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Home  > Article

Starting Your Own Foundation

By Future Leaders in Philanthropy
Future Leaders in Philanthropy

So you say you want a....foundation..../ Well, you know. / We all want to change the world... / It might not be quite what the Beatles had in mind, but for more and more members of our generation, philanthropy seems to be a more appealing strategy than revolution.

We at FLiP, of course, are big supporters of young people using philanthropy to create change, and we've seen a lot of great examples of our peers using foundations to do so.  That said, if you're looking to have a real impact and truly help your grantees, approach creating a foundation with care. 

FLiP has put together the basic steps for starting a foundation:

1. Consult a Lawyer.  We're happy to give you advice on strategy, but we are definitely not experts in the tax forms you need to file or anything of a legal nature.  Make sure you talk to someone who can advise you on these issues.

2. Figure Out Funding.  The common perception of foundations is that they are created by individuals or families with a lot of money on hand, and that's certainly still true in many cases.  But if that doesn't happen to be your financial situation, there are other options open to you.  You could consider pooling money with several friends, in a sort of formalized giving circle.  You could also conduct events or other fundraising efforts to fund your grantmaking.

3. Do Your Research.  It might seem easy to give money way -- but if you're really trying to have a positive impact, it isn't. 

Needs Assessment:  First, you need a clear understanding of the issue you hope to address and a thorough grasp of the needs within that field.  Say you're interested in helping young children in your community.  Do you know what the major needs are among that population?  Sure, you might guess -- literacy.  But do you know, for instance, if preschool teachers can't even start working on literacy because they first have to confront language barriers?  Or if kids are in childcare instead of educational programs and thus aren't exposed to pre-reading skills?  And if so, if that's because educational programs cost more than parents can afford, because parents aren't knowledgeable about the importance of early childhood education, because parents don't know how to find educational programs, or because there aren't enough preschool teachers to accommodate all of the children? 

Before you start throwing money around, you should know that it's going to help a real problem. It's easy to assume that outcome y is caused by problem x, but you generally don't know that's true without some research.

The nice thing about trying to do good is that there are plenty of people who are happy to help you -- so you needn't be overwhelmed by this research process:

  • Other funders are a great place to start.  Figure out who funds the issue you're interested in and call to ask, based on their experiences, what they see as the major problems within your area of interest.  (You can identify other funders through FoundationSearch or the Foundation Center's Foundation Directory Online, though both are subscription-based.  Your local regional association of grantmakers might also be able to recommend relevant foundations, if you're seeking to work primarily in your local community.  If you know of a few nonprofits working in your field, review their websites or annual reports to identify their major funders, then look into those organizations to see if any have goals that overlap with yours.)
  • Other good sources of advice include you local United Way (find it at http://national.unitedway.org/myuw/index.cfm) or community foundation (see http://www.cof.org/Locator/); these will be helpful primarily if you are seeking to impact a problem in your own community. 
  • I've also had great luck getting advice from city, county, and even state government agencies.  Government websites, especially city websites, are often fairly easy to navigate ? most will list their agencies, so you can figure out who works with the issue you're trying to learn about. 
  • Of course, nonprofits working in your area of interest are extremely knowledgeable about the problems they work to address every day.

When you tell these people -- people who dedicate their lives to the cause you're researching -- that you're starting a foundation to address this issue and you want their input, most people will see it as a great opportunity to influence a potential ally. 

As you're reviewing these organizations' websites to identify interviewees, also look to see if they've released any reports on the issue.  Many have conducted extensive needs assessments, surveyed the population you're interested in, developed a five-year plan, or otherwise spent a great deal of time thinking about the same problems you're thinking about, and they often make their findings available online.

Peer Assessment:  It's important to have an understanding of the other funders in your space.  One of the nice things about grantmaking is that you generally don't have to think about your peers as competitors, but can rather work with them as collaborators and allies.  That said, it's still important to know what they're doing before you walk into an arena in which other people have likely been operating for some time.  If no one is funding a particular strategy for addressing a problem, maybe it's because they have tried it in the past and know that it doesn't work.  On the other hand, if several are all funding a different strategy, it might mean that that solution is adequately funded and your money would better be spent on something else. 

To be able to make these judgments, you need to know who else is working in your area, what they're doing, and ideally why they're doing it.  This also helps you understand what's normal in the field - if you have staff members, do most organizations of your size operate with one staff person or 10?  If you're raising money through events, what is considered a reasonable percentage of funds raised to spend on the cost of running the events, based on comparisons among organizations like yours?  To get this information, review their websites, annual reports, and IRS Forms 990 (find those at www.guidestar.org).  Better yet, call up the organization and ask for a meeting - maybe you'll develop a relationship that will allow you to work together down the road.

Market Research:  Before starting a company, you'd evaluate prospective customers.  Similarly, if you expect to raise funds to support your foundation, you should have an idea of your target market of donors, how much they can afford to spend on your cause, how you will reach them, why you will be appealing to them, and so on.  Regardless of how you get your money, it's also a good idea to understand the major nonprofits working in your space.  First, they may be your grantees.  Beyond that, though, they are likely thought leaders in the field, and their approaches to the problems you're all hoping to solve may impact the overall direction of the field.  Finally, it would be embarrassing to walk into a meeting with a prospective donor or collaborator to talk about afterschool programs only to stare blankly around the table the first time someone mentions the Boys and Girls Clubs.

4. Set Your Guidelines. Congratulations - you know what you're funding.  Now, do you know how you're going to do it?  You need funding guidelines.  First, articulate exactly who you will fund.  Will you fund religious organizations?  Make grants to individuals (e.g., scholarships)?  To you, does an organization serving seniors mean it serves people 65+, or do you break it down in some other way?  Of course, the specificity of your guidelines likely depends on how much money you're giving away and how many grants you're making, but certainly give some thought to who will be eligible for your funds and put your decisions down on paper, so that no one who is ineligible wastes time applying to you.

Second, consider your application process.  Will you accept unsolicited proposals?  If so, how does an organization apply -- through a simple letter describing the project, for instance, or through a ten-page application that you will provide?  If you write an application, what will you ask nonprofits to provide -- audited financial statements, a recent 990, a list of board members?  If you don't accept unsolicited proposals, how will you identify prospective grantees?  Create a plan -- and, at least at first, it's probably best to keep it simple.  Don't make your applicants jump through unnecessary hoops -- any time they spend working on your application is time away from implementing their programs or pursuing other funds.

Once you have eligibility requirements and an application process, you need to communicate these guidelines to your prospective grantees.  A website is probably the easiest and cheapest way to do this.  Even if you don't plan to accept unsolicited proposals, this is probably a good idea -- nonprofits will have access to some basic information about you, including your IRS Forms 990, through websites like GuideStar, so once they realize that you fund the causes they address, it's helpful if they can go to a website telling them how (or not) to apply.  The website needn't be complicated; at minimum, it should outline your mission statement, your giving priorities, any eligibility requirements, and your grantmaking process.  You might also want to talk about your successes to date, your history, key staff or volunteers, or your board.  Pictures are always fun.

5. Split Up Responsibilities.  Will you have staff members, or will you be entirely volunteer-run?  Either way, carve out responsibilities.  Make sure you have someone responsible for communicating with grantees, reviewing proposals, cutting checks, and, very importantly, tracking your budget and dealing with tax filings.  (Just because you might not have to pay taxes doesn't mean you don't have to file with the IRS!) 

6. Consider Your Alternatives. Remember, a foundation isn't your only option for changing the world through grantmaking.  If you're giving away your own money, you might consider instead starting a donor-advised fund, a giving vehicle that offers many of the benefits of a foundation without some of the more complicated requirements.  Donor-advised funds are often run through community foundations, financial institutions, or independent nonprofits.  (For more information on donor-advised funds, see this post from the blog Tactical Philanthropy.)  If you're concerned primarily with supporting a particular cause and not concerned with picking the nonprofit beneficiaries, many community foundations and local United Ways also offer focused funds that you can support (for instance, a fund focused on access to health care or on K-12 education). 

If your goal is to raise funds to support a charitable cause, you might consider partnering with an existing nonprofit working in your chosen field.  You could volunteer to plan events on that organization's behalf.  You might even pursue the opportunity to join a junior board (see related FLiP articles here and here).  This will allow you the satisfaction (and fun!) of supporting your favorite cause, without the legal and strategic steps that go into starting your own foundation.

If you're interested in starting a foundation, that's fantastic.  It's so great to look around at our peers and see the many successful and creative ways they're making an impact on the sector now, rather than waiting several decades until they've made their fortunes.  (For some fun examples, see this Washington Post article, which also features FLiP!)  If you take care to do your homework, you'll be prepared to meet the needs of your grantees, your donors, your community, and even the Beatles:

You say you got a real solution
Well, you know
We'd all love to see the plan
You ask me for a contribution
Well, you know
We're doing what we can


The Future Leaders in Philanthropy (FLiP) http://flip.onphilanthropy.com site is a special project of onPhilanthropy.com. The site was founded with two main goals. First, to seek out and encourage college students to enter into a career in the philanthropic sector, and also to provide education, guidance, and networking for young professionals who are new to the sector. The community of readers includes students and young professionals at non-profit organizations, corporate foundations, universities, and for-profit companies.

© 2008 Changing Our World, Inc. All Rights Reserved.






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