Best Practices

Foundations: A Growing Source of Entrepreneurship Funding

Published Jun 24, 2020 by Dara Macan

 

Private philanthropic organizations are increasingly recognizing entrepreneurship as an economic development strategy.

What does that mean for entrepreneur ecosystem builders or economic developers? It means there are more opportunities to fund the work we do.

Foundations’ recognition of entrepreneurship in community-building has been accompanied by their increased willingness to provide financial support. The assistance runs the gamut from funding incubators to sponsoring events such as pitch competitions to backing the development of a complete network of provider organizations within a community—often using tools such as The Resource Navigator® to build the framework.

Why Foundations Are Interested

Backing entrepreneurship efforts is a new space for most foundations. But, in many ways, it’s the next logical progression for their funding efforts. Historically, foundations have funded various community programs, with the goal of creating more prosperity for everyone in the community—and entrepreneurs and small businesses are integral to a healthy, prosperous community. They create community vitality through job creation, tax payments and their own “pay-it-forward” philanthropic work.

According to Endeavor Insights’ report “Foundations Leading Through Entrepreneurship: A New Philanthropic Trend to Create Jobs, Improve Quality of Life and Strengthen Local Giving” (Caroline Pringle and Lili Torok, 2015), of the four main reasons foundations tend to invest in entrepreneurship, “the desire to promote job creation and economic growth was the most frequently cited reason … This was true for foundations working in areas with high rates of poverty as well as for those working in more prosperous communities.”

Carolyn Saxton, president of Legacy Foundation, a 25-year-old private community foundation that serves Lake County in northwest Indiana and is taking a leadership role in entrepreneurship ecosystem building, said, “We saw there was a connection between a sense of place and businesses in the community that support that sense of place. Those businesses also provide opportunities for jobs. There's a lot of individuals who make their living in our communities through small business.”

Several examples that demonstrate how private philanthropic foundations are thinking about community economic vitality and the importance of small businesses and entrepreneurship exist. Two of those are Lilly Endowment Inc. and the Golden LEAF Foundation. Both have earmarked funding for creating entrepreneurship infrastructure that supports positive economic outcomes.

>> Read more: Insider Tips for Building Relationships with Foundations

‘A Perfect Storm’ in Northwest Indiana

The Lilly Endowment, for example, is funding entrepreneurship-led economic development through several community foundations in Indiana, one of which is Saxton’s Legacy Foundation.

Saxton said the Legacy Foundation began exploring entrepreneurship ecosystem funding a few years ago when investment in entrepreneurship emerged as a priority during its regular series of “On the Table” community conversations involving nearly 10,000 participants over a three-year period. In follow-up community surveys and focus groups, conversation participants ranked jobs and small business/entrepreneurship as their top two priorities.

“And, then, along with that there was a challenge from Lilly for the community foundations throughout the state of Indiana to develop a plan that would address issues that had been identified in their community, and for the community foundations to provide leadership on it,” said Saxton. “So, this was like a perfect storm that came together.”

Responding to Lilly’s challenge, the Legacy Foundation partnered with two other community foundations in the region: Crown Point Community Foundation, which serves Crown Point and some of the southern communities in Lake County, and Unity Foundation, located in LaPorte County. Acting collaboratively, the trio applied for planning grants from Lilly Endowment Inc. to build capacity and explore a specific initiative they had identified: ecosystem work supporting entrepreneurship.

Lilly awarded the foundations grants totaling $225,000, which they used to visit community foundations in Florida, Michigan, and elsewhere in Indiana to understand entrepreneurship ecosystem building initiatives underway in those areas. The group then developed an overall plan to “start building a culture of entrepreneurship for the region,” which they presented to Lilly and won a second series of funding that allowed them to move from planning to implementation.

The current plan includes building out an online network hub for entrepreneur service organizations (ESOs), a youth engineering/manufacturing program and a mentorship initiative involving SCORE. There are also plans in the works to partner with an Albuquerque-based group called SecondMuse, whose mission is to build future resilient economies. SecondMuse would meet with business owners and identify their programming needs.

“We saw this whole big plan as really creating a stronger community here in Lake County,” Saxton said.

‘Funding Opportunity’ in North Carolina

Meanwhile, Thomas Hall, the executive director of the Thomas Entrepreneurship Hub at the University of North Carolina, continues to strengthen a relationship with the Golden LEAF Foundation. Nearly four years ago, Golden LEAF partially funded the renovation of the 20,000-square-foot building that houses the Hub, an entrepreneur incubator and coworking space located near the Pembroke campus.

“My focus and the Hub’s mission basically is to help entrepreneurs succeed and create jobs,” Hall said.

Golden LEAF, which was founded in 1999 to receive funds coming to North Carolina from the master settlement agreement with cigarette manufacturers, has a mission to increase economic opportunity in North Carolina, especially in the rural tobacco-dependent communities.

Hall said in the last several years, Golden LEAF has started focusing more on entrepreneurship.

He noted that in addition to funding the HUB’s initial renovation, Golden LEAF also funded repair work necessary after hurricanes Matthew and Florence damaged the building. He anticipates that Golden LEAF may provide additional funding to help with the economic ravages of the coronavirus pandemic.

“They've been a real great partner of ours. It culminated in the latest grant we received right before the virus hit,” he said.

That grant targets 10 counties in North Carolina called the Sandhills Prosperity Region or Prosperity Zone.

“They're highly distressed counties,” said Hall. “They're highly impoverished in a lot of ways.”

The grant is being used to establish a network that connects all 10 counties—not just the entrepreneurs—but also the ESOs. Hall is still seeking funding to cover six entrepreneurs-in-residence at the Hub who report to Hall and are the Hub’s “boots on the ground,” teaching, consulting, and helping people access the network. He would also like to fund a third component that provides for a program manager for the network.

Hall said that with services spread throughout the region among several entrepreneurship hubs and maker spaces, it’s not realistic to expect entrepreneurs living an hour away to drive to Pembroke for services. The solution was to make creating an online network of resource providers a priority.

“None of this stuff can happen unless you establish a network,” he said. “So, the most important thing was to establish what we're calling the Sandhills Entrepreneurship Engagement Network, or SEEN. It’s a system that connects all these dots so we can share best practices and what's worked for us with these new groups that are being established. And entrepreneurs who are an hour away and want to get some help, we're going to be able to direct them to ESOs close to them or to my entrepreneurs-in-residence. The idea is to try to meet them where they are with these resources.”

Read more >> How to Capitalize Entrepreneurial Strategies

Building the Network

Both the Legacy Foundation and the Thomas Entrepreneurship Hub chose to work with SourceLink to develop the online resource network of ESOs for their communities.

“We worked with the Small Business Development Center here in this region, and they referred us to SourceLink,” Legacy Foundation’s Saxton said. “During the planning grant stage, we started the conversation with SourceLink for the first phase of this website and the resource hub. And then our implementation grant dollars will be used for the ongoing support of the website.”

Hall chose SourceLink’s platform because he had established a strong relationship with Dara Macan, SourceLink’s national director of engagement and partnerships, and was impressed that she helped them present to Golden LEAF.

“We like how she presented with us because they had a bunch of questions,” he said.

SourceLink’s experience in working with rural environments was also attractive to Hall.

“They [SourceLink] pitched up experience in parts of Iowa, rural parts of Kansas and Missouri,” he said. “SourceLink understands how to communicate with your rural agricultural population, they understand how to connect, and I figured they could help us do the same thing, because we have a very similar environment.”

Tips for Working with Foundations

Saxton and Hall shared several tips for how ESOs can increase the odds of receiving funding from and then working successfully with private foundations.

1.       Narrow your focus. Know the mission of the foundation you are applying to. Make sure the initiative you want funded aligns with it.

2.       Take the time to form relationships with people at the foundations you want to work with. Hall said when he started his position at the Thomas Entrepreneurship Hub, he made a point to meet the leadership at Golden LEAF and even invite them to the Hub. He said that paid off in several ways. When he sought relief funding after the hurricanes hit, he knew who to email with his request.

“I still had to do an application, but they responded in two or three days,” he said. “They did an emergency approval because they recognized what we were doing in the center.”

3.       Mitigate risk for the foundations. Funding entrepreneur ecosystem development work is relatively new to foundations, and it can be a risky venture for some. Hall said that although foundations recognize funding entrepreneur ecosystem development is important because of job creation and community spirit, “they've got to be careful” about where they invest their money.

4.       Show that you can measure your outcomes. Foundations, especially, tend to be numbers focused. They must be able to show that grant requirements are being fulfilled. Putting in place metrics that can measure the success of entrepreneurship development programs is critical to the sustainability of grant programs.

In northwestern Indiana, SecondMuse has been hired to develop metrics and track the progress of the entrepreneurship initiatives the three community foundations there have launched. And in North Carolina, Hall has developed several areas of measurement, including job creation and program awareness.

 

The bottom line is that there is great opportunity to tap into private foundations as a viable source of funding for entrepreneurship development. Being able to clearly define your community goals, doing your homework by researching the grants available, studying the experiences of community leaders who have successfully built entrepreneur ecosystems using foundation funding and developing relationships with foundation decision makers can improve your chances of successfully obtaining funding.

If you would like help approaching your local foundation with an entrepreneurship development request, please contact Dara Macan. We’ve helped many communities tap into these funding resources and would love to chat about how we might support you.


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