Submitted by Jean Butzen on September 20, 2011 - 14:15

A New Source for Funding Nonprofit Mergers and Integrations

It isn't often that a funder calls me up to introduce himself, but that's what John MacIntosh of Sea Change Capital Partners did when he heard that I was active in nonprofit collaborations in the Midwest. John wanted to learn what I was up to and make sure I knew about a unique philanthropic fund dedicated to enabling nonprofit collaborations. The Sea Change-Lodestar Fund for Nonprofit Collaboration is itself a collaboration between the Lodestar Foundation and Sea Change Capital Partners.
The Sea Change-Lodestar Fund's mission is to facilitate and fund sensible collaborations among nonprofit organizations. it is prepared to help cover a portion of the one-time ocsts associated with nonprofit mergers and collaborations. It makes two main types of grants:

  • Exploratory grants (generally $25,000 or less) to explore and evaluate a potential collaboration
  • Implementation grants (up to $250,000) to cover a portion of the one-time costs associated with implementing a collaboration

John explained: Implementation grants are always made alongside funders of the collaborating organizations, often specialized in sector or from the local geography where the merger or collaboration is happening. Our fund believes in having a high engagement level with the leadership of the collaborating nonprofits, quick turnaround, and a thorough evaluation and approval process.
When I asked John why Sea Chanage was collaborating with the Lodestar Foundation on this fund, he replied, We each bring different things to the table. Lodestar is unique amongst foundations in its focus on collaboration. We were thrilled when they approached Sea Change about working together, and put the issue of nonprofit mergers and collaboration on our radar screen. The team at Sea Change has deep financial and transactional experience in both the nonprofit and for-profit worlds, so this was a very natural step for us to take in our effort to help nonprofits have more impact while also seeking opportunities to make leveraged grants. Sea Change does much of the front-end work, the analysis, the site visits, and speaking to the leadership. We have raised some outside funding for this work, though Lodestar remains the biggest funder and Sea Change the second biggest.
But I wondered how the fund defines "sensible collaboration." John explained that is when two or more nonprofits combine some or all of their important activities in a formal, long-term, or permanent way. It can take many different forms, including mergers, acquisitions, and various forms of alliances and partnerships. A sensible collaboration is one that has the potential to increase the efficiency, effectiveness, or sustainability with which they pursue their missions. We want to help organizations that have gotten to the point of exploring something or consumating a collaboration, to do it.
The really nice thing about this fund is that it is set-up to pay for what they call the "unavoidable but uninspiring" costs of collaboration, such as IT integration, re-branding, severance costs, and lease-breaking - costs that many funders would find an anathema. The fund is not a passive donor, however; it gets intimately involved in some of the transactions when it feels it can add value as an outside party. If the fund feels it cannot add any value it is less likely to fund the transaction. Guidelines state: Our due diligence process is intensive..." - so be sure you want a partner if you approach the fund for support.
And in this age of focus on cost-cutting and efficiencies in nonprofit mergers and integrations, MacIntosh had this to say: The whole question of cost-savings is more nuanced than many people believe. In our experience, saving money is neither necessary nor sufficient motivation for collaboration. Often the level of potential cost savings wouldn't be enough to justify the collaboration, but it's often enough to put the transaction costs in a healthy context. The ability to save money doesn't mean you actually save it, but instead you reallocate your resources to the program side. After all, the goal is not to reduce the budget, but to produce great contemporary dance, educate more children, etc.
The Sea Change-Lodestar Fund for Nonprofit Collaboration, based in New York City, takes proposals on a continuous basis from across the country. Are you aware of other new funds like this one? If so, send me a note so I can post something about it.