Rethinking Philanthropy for a More Effective Social Sector
In a world where startup ventures are celebrated for their risk-taking, innovation, and scalability, the nonprofit sector often finds itself stifled by outdated funding models, rigid expectations, and chronic underinvestment. But what if we approached nonprofit funding with the same mindset we use to launch tech companies? What if we treated nonprofits not as charity cases, but as mission-driven startups with bold visions, entrepreneurial energy, and the potential to scale?
In a recent episode of the Nonprofit MBA Podcast, host Stephen Halasnik of Financing Solutions sat down with Greg Harrell-Edge, nonprofit strategist and former Executive Director of the Harold Robinson Foundation, to explore this provocative question. Their conversation reveals a powerful reframing of how we view nonprofit organizations—and how transformative the sector could become if we embraced a startup-style funding philosophy.
Summary
The Nonprofit Funding Paradox
Nonprofits are on the front lines of society’s most pressing challenges—from homelessness to education to mental health. Yet they’re often asked to do more with less, and are rarely afforded the kind of risk capital or infrastructure investment that for-profit startups routinely receive.
As Harrell-Edge points out, “We fund nonprofits in a way that’s completely irrational. We ask them to solve massive, systemic issues with almost no capital, incredibly restrictive conditions, and very little flexibility.”
Compare that to the startup world, where founders can raise millions in seed funding just to explore a concept, pivot when necessary, and build scalable systems. The result? Startups are empowered to fail fast, iterate quickly, and grow. Meanwhile, nonprofits are punished for experimentation, expected to maintain unrealistic efficiency ratios, and constrained by year-to-year grants that provide little stability.
What Startups Get Right
Halasnik, who brings years of experience from both the business and nonprofit finance worlds, agrees. “Startups are funded to build. They’re given capital to develop their infrastructure, hire top talent, and scale their product,” he says. “Why don’t we think about nonprofits the same way?”
The conversation turns to a simple but revolutionary idea: treating nonprofit organizations like startups. That means giving them multi-year unrestricted funding. It means supporting leadership development. It means investing in infrastructure, systems, and innovation—not just programs.
Harrell-Edge recalls how venture capitalists evaluate startups: not just by their product or service, but by the strength of the founding team and their capacity to execute. “If I invest in a startup, I don’t know exactly how they’ll spend the money—but I believe in their leadership,” he explains. “We need to apply that same thinking to nonprofits.”
Leadership as the Key Lever
One of the most overlooked elements in nonprofit success is leadership. Funders tend to focus on programs and outputs—how many meals served, how many students taught—without recognizing that strong leadership is what makes any of it sustainable or scalable.
“When I worked at the Harold Robinson Foundation,” Harrell-Edge says, “we saw that investing in our people—giving them the tools, space, and freedom to lead—had an exponential effect on our impact. But that’s not something most funders are willing to prioritize.”
Nonprofit leaders are often overworked, underpaid, and expected to do the impossible with minimal support. By shifting funding models to prioritize leadership and team development, we unleash a whole new level of potential in the sector.
The Trap of Short-Term Metrics
A recurring theme in the episode is the obsession with short-term results. Funders often demand measurable outcomes within unrealistic timeframes—ignoring the fact that true systemic change can take years, even decades.
“We need to move away from this mindset of quarterly impact reports and toward long-term partnerships,” Harrell-Edge argues. “Imagine if we judged a startup’s success after six months. We’d never get companies like Uber or Airbnb.”
Nonprofits need room to experiment, test ideas, and sometimes fail. Without that space, innovation stalls. A startup-style model would recognize that experimentation isn’t a liability—it’s essential to growth.
Embracing Risk and Failure
In the business world, failure is often a badge of honor. Entrepreneurs are expected to take risks, pivot, and learn from their mistakes. But in the nonprofit world, failure is taboo.
That’s a problem, says Halasnik. “If a nonprofit tries something bold and it doesn’t work, they risk losing future nonprofit funding. So they stick to what’s safe, even if it’s not transformative.”
To fund nonprofits like startups means embracing calculated risk. It means understanding that failure, when well-documented and thoughtfully analyzed, is part of progress.
Harrell-Edge shares that some of the most powerful lessons he learned as a nonprofit leader came from projects that didn’t go as planned—but led to breakthrough insights.
The Power of Unrestricted Funding
A core tenet of startup investing is giving entrepreneurs freedom. Funders don’t micromanage; they trust the team to use the capital wisely.
Nonprofits, on the other hand, often receive highly restricted funding—dollars that can only be used for specific programs or line items, even if other needs are more urgent.
“Unrestricted funding is the lifeblood of innovation,” Harrell-Edge emphasizes. “It allows you to be responsive, to shift resources where they’re needed most, and to have a strategic plan for the long term.”
When nonprofits receive general operating support, they can hire better staff, invest in technology, build better systems, and ultimately deliver more impact. It’s not just a financial shift—it’s a philosophical one.
Building Scalable Nonprofits
If we’re serious about tackling major social issues, we need nonprofits that can scale. That requires capital—patient, flexible, and significant.
Halasnik draws a parallel to how investors think about growth. “If a startup shows traction, they get Series A, B, and C funding to scale,” he explains. “We should think the same way about nonprofits.”
This means creating funding pipelines that support growth stages, from idea to pilot to full-scale implementation. It also means encouraging mergers, collaborations, and ecosystem thinking—not siloed efforts that duplicate resources.
A Mindset Shift for Funders
Ultimately, transforming nonprofit funding isn’t just about money. It’s about mindset.
“We need funders who are willing to think like venture capitalists—but with a heart for impact,” Harrell-Edge says. “People who understand that betting on great leaders and giving them the space to build is the best way to create change.”
That also means being willing to fund capacity-building, internal systems, and yes—overhead. The myth of the ‘low overhead’ nonprofit is not only misleading, it’s harmful. It perpetuates the idea that nonprofits should starve themselves to be effective.
The Role of Social Entrepreneurs
Today’s nonprofit leaders are increasingly entrepreneurial. They think in terms of product-market fit, user experience, data, and scalability. They are eager to bring in tools from the for-profit world—not to chase profit, but to build sustainable, efficient organizations.
Harrell-Edge believes the next generation of nonprofit leaders will look a lot like startup founders. “They’ll be strategic, data-savvy, and comfortable taking risks. But they’ll need funders who understand that language and are willing to back them.”
A Blueprint for Change
So what would it look like if we funded nonprofits like startups?
- Multi-year, unrestricted funding as the norm
- Investments in leadership, infrastructure, and systems
- Tolerance for risk, iteration, and even failure
- An emphasis on long-term partnerships over short-term metrics
- A focus on scaling what works, not just funding programs in isolation
These changes wouldn’t just benefit nonprofits—they’d benefit society as a whole. When we empower mission-driven organizations to thrive, we accelerate progress on the issues that matter most.
Final Thoughts: A Call to Action
The conversation between Stephen Halasnik and Greg Harrell-Edge is more than a thought experiment—it’s a blueprint for a better funding future. It challenges both donors and nonprofit leaders to rethink their roles, reimagine what’s possible, and break free from outdated paradigms.
As Harrell-Edge says in closing, “We’re not just talking about money—we’re talking about trust. If we can trust nonprofits the way we trust entrepreneurs, we’ll unlock a new era of impact.”
The time to fund nonprofits like startups is now. Not because it’s trendy—but because it works.
