Every enterprise, regardless of tax status and business model, requires two types of funding: capital and revenue. The difference between Enterprise Capital and general operating support parallels the crucial difference between equity capital and revenue: equity builds infrastructure and organizational capacity, while revenue, either earned or raised, supports ongoing operations.

General operating grants typically target the income statement to provide a reliable source of revenue to fund operations or the delivery of programs and services. Enterprise capital bolsters the balance sheet and overall net asset position, providing funds, including cash, for investment wherever the organization needs it. A strong balance sheet offers a stable foundation for program expansion and innovation, and it helps attract additional funding from other grantors and lenders.

In summary, Enterprise Capital highlights balance sheet strength as a necessary ingredient for stability and growth, and works as a companion to general operating grants. Together, these two types of funding can ensure that nonprofits have both the revenue and the net asset position they need to achieve their missions.

The practice of Enterprise Capital grantmaking adheres to the core values of trust-based philanthropy: lead with trust, center relationships, collaborate with humility and curiosity, redistribute power, and work for systemic equity. Enterprise Capital prompts a reimagination of the relationship between funders and nonprofit grantees as one of partnership and mutual accountability. To provide Enterprise Capital effectively, funders must lead with humility and introspection, confront the harmful practices of philanthropy, and engage with nonprofit grantees in a collaborative manner.

The promise of Enterprise Capital doesn’t rest solely on matching the sources and uses of funds. Realizing the full value of funding also requires that sources and uses of capacity-building services closely match a nonprofit’s needs, ambitions, and business model. The term “capacity-building” doesn’t suggest nonprofit-sector weakness or a lack of the human capital it needs to succeed. Rather, it underscores the importance of access to the right talent to support growth and solve the complex challenges inherent in ambitious visions.

​To increase effectiveness, an Enterprise Capital investment should come with an assessment of how a nonprofit's business and financial models drive its impact. This assessment helps the nonprofit understand where it can use funding most productively and where it would benefit from building new types of capacity. The assessment can help direct delivery of technical resources, board leadership, and training to support implementation of the business model, guide evolution of the financial model, and inform which professional development opportunities to provide to staff members.

The practice of Enterprise Capital overlaps with Venture Philanthropy by applying principles of for-profit equity investing, such as taking a proactive role as an investment partner and offering non-financial support to organizations, including networking, marketing, and back-office services. However, Enterprise Capital grantmaking does not emphasize funder engagement in nonprofit management, operations, or governance. Enterprise Capital strategies also do not require nonprofit organizations to be highly scalable. In fact, many nonprofits are more sustainable and can achieve greater impact by remaining relatively small and nimble. In addition, Enterprise Capital funders approach grantees as issue area experts; therefore, the underwriting process does not place an undue burden on nonprofit leaders to shift their strategies or adapt to funder interests. Funders work collaboratively with grantees to provide financial support and facilitate access to appropriate capacity building resources that enable nonprofit leaders to realize their vision.

An investment of Enterprise Capital lets nonprofit leaders spend more time pursuing their mission and less on meeting funder requirements. Philanthropic funding often forces nonprofits to compromise their missions, because the time and resources spent managing funder demands detract from the direct pursuit of an organization’s impact goals. Many nonprofits scramble to raise capital from multiple sources; meeting the varying requirements of many funders fragments nonprofit organizations' efforts, distracts their focus, and requires management systems for which philanthropy rarely pays.

Enterprise Capital represents a long-term, unrestricted investment in stability and growth. It provides the foundation for program innovation and helps attract additional equity and debt investments, without imposing the demands on staff capacity that come with highly fragmented funding. Viewed this way, Enterprise Capital actually aligns better with the priorities of high-impact nonprofit leaders than "business as usual." When an organization spends less time managing the intricacies of fundraising and reporting requirements, talented nonprofit practitioners have more time to think strategically about and execute their work.

Enterprise Capital helps funders in the same way it helps nonprofits: by letting them focus more clearly on mission. The structural demands of nonprofit capital markets require nonprofits to “reverse engineer” their efforts to meet funder demands; reducing those burdens frees up capacity to deliver impact.

Rodney Christopher, director of philanthropic services at Fiscal Management Associates, argues that enterprise capital allows high-impact leaders to think bigger: “The success of using philanthropic equity actually requires organizations to be strong and healthy. Surpluses are in fact necessary.” Equity-like investments also create a powerful alignment of interests between organizations and funders, and the long-term commitment can also allow for more comprehensive measurement of social return on investment.

We can’t say for sure, because no data source yet tracks who provides Enterprise Capital, how much is available, or how much has previously been given. That makes measuring the current state of Enterprise Capital difficult. From the data currently available, we know that larger foundations report that they target 72% of their grants for specific purposes.

Abundant anecdotal proof demonstrates Enterprise Capital’s effectiveness as a tool for strengthening and supporting nonprofit impact, including the stories of four organizations profiled in The Blueprint for Enterprise Capital's case studies. Yet we also know that these practices haven’t yet been brought to scale in any meaningful way. The Blueprint calls on every funder and investor to evaluate its current portfolio and grantmaking practices to assess the opportunity to incorporate Enterprise Capital and determine which grantees might benefit most from this approach.

Enterprise Capital can make a big difference in addressing the racial wealth gap. The choices funders make about how to structure and invest financial equity have enormous implications for advancing or impeding racial equity more broadly. Numerous researchers, philanthropic experts, and racial justice leaders have documented the disparity in funding between organizations led by white people and those led by people of color. It should come as no surprise that the racial “net asset” gap in the nonprofit sector mirrors the racial wealth gap documented at the household level. Enterprise Capital deliberately operates to bolster the “wealth” of nonprofits led by and serving low-income communities and communities of color.

Appendix A in The Blueprint for Enterprise Capital presents a full primer outlining a step-by-step process for funders to use in designing and implementing an Enterprise Capital approach. It boils down to three key elements:

1) Simplify: Provide more flexible and less restricted capital at the enterprise level.

2) Integrate: Align sources of funds, uses of funds, and capacity-building services to strengthen performance and impact.

3) Collaborate: Reduce reporting requirements, create common metrics and covenants, and fund collectively.

The simplest way to begin to learn more about how Enterprise Capital can add value to your philanthropic practices or your nonprofit is to sign up on Capitalize Good’s website to become part of our learning community. We offer many resources that explain what Enterprise Capital is, including case studies that illustrate the impact of Enterprise Capital on nonprofit organizations.

Funders have many ways to advocate for Enterprise Capital. Explore how you can integrate Enterprise Capital principles into your grantmaking or how you can launch an Enterprise Capital Fund in your community with other philanthropic colleagues. Ask the Capitalize Good team to train your staff on how Enterprise Capital can support your grantees, including lessons on how to integrate finance into your philanthropy to advance the financial sustainability of your partners. Finally, recommend that sessions on Enterprise Capital are part of any programs or conferences hosted by your trade association or other philanthropic communities to which you belong.

Nonprofits can begin by assessing how their business model is driving their financial operations and sustainability -- or lack thereof. Consider commissioning a financial and/or revenue assessment from Capitalize Good and our partner 20 Degrees to frame out both a capitalization and revenue diversification strategy. Approach your trusted funders to explore why Enterprise Capital can enhance both your impact and their social returns. If appropriate, consider launching an Enterprise Capital Campaign to secure major financial resources. Recommend that sessions on Enterprise Capital are part of any programs or conferences hosted by your trade association or other practitioner communities to which you belong.