by Andrés Spokoiny
A few months ago, the Jewish Funders Network organized a series of events to discuss the “JDub case,” how as a community we support organizations as they transition from new and exciting to what we call the “mezzanine” stage of funding. JDub was a great organization, producing contemporary Jewish music and art, and it became the poster-child for young adult engagement in the Jewish Community: innovative, cool, grassroots, refreshing. It was the model start-up”, the organization that couldn’t fail.
And yet, it did.
Recently, a number of foundations announced $6 million in grants to fund Moishe House’s expansion. That is great news. Moishe House is a great organization. It’s innovative, cool, grassroots, refreshing. The poster-child for young-adult engagement in the Jewish community.
This new funding is great news for Moishe House, of course, and for the people it serves. But the way the funders are approaching the mezzanine funding issue this time is even better news for the Jewish Community as a whole. It shows that funders have learned the lessons of the past and are developing a strategic approach to fund expansion and build a supportive “second stage” for successful start-ups.
As funders, we love starts-ups. We love the energy, the innovation, and we love discovering and funding a great idea. The problem is that we also lose interest. We move to the next big thing and we sometimes fail to see that that the start-up’s crucial phase is not its inception, but its consolidation.
It makes no sense to fund a great idea if then we let it collapse due to lack of follow-up funding. It also makes no sense to have a great creative CEO spending 90% of her time fundraising instead of running the organization. It’s a paradox of our own making: on the one hand, we encourage these organizations to grow and to expand, but we won’t fund that expansion. Even worse, we sometimes fund expansion but then cut funding for core operations. We help startups expand into new domains, but force them to cannibalize the “old” programs that made them successful in the first place.
A lesson from JDub became clear: funders lacked a logic model on how to fund the second phase of startups. Which should be left to die? Which should be supported into the second phase? What does that support look like? With Moishe House, we may finally be finding an answer. Good strategic expansion funding allows the organization to focus on what they should be doing: serving their clients and members.
For non-profits, “sustainability” is a tricky concept. Too often, funders push organizations to develop other sources of funding and become self-sustainable when the truth is that most nonprofits never could be. Other revenue streams might help, but our grantees will always rely on donations and grants to survive and grow. In the new case of Moishe House, we seem to recognize this point: the funders of this project speak about “long term viability” rather than “self-sustainability”.
This collaboration of funders (also good news, and more on that below) understands that tying funding to an elusive and improbable goal is unrealistic and detrimental. There’s no commitment to fund forever, but at least they have a more realistic look at the revenue options available for the organization. And they’re not just writing checks. They are getting involved in developing a strategic plan for this second phase expansion. The funders don’t pretend to know Moishe House’s business better than them, but they’re accompanying the process, creating a “brain trust” that ends up benefiting the organization greatly and building long term commitment to its success. From both Moishe House and the funders, there was willingness to be each other’s strategic partner.
And the funders are doing this in a collaborative way. Jim Joseph Foundation, Schusterman Foundation, Leichtag Foundation, Genesis Philanthropy group and the Maimonides Fund – all of them prominent JFN members – are working together with a holistic strategy. Although decisions to fund are independent, they are following a convergent strategy. From the proverbial 30,000 feet, there’s a consistency in how these funders are approaching the issue of second stage funding. As we say repeatedly at JFN, collaboration among funders is the key to maximizing impact and scaling success.
Yes, many other organizations deserve to be funded in their “second stage” and not only “Moishe House”. But the fact that we can’t solve all the world problems at once shouldn’t prevent us from solving one, and this is a great case where “smart funding” is taking hold in the Jewish Community.
And now the cautionary notes. (We are Jewish after all… if everything is good news, something is wrong!):
While it’s great that we are learning to deal with the “second stage” problem, we shouldn’t simply trade it for a “third stage” problem. When we fund expansion we need to know how the final revenue model looks. We shouldn’t just delay the problem until later. That doesn’t mean pushing for unrealistic goals like “self-sustainability based on service fees”. If we do that as funders, the only thing we’ll achieve is motivating non-profits to lie to us and tell us what we want to hear. We need to have a conversation about healthy revenue models that include anything from grants – from diverse sources – to fees, to board contributions. We need to push for consistency between mission, programmatic vision and revenue model. We need to help nonprofits clarify their value propositions and align their strategies in a consistent manner.
Second, as a community of funders we need to leverage this experience into a logic model for startup expansion. It is fine to say that not every ‘startup’ will make it to the second stage. After all, that’s the essence of the venture capital model. Some will survive and thrive, some won’t. But we also need to be clear that, success isn’t as clear-cut as in the commercial ‘high-tech’ start up world. In the nonprofit sector, and even more specifically in the Jewish community, it involves a higher degree of subjectivity. We need more clarity regarding parameters of success and a conceptual framework to guide us as we analyze which startups need to be supported into their second stage.
Third, as always, flexibility is key. As Moishe House, or any second stage organization, progresses in its expansion and implements new programs, it should be learning a lot and that learning needs to be integrated in its strategy. For that, its strategic framework – and that of the funders – needs to be flexible and adaptable so as to capitalize on the lessons learned during implementation.
Finally, funders need to recognize that in today’s complex world there are no “single bullets” anymore. This is particularly true in the area of ‘young adult engagement’ in which the theory of ‘one size fits all’ is long gone. True, funding too many organizations creates dispersion, duplication and eventually waste, but funding too few restricts options for young Jews who demand variety. Funders need to find equilibrium between concentration and dispersion, between focus and wide impact. That equilibrium is a moving target. In this case, it’s important to recognize that Moishe House is part of a much wider ecosystem. And we learn from nature that every ecosystem needs diversity to thrive. Moishe House contributes to and benefit from a vibrant community environment. Funders need to foster diversity, but also – in this particular case – help Moishe House engage with its ecosystem in a healthy and mutually beneficial way.
As a community, the difference in transitions for JDub and Moishe House show that we’re turning a corner, but strategic funding is a tricky and elusive art. If we’re serious about to maximizing impact and producing meaningful change in the world, we have to keep these lessons in mind.
Andrés Spokoiny is president and CEO of the Jewish Funders Network.