out how to keep talking in terms of causing change.


The really interesting part came next: Charendoff's organization has pushed the notion that innovation and start-ups are the domain of the foundation world, while established organizations look to federations and public charities for funding.


Yet, the JFN leader said, perhaps something of a role reversal might work best: Federations have seen their income shrink in recent years, while foundations are still flush with cash, despite the recession. Because start-up costs for organizations are relatively cheap, perhaps the Jewish federation system could become the mechanism through which innovation is funded in its infancy. And, maybe, once organizations get up and running under the care of the federation system, the foundation world could pay for the more costly second stage and late-stage funding?