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Non-profit media and the donor darling paradox

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Trying to avoid funding “donor darlings” can help spread resources among a broader pool of recipients. But it also creates a systemic problem that may be holding back media from becoming truly self-sustaining.

Donor funding is a growing source of revenue for media, as evidenced by The Guardian’s record $9 million raised last yearAs it continues to grow it will become increasingly important that funding is structured to incentivize sustainable growth. 

It’s a name that everyone in the non-profit media community is familiar with. “Donor darlings” are media projects that get all the attention, love, and most importantly cash in a world where philanthropic donations are key to survival.

In a way, it’s only natural that a small number of publications captures an outsized share of resources. Knowing where to show up so you can talk to donors matters. So do properly written grant applications with the latest buzzwords.

Many donors are risk averse; after receiving a few grants media become a “known quantity”. There is also a bandwagon effect. Once you have one donor tied on to your project, getting the second, third and so on becomes much easier.

But it also challenges the spirit of the system. It is exciting to support a young, energetic and entrepreneurial team – to give them those first few grants that will get them off the ground – or to step in and save a legacy brand.

Filling up a budget of an organization on year 14 of its existence isn’t nearly as cool, and it doesn’t feel fair towards other potential recipients whose applications might not have as much polish.

It can also be plain counterproductive. Any organization, media or not, has a growth strategy that requires a certain amount of capital at each stage to implement. While it’s always better to have a bit too many resources, rather than too little, it’s also entirely possible to have too much money to rationally or effectively use at a given point.

“Funding the strongest organization so they reach the necessary scale goes against the DNA and spirit of many philanthropic ventures.”

But non-profits can’t refuse extra funding. Like in the public sector, any budget cut is a sign of defeat to be avoided at all costs. Worse still, it can become permanent. Refuse once, and you lose a potential opportunity to “prolong support” next year (when you will actually need that cash).

As a result, many donors have become wary of supporting “donor darlings”, raising such questions as “will this grant be a game-changer for the organization” or “do they really *need* us” during evaluations.

There are a lot of good intentions there, and it does help reallocate funding among a broader pool of recipients. But it also creates a systemic problem that may be holding back media from becoming truly self-sustaining – the ultimate goal for an overwhelming number of donors.

The paradoxical impact of avoiding donor darlings

To understand the problem let’s jump out of the media context for a moment. Imagine a successful food delivery start-up with a reasonable market share (let’s say 15%). It has a working business model and projections clearly show that at 25% market share it becomes profitable.

Investors would flock to buy shares in the start-up, providing the capital to scale (they would expect their equity purchase would pay off relatively quickly).

Yet in the non-profit media world, this start-up could easily become a “donor darling”. It’s competitors would receive funding, bringing them to the same – unprofitable – market share of 15% (ensuring the entire market struggles).

Helping the strongest organizations scale goes against the DNA and spirit of many philanthropic ventures. This policy, similar to the state-sponsored capitalism of the East Asian Developmental Model, involves directing scarce capital toward “picking winners”.

As in the case of the East Asian economies, it is effective in building large players who can compete. But it also creates problems. Some players do not survive once support is reduced. Smaller businesses can be crushed beneath the weight of bloated giants.

That does not mean, however, there are not valuable lessons to be learned. Moreover, the depth of the media business crisis means there are no perfect solutions left.

Public funding is not an option in most countries (powers are inevitably abused) and the philanthropic sector is not big enough.

It is also true that many media still have to close shop before we reach market equilibrium. Before they have revenues large enough not just to stop cutting, but to invest in the new technologies.

Yet greater donor coordination could potentially deliver a step change and save some ethical and quality media (freeing up resources for the next batch).

Coordinating donor funding of non-profit media

Three conditions need to be met for proper donor coordination. That is tricky, but not impossible.

Firstly, we need consensus on who funds which stage of the pipeline. This already happens naturally. Some donors focus on smaller, early stage funding. Others prefer bigger, chunkier support.

But it leaves a major gap on the market – a valley of death where media are on the cusp of sustainability, but still not eligible for commercial debt or equity funding. Few players are active in this space (i.a., MDIF and Luminate) and their resources are limited.

Ideally, this needs to happen across and within countries, with the objective of not submerging

“Such solutions go against years of practice and established processes, but the result is what matters.”

Secondly, we need more use of metrics to assess organization performance. A lot of attention focuses on the charisma of leading personalities or particular editorial projects. Instead, cold, hard numbers should play a growing role in assessing performance.

This would help distinguish between two types of donor darlings – super-networkers who know the lingo and those who built their name on a track record of delivering and growing.

It’s okay to make exceptions for some values-driven projects. Smaller communities, with low disposable income, just might be too small to sustain a quality newsroom. But exceptions cannot be the rule.

Finally, we should use more flexible financing instruments tied to results. This can include funds tied to commercial revenues (e.g., $1 in support for every $2 earned on ads) or lump-sum “investments” tied to a result rather than an activity (which incentivizes economic decision-making). Donors may need to be more active in helping guide managerial decisions, taking “board seats” like venture capitalists.

Such solutions go against years of practice and established processes. It may not be comfortable or convenient for all involved. But the result is what matters.

If we’re serious about making non-profit media a sustainable part of the landscape, it’s also time to get professional. Part of that is celebrating, and rewarding, the right kind of success.

Jakub Parusinski

This piece was originally published in The Fix and is re-published with permission. The Fix is a solutions-oriented publication focusing on the European media scene. Subscribe to its weekly newsletter here.