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Non-profit media and the donor darling paradox

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

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, all the love, and most importantly all the cash in a world where philanthropic donations are a key source of revenues.

In a way, it’s only natural that an outsized share of resources ends up in the hands of a relatively small number of publications. Knowing where to show up so you can interface with donors, how to properly write grant applications and what buzzwords to use provides an important edge in a competitive world.

Many donors are risk averse; after receiving a few grants media become a “known quantity”. Moreover, there tends to be a bandwagon effect – once you have a 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 going through a crisis.

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 reduction in budget is a sign of defeat and 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.

To understand the problem it’s worth jumping out of the media context for a moment. Imagine a successful food delivery start-up, which has gone through successive funding rounds and has a reasonable share of the market (let’s say 15%). It has a working business model, and its projections clearly show that at 25% of the market it becomes profitable.

Investors would likely flock to buy shares in the start-up (at least the later-stage ones; it is too late for seed rounds), providing capital to fuel the push to scale, rightly expecting that their equity purchase would pay off relatively quickly.

Conversely, in the non-profit media world, the start-up could easily be labelled a “donor darling”, and see its competitors receive funding, bringing them to the same – unprofitable – market share of 15%, thereby ensuring the entire market is struggling.

Funding the strongest organization so they reach the necessary scale goes against the DNA and spirit of many philanthropic ventures. Indeed, the policy, quite similar to the state-sponsored capitalism of the East Asian Developmental model, involves accumulating scarce capital to focus and “picking winners”.

As in the case of the East Asian economies, it is effective in building large players who can compete, although it comes with its own problems. Some players do not survive once the largesse is reduced, small and medium businesses are crushed beneath the weight of bloated giants.

That does not mean, however, that there are not valuable lessons to be learned. The depth of the media business model crisis (further aggravated by COVID-19), is truly devastating and there are no perfect solutions left. Reliance on the state is not an option in most countries (new powers will inevitably be abused) and the philanthropic sector is not big enough to sustain today’s already decimated media landscape.

It is also true that many media still have to close shop before we reach market equilibrium – before they can survive on a diversified pool of revenues that is large enough not just to not cut payroll, but to invest in the new technologies that will inevitably share up the sector once more.

Yet greater donor coordination could potentially deliver a step change and make sure that some of the ethical and quality media at least make it out – freeing up resources for the next batch.

Such coordination would require at least three conditions, which are tricky, but not impossible.

Firstly, there needs to be coordination on which stage of the pipeline is funded by which group of donors. This already happens naturally with some donors focusing on smaller, early stage funding while others handle the bigger, chunkier parts down the line.

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. Only a few players are active in this space (MDIF and Luminate being at the forefront), but their resources are limited.

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

Such solutions will go against years of practice and established bureaucratic processes. It may not be comfortable or convenient for all involved, but the result is what matters. Or at least what should matter most.

Secondly, there needs to be some consensus around the metrics used to assess organizational performance, and numbers who sit in the front row. While we pay a lot of attention to the charisma of leading personalities, and the fate of particular articles or editorial projects, cold hard numbers need to play a growing role in assessing performance.

This would help make a crucial distinction between two types of donor darlings – the super-networkers who know the lingo, and those who became well-known through a track record of delivering and growing.

The flip side of this is that some values driven projects just may not make sense. Smaller communities, with low levels of disposable income, just might not be big enough to sustain a quality newsroom. It is of course possible to make exceptions for particularly valuable projects, but that exception cannot be the rule.

Finally, there needs to be a greater use of flexible financing instruments tied to performance (both realized and projected). This can include funds tied to commercial revenues (e.g., $1 in support for every $2 earned on ads) or other lump-sum “investments” that are 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 will go against years of practice and established bureaucratic processes. It may not be comfortable or convenient for all involved, but the result is what matters. Or at least what should matter most.

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.

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