When foundations or individuals donate to an organization, they often expect their money is going to triage the issue—providing clean water, feeding children—and not to paying for office space or corporate retreats for nonprofit workers. To solve this, most foundations pay only up to 15% of any socially good group’s indirect costs, things like office space, salaries, or equipment.
But a new report from Bridgespan, a consulting firm for nonprofits and philanthropists, says this is incredibly damaging. The result is a “starvation cycle” in which foundations are crippling the outfits they’re trying to support. In the commercial world, investors have come to expect that companies in different spaces require different overhead. There is no boilerplate expense sheet. That’s a lesson nonprofit funders have failed to learn.