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What is a successful funding model?

[Editor’s note: This post is part of a series that will look at think tank funding models. It is based on a course that is currently under development.]

At Politics & Ideas, we are currently working to understand how different think tanks have sorted out the funding question. This is an important issue for reasons that we already know. Firstly, because like most nonprofits think tanks have to compete simultaneously in two markets: to inform policymaking and to receive funds from donors. Secondly, because many think tank managers have not been trained to oversee neither financial nor fundraising efforts. This post offers an introduction to re thinking a funding model with a focus on its broader implications.

A simple way to think about a think tank’s funding model is to consider their mix of funding sources: core funds, contracts and grants and output payments (e.g. subscriptions, event fees) and other sources. Interviewing Executive Directors and CFOs from a number of organisations in Eastern Europe, the Balkans, Latin America and South Asia we have discovered very interesting (and unique) combinations of traditional and also uncommon funding sources (see for instance some ideas on involving the private sector).

However, what we learned from analysing the funding models that currently exist in think tanks around the world is not just where and how they come up with funds. In fact, what is really interesting is to reflect about the implications that these funding schemes have on the core functions of a think tank: policy research, communications, staff and project management, and policy influence.

Clearly, funding is an interdependent component of an overall organisational strategy and business model. A crucial one, of course, but still part of a larger ensemble. In this light, we can argue that a successful funding model is one that creates sustainable revenue in a way that enables the organisation to best pursue its mission – this applies not just to think tanks. We have broken up this definition into five components that help to evaluate a funding model’s appropriateness.

  • Reliability: Funds that come and go ‘randomly’ can never help the organisation in the medium and long term. In this light, unusually high growth is no indication of having an efficient funding strategy, nor does some seasonality in revenues mean the opposite.
  • Diversification: Not surprisingly, putting all the eggs in one basket is not advisable. Diversifying does not only mean trying to have many donors, but also different types of donors whose downturns should not be expected to coincide. Also, too much diversification might entail high dispersion in terms of project objectives and research topics as well as administrative burden in managing multiple small grants or research projects.
  • Acceptable Conditions: Whatever administrative, contractual and/or programmatic conditions are attached to funds, they should enable (rather than prevent) the think tank to do their policy work to the best of their abilities. Ideally, donors and grantees should strive to avoid overly bureaucratic or restrictive requirements, although admittedly working with large donors like the EU might be worth it despite the administrative efforts it imposes.
  • Independence: A basic condition of a good funding model is for it to guarantee that a think tank remains independent to govern itself: deciding how to run the organisation, which issues to pursue, etc.
  • Transparency: Finally, a growing concern related to funding models has to do with being able to track the origin of funds that think tanks receive and the main conditions attached to them. Many organisations remain behind the curve in this respect.

These criteria can be challenged and/or modified. However, they offer a fairly basic yet comprehensive set of guidelines to assess if an organisation’s funding model is actually problematic in terms of its broader strategy. The second step is to start thinking about the specific implications it has. Let us start by considering how research might be affected by funding. There are two types of consequences that many think tanks have experienced in diverse degrees: the research agenda and independence.

The scope and sustainability of a research agenda is essential to a think tank’s purpose. In this sense, core funding enables think tanks to design their research agenda ‘on their own’ and sustain it. This should be also reflected in the composition and expertise of its staff. By contrast, funding based on contracts and grants entails more flexibility in terms of addressing new topics as well as giving up topics that do not offer new funding opportunities. In turn, per-project consultants are generally necessary. Overall, there is a trade-off between a stable but less dynamic research agenda (and research roster), and a more flexible but potentially less coherent research programme.

A full reflection would require considering how these research implications affect the remaining variables: communications, staff and project management, and policy influence. In sum, re thinking a funding model is an ongoing exercise that should not be approached dogmatically, but rather in a context-specific way.

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