Capital Gain

tree_150.gifWhen staff at the nonprofit YouthNoise decided to revamp their website as a social networking tool for activist-minded youth, they knew they would need a lot more money, and fast. Raising funds piecemeal was far from ideal—it would take resources away from launching the new site, and would slow the process at a time when social networking sites for youth, like MySpace and Facebook, were all the rage. So the investment group Omidyar stepped up, helping them devise a plan to secure funding upfront and in one swoop. In a pioneering move, Omidyar drew from a strategy more common to start-up businesses, applying a venture capital approach to funding the nonprofit.
In a style typical at for-profits, Omidyar, along with the Surdna Foundation, pitched YouthNoise’s new initiative to a group of corporations and foundations interested in social investment. It paid off—YouthNoise raised over $1.5 million in their first round. Five-hundred thousand of that went to the organization upfront, said Vince Stehle, program officer of nonprofit sector support at Surdna, and YouthNoise is slated to receive increments of the remaining one million dollars as they reach additional fundraising benchmarks.
The money has allowed YouthNoise to hire staff who can spend their time and resources working on the new initiative, instead of continuing to fundraise the old-fashioned way—tweaking grant proposals and meeting with foundations and corporations year-round. “Most nonprofits are funded differently than for-profits, and live hand-to-mouth without the capital to sustain growth,” explained Omidyar investment manager Dena Jones Trujillo in a press release. “By funding YouthNoise like a venture deal through a formal round, and conducting the same amount of due diligence, the consortium of investors is providing YouthNoise with the upfront resources to be self-sufficient.” For YouthNoise, self-sufficiency means eventually generating enough money to cover operating costs through channels such as finding corporate sponsors, or selling products over the web.
Staff at YouthNoise believe their latest fundraising approach is a viable protocol for other non-profits looking to secure money upfront to grow. Stehle from Surdna agrees. He has seen this “syndicate strategy” work for a number of nonprofits, including Guidestar, Network for Good, and Volunteer Match. “It’s a growing trend for a handful of select nonprofits that need expansion capital,” said Stehle.
Not only is it more efficient for an organization to pitch multiple foundations simultaneously, said Stehle, it also creates a “healthy dynamic” whereby the nonprofit has the opportunity to lay out their plans and make their case to a group of funders rather than responding to several different funders’ own plans “and having each funder say ‘this is our strategy, what can you do for us?’”
And funders tend to be more comfortable investing in a new and costly initiative when they’re not going it alone. “From the funders’ perspective, if we see each other getting in we can all join together and know our strategy isn’t going to be orphaned if we don’t complete the round,” explained Stehle, calling it “a strength in numbers” approach.
But Stehle as well as YouthNoise CEO Ginger Thompson acknowledge that it is not going to be the right approach for every organization, project, or funder. Thompson said this approach to fundraising works best for nonprofits that already have a proven track record and are planning to launch a new initiative. It is not useful for simply maintaining a program.
It also works best for organizations who reach many young people, as groups investing large sums of money to help nonprofits grow expect the organizations to eventually become self-sufficient, often through generating what’s known as “sustainable revenue,” whether it be through selling T-shirts on the web, or through corporate sponsorships. If a group wants to grow larger they need to be able to prove they have the capacity to stay larger, explained Stehle. It is no accident that the other nonprofits Stehle has helped use the “syndicate strategy approach” successfully—Guidestar, Network for Good, and Volunteer Match—are, like Youth Noise, “consumer-facing online enterprises,” that have the potential to reach large numbers of web surfers.
Thompson is nudging YouthNoise toward self-sufficiency by pitching the 113,000 teens who are members on the YouthNoise site as a valuable resource for businesses wanting to better understand youth or interact with them, or to partner with young people interested in activism. Instead of asking for handouts from groups investing in the site, explained Thompson, YouthNoise is researching ways in which they can benefit companies interested in social investing. The nonprofit has already partnered with Virgin Mobile to help raise awareness of homeless teens. For groups like Virgin Mobile, says Thompson, YouthNoise presents an opportunity to touch millions of young people who are eager to engage in social causes. It also helps young people associate the partnering companies with hip social responsibility, an affiliation that is becoming increasingly attractive to youth, nonprofits, and businesses alike.

The nonprofit YouthNoise raised $1.5 million using an investment strategy more common to for-profits. Can it work for other youth media groups?