By harnessing the power of New England's technology ecosystem to source, screen, and fund social innovation, TUGG is supporting Youth Harbors, a program for homeless, unaccompanied high school students.

TUGG is dedicated to catalyzing and spreading social entrepreneurship in New England. By harnessing the power of the region’s technology ecosystem to source, screen, and fund social innovation, TUGG helps young people to realize their full potential through entrepreneurship, education, and life experiences. TUGG empowers both the individual and the community to identify important issues and collaborate to solve them.

TUGG subscribes to a very different funding model for strong nonprofits than most traditional funders.  We invest in a way surprisingly similar to for profit venture investment that rewards risk as well as fast and iterative innovation.  Below is a summary of how and why we invest, looking at our strategy through the lens of our investment in Youth Harbors.

Focus on Early Stage Funding versus Growth Funding

98% off all nonprofits exist with annual budgets under $250k and yet over 95% of funding caters to later stage programs. Logistically this makes sense, although it means that there is a large shortfall of start up capital for, as well as understanding of, what makes great early stage programs move.  Consequently, those programs with great starting connections or grit to stick it out are they ones that tend to survive versus those with the most potential.  TUGG instead seeks to understand, source, and support great innovators early on so good ideas – and not just well connected folks- surface.  We also want to push these great organizations up quickly, supporting thrivership, not survivorship in early growth.

For Youth Harbors, we first funded program when they were just over $100k in annual budget and less than two years old and were one of their first formal grants.  Since then the group has undergone significant programmatic and relational growth.

Focus on Teams Not Programs

When you ask 99% of early stage for profit investors if they invest in the individual or the company, they will say the individual/ team.  Ask the same of nonprofit investors and the consensus will be much closer to 50-50.  So why do for profit investors support teams more than nonprofits?  Simple: failure is accepted as part of trying to make real change in the world in for profits, whereas in nonprofit investing we have adopted a much stronger risk aversion.  Knowing that failure is highly likely or that the company will most likely (even if successful) have to pivot a few times first, the key to making real impact is choosing a great leader who is able to push through adversity and failure.  If you support a great leader and push them, they will figure out how to create something great.

For Youth Harbors, the team was the most obvious parts.  Danielle Ferrier is one of the most enigmatic and thoughtful leaders we have seen and her understanding assured us that regardless of whether Youth Harbors accomplishes everything it set out to do, Danielle will keep going until the kids she works with get the services they deserve … and that is what really matters to us in the long term.  She understands the business she is in, understands the stakeholders she needs to work with, is aware of her shortcomings as a leader, and most importantly knows how to surround herself with the right people to grow.

Reliance on Interviews Not RFPs

Based on our focus on the team, we focus on interviews not written materials.  The traditional push for RFPs is, again, driven by risk aversion.  A desire not to mistranslate what we heard to others and by a desire to have written record in case our decisions are called in to question.  The result of this is that the nonprofit suffers a slow and painful death by paper and beauracracy.

Case in point: a simple back of the napkin review of all those individuals who applied for Echoing Green last year suggests that over five years of innovator time were dedicated to the application process; not even including time to review the applications or 2nd round interview!  These are our social entrepreneurial leaders of the future wasting time on writing inside instead of making a difference outside.  Imagine how much more good we could create if we moved quickly and gave real time feedback.

Writing is not an effective use of time for most and the simple truth is that it’s not actually that hard to identify a great leader when you talk to her and her passions but it is very difficult to comprehend vision, passion, and skills when you try to pick up by reading.  This is why all of TUGG’s nonprofit funding decisions are, at their core, driven by a 30-minute interview with the founder/ ED.

Trust in Community Not Individual Decisions on Funding

TUGG uses what it calls “open-sourced” funding to support our organizations.  This means that the community helps us identify great potential organizations and eventually is the one that chooses how we allocate our funds.  We narrow down the field but they get the final say.  We do this for two reasons versus individual decision-making:

• Great leaders need to inspire masses and others can see things we might miss.  Having 1000+ people help review a leader/ team at an event and then make the final funding decision gives us a much more statistically reliable understanding of the capacity of the organization to translate their story and inspire
• Organizations, especially startup organizations, need a lot more than just capital.  When our donors get to help engage in the funding decision they build relationships with our nonprofits’ leaders, which promotes easier access to volunteer and follow on opportunities.

For Youth Harbors, Danielle and her team have consistently been able to sell their vision to the masses, having won one of our TUGG events and came in as the runner up on another.  This has led to relationships and volunteer help crucial to YH’s longer-term growth.

Unrestricted Versus Restricted Funding

Extending our belief in teams, TUGG purposely provides unrestricted funds.  We do this because:

• Youth Harbors knows better than us what they need money for; 
• What they think they need money for today may not be accurate for tomorrow and we don’t want to stagnate their growth by locking up their capital; and 
• If the leader misuses their funds, the results will be deleterious to their ability to create real impact and will undoubtedly lead to an inability to access follow on funds.

This is how startup investments run in the for profit world and how we should push to utilize our capital in nonprofits as well.  Incentives are better aligned than we as funders would like to pretend and we don’t need to micromanage … we need to be a partner.

One Final Note

Part of the reason this works is because we invest in early stage nonprofits.  However, there is no question that many of these principles can and should start to propagate across the nonprofit funding world if we want to truly support ground shattering change, instead of incremental, change.  To change the world quickly requires iteration and support for great innovations/ innovators.

David Brown is the Executive Director of TUGG.  David joined TUGG in May 2012 and, as a leader in the social entrepreneurship space, has been helping grow TUGG's community.  He holds a B.A. from Williams College and an MBA in social entrepreneurship, summa cum laude, from Babson College.