Nonprofits Need Equity Too: The Case for Providing “Enterprise Capital”

The funding landscape for nonprofits has undergone a seismic shift. Earlier this year, the federal government—historically the second-largest funder of nonprofits in the United States, after income from program fees—ordered a blanket federal funding freeze, putting over $300 billion in annual funding for nonprofits at risk. This action sent shockwaves through organizations nationwide, with many forced to furlough staff, cancel essential services, and scramble to find alternative funding sources.

Even after courts blocked the freeze, uncertainty remains, with some organizations still unable to access their funding and others now fearful of future cuts. An unstable political and economic environment has upended many private sector philanthropic commitments as well.

Today’s model for funding nonprofits and social enterprises is fundamentally broken.

This crisis has laid bare what nonprofit leaders have known for years: Today’s model for funding nonprofits and social enterprises is fundamentally broken. Despite a growing movement toward trust-based philanthropy, the majority of foundations continue to provide grants that are project-specific and time-limited. This short-term approach forces nonprofit leaders to divert attention from their core missions, spending precious time and resources chasing restricted funding streams rather than pursuing long-term systemic change.

There is a better path forward, one we call “enterprise capital.” This means providing funding with the purpose of investing in the capacity of nonprofits to invest in their own enterprises. In other words, supporting nonprofits to develop lasting and sustainable business models.

What Is Enterprise Capital?

Simply put, by enterprise capital, we mean unrestricted, upfront, multiyear funding that increases the net assets on a nonprofit’s balance sheet. This is often combined with financial technical assistance, with the goal of supporting nonprofit investments in systems and capacity, with lasting effects.

Unlike operational grants, which typically support current programs and administrative needs, enterprise capital is funding that is focused specifically on helping nonprofits build the organizational infrastructure to engage in long-term, high-impact, systems-change work, while growing financial resilience.

As my colleague Clara Miller, founder of the Nonprofit Finance Fund, has observed, enterprise capital fulfills three universal needs for growing organizations:

• Capital investment—separate from regular income—when growth or change occurs.
• Shared “ownership” and risk among a committed group of supporters.
• The adoption of a protective rather than exploitative role for these stakeholders.

In the for-profit world, equity investors provide capital that allows companies to make strategic investments, weather downturns, and pursue high-impact opportunities. Nonprofits deserve the same financial freedom and flexibility.

Why Enterprise Capital Matters Now

The current funding crisis has exposed just how vulnerable nonprofits are to political and economic shifts. Black-led organizations are especially at risk: Research from Bridgespan and Echoing Green found that unrestricted net assets for Black-led organizations were 76 percent less than similar organizations led by White counterparts.

Enterprise capital is funding that is focused specifically on helping nonprofits build…organizational infrastructure.

While nonprofit leaders have long dealt with the “nonprofit starvation cycle,” where they must do more with less, the current situation is different: We are witnessing the sudden disappearance of reliable, stable, public funding sources, including multiyear grants.

The impact is devastating. Organizations providing vital services to disabled individuals, immigrant communities, vulnerable children, and so on, have been forced to scale back operations. As the federal government continues its abrupt “pause” of funding, and with many private sector philanthropic commitments similarly in flux, nonprofits need financial structures that provide them with both liquidity and long-term stability.

Enterprise Capital in Action: Two Case Studies

The transformative power of an enterprise capital approach is best understood through the stories of organizations that have benefited from it.

Case Study 1: Building a Market for Resident-Owned Communities

ROC USA is a social enterprise based in New Hampshire, but operating across the country, that works to expand resident ownership of manufactured home communities (often called “mobile home parks”). ROC USA’s story demonstrates how an enterprise capital approach can be used to launch and scale a national organization.

In 2008, with $5 million in enterprise capital from the Ford Foundation and investments from four partner organizations, ROC USA created a sustainable model to help residents purchase their communities when they come up for sale. They offered banks and other financial institutions the opportunity to provide senior debt, while the ROC USA Community Development Financial Institution financed the rest of the transaction on a subordinated basis.

Additionally, this enterprise capital provided ROC USA with the net assets needed to leverage senior debt, while also providing the liquidity to weather the 2008–09 financial crisis. “We wouldn’t have survived without it,” Paul Bradley, ROC USA’s founder, told NPQ.

With this financial foundation, ROC USA to date has supported 342 resident-owned communities with a total of over 23,000 homes, providing homeowners—many of whom live on low incomes—with housing security and wealth building opportunities.

Enterprise capital didn’t fund ROC USA’s programs. Rather, it gave ROC USA the capital it needed to invest in and build out a largely self-sustaining organization capable of changing an entire market system, opening capital access to people who had been excluded.

Case Study 2: Scaling Credit Equity

Working Credit is a US-based nonprofit founded in 2015 with the goal of addressing racial inequities in credit scores through credit-building education, one-on-one counseling, and advocacy and community engagement. With a proven track record of impact in this area, Working Credit set a goal of expanding its services nationwide and bolstering its programming in target communities.

In 2021, the organization received the good news that it was selected for the Citi Foundation’s Community Progress Makers (CPM) initiative, receiving a $500,000 of unrestricted investment enterprise capital, along with access to technical assistance and participation in a peer-learning community.

MacKenzie Scott’s approach…is based on an organization’s full potential rather than its current operating budget.

This enterprise capital funding was transformative, allowing Working Credit to make strategic investments in its infrastructure and build organizational capacity. The technical assistance, particularly the development of a comprehensive financial model, proved invaluable. This model revealed the unit economics for Working Credit’s core programs, identified the programs’ break-even points, and accounted for operating costs to determine how much annual revenue was necessary to support operations and maintain a sufficient asset base.

With this new understanding, Working Credit made three critical investments:

1. Internal infrastructure, including information-technology systems to increase efficiency.
2. New staff positions to increase financial and programmatic capacity.
3. Development of impact-measurement tools to guide program delivery and demonstrate the organization’s value proposition to funders.

The impact of the $500,000 enterprise capital for Working Credit demonstrates both financial and social returns on investment. By 2023, Working Credit had diversified its funding base—securing its first government contract and seeing the largest increase in earned revenue in its history.

With a proven model and strengthened organizational infrastructure, Working Credit is now poised for nationwide expansion. The organization is now reinvesting in its own business model, seeking to raise an additional $10 million in enterprise capital to scale its impact. This work will involve implementing new automation systems, adding counselors, offering professional development, and enhancing customer and financial management systems. Again, the enterprise capital approach is empowering Working Credit to ask for the funding they need, not just the funding they think they can get.

The Difference Enterprise Capital Makes

Enterprise capital differs from traditional funding in both size and timing. While multiyear operational funding is typically paid out annually, enterprise capital is committed in a single lump sum, up front, injecting immediate liquidity that enables game-changing investments in systems, staff, and new revenue streams.

This approach lets nonprofit leaders match funding sources to their own needs—a cardinal rule of finance that strengthens resilience. By employing an enterprise capital approach, organizations can:

1. Build infrastructure and organizational capacity that drives performance and impact.
2. Develop new revenue streams to support long-term sustainability.
3. Strengthen their balance sheets, enabling them to attract additional financing.
4. Invest in financial capacity for board and staff, ensuring sound decision-making.

When paired with technical assistance that builds financial knowledge and systems, an enterprise capital approach to nonprofit investment becomes even more powerful. Many social sector professionals do not have formal financial training or the resources to hire this expertise; technical assistance enables leaders to understand the business model that enables mission delivery and advocate for the type of funding that actually aligns with organizational needs.

A Call to Action for Funders

The recent federal funding freeze has made one thing abundantly clear: When future funding cannot be counted on, nonprofits must focus on what is most urgent, such as keeping the lights on and maintaining essential services. While this is critical work, it pushes aside strategic investment in systems change. The job of nonprofits is to build a better tomorrow, but this is not possible when they are forced to only focus on today.

If funders are serious about catalyzing the full potential of nonprofit changemakers in this new environment, they should make enterprise capital a core component of their approach to supporting nonprofits. This means:

1. Simplifying: Provide flexible, unrestricted capital at the enterprise level, not the program level
2. Integrating: Align capital with capacity building services that strengthen organizational performance
3. Collaborating: Reduce reporting requirements, develop shared metrics, and fund collectively
4. Frontloading: Commit and disburse capital upfront rather than annually, giving organizations immediate liquidity to strengthen their balance sheets

MacKenzie Scott’s approach to philanthropy, which to date has involved over 2,500 unrestricted grants that total more than $19 billion, demonstrates publicly and beautifully the core tenets of enterprise capital. Her giving is based on an organization’s full potential rather than its current operating budget. Her unrestricted grants have transformed balance sheets across the social sector, creating opportunities for powerful systems change.

A recent report from the Center for Effective Philanthropy provides compelling evidence that this approach works. The study reveals that Scott’s grantees maintain twice the cash reserves of comparable nonprofits and have increased their investment assets relative to expenses. With stronger financial positions, these organizations have expanded existing programs, launched new initiatives, invested in critical infrastructure, and built durable reserves—precisely what an enterprise capital approach is designed to achieve.

The challenges we face as a society—from climate change to persistent inequality—require a strong, resilient nonprofit sector. The enterprise capital approach provides the financial foundation that allows nonprofits to innovate, adapt, and create lasting change.

As nonprofits navigate an increasingly unpredictable funding environment, enterprise capital isn’t just a nice-to-have, it’s essential for survival and mission delivery. With stronger balance sheets, organizations can weather funding disruptions while continuing their vital work and investing in long-term capacity.

By shifting from short-term, restricted funding to long-term enterprise capital, funders can help scale financial resilience and sustainability across the sector—and unleash nonprofit power and potential to create a more just, equitable, and sustainable future for all.