Grantmaking That Works

Strategy Versus Responsiveness

Every serious giving program eventually confronts a tension: pursue a defined strategy relentlessly, or remain open to the opportunities and crises that arrive uninvited. Neither pole is obviously correct, and most mature grantmakers land somewhere between them.

A strategic approach — selecting a specific issue area, theory of change, and target geography, then building a portfolio of grants around it — allows a family or private foundation to develop genuine expertise, build trusted relationships with leaders in a field, and measure progress against a consistent baseline. The potential disadvantage is rigidity: a strategy designed five years ago may misread what a field actually needs today.

Responsive grantmaking, sometimes called opportunistic or reactive giving, allows a family to fund emerging needs, support organizations surfaced by trusted intermediaries, or respond to sudden crises. The potential disadvantage is diffusion — small grants spread across many unrelated causes rarely move the needle on anything. Families sometimes consider a hybrid: a core strategic portfolio that holds the majority of annual grantmaking, paired with a smaller discretionary pool for responsive opportunities.

General Operating vs. Restricted Support

Few debates in organized philanthropy run hotter than this one. Restricted grants fund a specific program, project, or outcome — a literacy curriculum, a clinical trial, a capital campaign. The funder knows (in theory) exactly what the money bought. General operating support, sometimes called unrestricted support, gives a nonprofit organization the freedom to deploy funds wherever its leadership judges the need is greatest — rent, salaries, technology, reserves.

Advocates for restricted funding argue it creates accountability, allows funders to assess outcomes precisely, and limits the risk of funds being used in ways inconsistent with the donor's intent. Advocates for general operating support — a camp that has grown considerably in recent years — argue that nonprofits often know better than funders where the real bottlenecks are, that restricted dollars can actually distort an organization's priorities, and that overhead is not waste but the infrastructure that makes programs possible.

The practical reality: a well-run organization with a strong balance sheet and disciplined leadership may generate more impact from a general operating grant than from a restricted one of the same size. Families sometimes evaluate both models and negotiate structures that blend them — for example, a multi-year general operating grant with agreed-upon annual check-ins rather than burdensome quarterly reports.

Diligence Proportionate to Grant Size

Due diligence in grantmaking means the process of evaluating a prospective grantee's financial health, organizational capacity, leadership quality, and alignment with the funder's goals before committing funds. The key principle many experienced grantmakers apply: diligence should be proportionate to grant size and relationship history.

A six-figure grant to an established organization with a multi-year track record warrants a different process than an illustrative first-time grant of, say, $10,000 to a new nonprofit. Over-engineering the diligence process for small grants wastes staff resources on both sides and signals distrust to organizations that may be doing excellent work at modest scale.

Proportionate diligence typically includes reviewing audited financial statements, a current Form 990 (the public tax filing required of most U.S. nonprofits), program evaluation materials, and — for larger commitments — one or more conversations with senior leadership. Foundations with active governance and compliance obligations have additional requirements, including confirming that prospective grantees meet legal standards for receiving foundation funds.

Trust-Based Philanthropy

Trust-based philanthropy is a movement — originating in critiques of traditional power dynamics between funders and grantees — that advocates for multi-year general operating support, simplified reporting, and deeper, more transparent relationships between funders and the organizations they support. The underlying argument is that funders often impose administrative burdens that consume nonprofit capacity without generating meaningful accountability.

Practices associated with trust-based philanthropy include: offering multi-year commitments (rather than annual renewals that force grantees into perpetual fundraising cycles), accepting a grantee's own reporting formats rather than creating bespoke requirements, soliciting feedback from grantees about the funder relationship itself, and being transparent about decision-making timelines and criteria.

Potential advantages include stronger grantee relationships, reduced administrative overhead on both sides, and the freedom for organizations to pursue strategic opportunities without waiting for restricted funds to be unlocked. Potential disadvantages include reduced funder visibility into how dollars are deployed and the challenge of demonstrating specific outcomes to a foundation's board or the family's next generation. Neither approach is universally superior — a qualified adviser familiar with a family's goals can help evaluate the tradeoffs in context.

Measurement Without Strangling Grantees

The desire to know whether philanthropic dollars are working is entirely reasonable. The challenge is that measurement, done poorly, can consume more nonprofit capacity than the grant itself was worth.

Experienced grantmakers often distinguish between outputs (what an organization produced — meals served, students enrolled, policies advocated) and outcomes (what changed as a result — improved nutrition, educational attainment, a law enacted). Outcomes are more meaningful but harder and more expensive to measure. For most community-level organizations, rigorous outcome measurement — randomized control trials and the like — is neither practical nor appropriate.

One approach families sometimes evaluate: agree with each grantee on three to five key indicators that the organization itself already tracks for its own management purposes, and ask for those rather than inventing new data demands. This respects the grantee's existing systems, reduces reporting burden, and still gives the funder meaningful information. For foundations making grants across borders, measurement frameworks may need additional adaptation to account for different data environments and legal contexts.

Sunsetting vs. Perpetuity

A donor-advised fund has no mandatory spending requirement. A private foundation is subject to a minimum annual distribution requirement set by law (the amount should be verified with a qualified CPA). But beyond legal minimums, families face a genuinely strategic question: should this giving vehicle exist forever, or should it spend down and close?

Perpetual foundations can be a vehicle for multi-generational family engagement, allow compounding of assets over time, and maintain a sustained presence in a field across decades. Potential disadvantages include governance complexity as families grow, mission drift over generations, and the risk that preserving the institution becomes the goal rather than serving the cause.

Spend-down foundations — sometimes called sunset foundations — deliberately plan to distribute all assets and close within a defined period. Potential advantages include concentrating impact in a shorter window, maintaining the founder's direct involvement, and avoiding the governance challenges of multigenerational stewardship. Potential disadvantages include the loss of long-term relationship capital in a field and the pressure to deploy large sums quickly enough that diligence suffers.

Some families elect a middle path: a perpetual structure with a formal review every decade, at which point the family revisits whether to continue, restructure, or accelerate spending. The decision involves family governance considerations as much as financial ones, and — given the legal and tax implications of changing a foundation's structure — a qualified attorney should be involved in any such review.

Common Mistakes in Grantmaking Practice

Even well-resourced, well-intentioned programs fall into recognizable traps. Families sometimes find it useful to review these before designing or revising their approach.

• Underfunding overhead: Insisting that near-zero percent of a grant go to "administration" can starve the management and infrastructure that make programs sustainable.
• Annual grant cycles: One-year grants force nonprofits into perpetual fundraising and make multi-year planning nearly impossible. Multi-year commitments, where feasible, are widely regarded as more effective.
• Reporting mismatch: Requiring reports in formats that don't align with how the organization actually tracks its own work creates busy-work on both sides without generating genuine insight.
• Scope creep: Gradually adding conditions, deliverables, or reporting requirements to an existing grant relationship erodes trust and may signal that the funder does not respect the grantee's expertise.
• Ignoring organizational health: Funding programs at organizations with weak financial controls, high leadership turnover, or unresolved governance problems rarely produces durable outcomes, regardless of how compelling the program model appears.