Since 2010, there has been a significant shift toward creating foundations that have a defined endpoint. According to one estimate, about 19 percent of family foundations established between 2010 and 2014 plan to spend out their endowments, compared to only three percent of those created before 1970. The U.S.’s biggest foundation is a limited-life foundation — the Gates Foundation is set to close 20 years after the death of the donors.
Limited-life (also known as sunsetting, or spend-down) foundations have some things in common with perpetual foundations that are exiting a line of work. Beginning in the late 1990s with the rise of strategic philanthropy, many perpetual foundations began funding time-limited strategic initiatives. The Skillman Foundation in Detroit, for example, funded the “Good Neighborhoods” initiative for more than ten years, ending in 2016.
Both of these situations — ending the foundation or ending a line of work — create a specific set of challenges. What is the best way to exit and leave in place strong organizations, networks, and fields that can continue to achieve positive results for their communities? How do you preserve the knowledge and intellectual assets of the foundation? How do you manage foundation staff in the context of a spend-down or ending support for the line of work they are passionate about? How does the foundation ensure that the organizations in which they have invested will continue to honor the intent of the funding? How do you create partnerships with other funders, including the government?
As new foundations are choosing to limit their lifespans and perpetual foundations continue to fund work in targeted, limited-time initiatives, their effectiveness at addressing these and other questions has a significant impact on the nonprofit landscape. It requires that, more than ever, nonprofits think of philanthropy as seed capital rather than ongoing support. It requires that exiting foundations are extra diligent about mission alignment. It requires greater collaboration among funders. It requires creative approaches to human resources.
Fred Smith shared a compelling metaphor for what ideally happens when a foundation ends its grantmaking:
If I knew I was setting an end date, I would call it dissolution — but not in the way that term is normally used… When salt dissolves, it is absorbed and assimilated into the body… It becomes an integral part of the body, and long after we consume it, the effects remain…
That is how I see the most important work of a foundation. If we do our work right, we will do more than invest in a community or make financial gifts that evaporate when we are no longer there. Rather, we dissolve and the things that are truly lasting — our values, our way of seeing opportunities, our relationships, our non-financial contributions — become a lasting part of the community in which we live.
The Stephen D. Bechtel Fund, Atlantic Philanthropies, and the David and Lucile Packard Foundation have co-sponsored a special issue of The Foundation Review on exit strategies to expand what we know about how to achieve that lasting impact. Foundations of various sizes and geographic foci share what they have learned about exiting with grace and impact. Articles cover topics ranging from how the limited-life Atlantic Philanthropies exited their work in Northern Ireland by partnering with government to the Orfalea Foundation’s School Food Initiative evaluation that illustrates how to engage in sunset evaluation that is both rigorous and useful.
We will be following up on this issue with a small convening on the status of knowledge about exit strategies. Contact me at email@example.com for more information.