By George Overholser
- Someone recently defined nonprofit “mid-caps” as organizations with revenues in the $5 million to $25 million range.
We need to keep in mind that the definition for for-profit mid-caps is 200 times as big: revenues in the $1 billion range. This matters because there are metaphors flying around that we need our nonprofit mid-caps to provide more financial disclosure to the “capital market”, just like for-profit mid-caps. This is the equivalent of asking a guy who owns a couple of pizza restaurants ($5 million in revenues) to begin publishing detailed quarterly public reports of his financial and quality assessment results. Problem is, his office is the kitchen table, and he needs to get up at 6am every morning to roll the dough. Wall Street is the wrong metaphor for an online “nonprofit capital market”. Wall Street only works for companies that are literally hundreds of times bigger than typical nonprofits. Wall Street companies get easy access to equity, precisely because they are already so advanced that they can afford to provide exceedingly high levels of financial transparency. But the vast majority of firms (for-profit and nonprofit alike) are nowhere near the size required to afford the cost of making these types of disclosure. That’s why the vast majority of firms are capitalized privately, by intimate investors who get to know them personally. Let’s not kid ourselves into thinking that strategic equity-like investments should be made based on the snippets of data that an exhausted executive director posts on a web site. If information is to be shared online, the better metaphor is Amazon. The better information to share is more akin to marketing information than to investor information. Keep it simple: What am I buying with my donation? What gets done as a result? What does it cost? And… for those very few that have gone through the arduous and expensive process of scientifically documenting impact, yes, what is the impact? DonorsChoose is a great example of this. Check it out: a highly intimate and transparent giving experience that has no need to share information about the financial health of the DonorsChoose enterprise, management team, strategic plan or theory of change. Simply “asking harder” for information does not address the issue. The problem is not one of candor. Rather, the data does not exist, and cannot be afforded by such small and stressed-out organizations. Asking harder merely adds to the trauma. If a prospective investor comes along, who is prepared to write a big equity-like check, then have a face-to-face meeting, so that real due diligence can take place. In the meantime, I would love to see online marketplaces focused on products and services… like Amazon and DonorsChoose!