Rethinking the assets funders bring to capacity building

The nonprofit capacity problem

NPC’s Director for Open for All, Tris Lumley, offered a useful way of thinking about why capacity building is such a persistent challenge in the nonprofit sector. In a for-profit organisation, profit creates the ability to invest in capacity. That profit might be extracted as dividends or bonuses. But it can also be reinvested into infrastructure, governance, systems, skills, and people. Profit gives management room to decide how to strengthen the organisation for the future.

Nonprofits operate in a very different reality. They are not only working without a profit motive. Many are also under intense and ongoing financial pressure. Smaller organisations, in particular, may spend much of the year trying to balance budgets or manage deficits. In that context, the question becomes: what are they supposed to invest in capacity with?

This is where Tris’s idea of a ‘capacity leak’ is helpful.

Even when organisations build capacity, they can struggle to hold on to it. They may train staff in evaluation, digital, fundraising or strategy, only to lose those people because their skills are highly transferable. Systems may become outdated. Knowledge held by individuals rather than institutions disappears. Capacity built slowly drains away.

So, the problem is not simply that charities need a bit more training. The deeper issue is that many are trying to build capacity while also continuously losing it. 

Why this matters for impact

This matters because funders often ask charities how they will sustain the impact of a grant once the funding ends. Jim Cooke from ACF challenged funders to turn that question back on themselves: what are funders doing to help sustain that impact beyond the life of the grant?

That is an important reframing. Sustainability is not just a test that charities should pass in an application form. It is also a responsibility that funders need to engage with. If a grant supports delivery without strengthening the organisation delivering it, there is a risk that the impact will be temporary, fragile or dependent on people already stretched too thin.

Capacity building, then, is not separate from impact. It is part of the infrastructure of impact. It allows organisations to absorb learning, retain skills, improve practice, respond to new needs, and keep going when conditions get harder.

How capacity building is delivered

The session also showed that capacity building can take many forms. Jim referenced research from Esmée Fairbairn Foundation, where charities identified needs around income generation, business development, strategy, IT infrastructure, communications and evaluation, as well as governance, financial management, diversity and inclusion, wellbeing, and climate.

Funders can respond to these needs in different ways. In many ways, unrestricted funding is the clearest capacity building tool because it allows organisations to decide what they most need. If an organisation needs to invest in HR, finance, evaluation, leadership or digital systems, unrestricted funding gives it the flexibility to do so. Jim described this as close to the ‘ultimate capacity builder’ because it strengthens the organisation beyond the boundaries of a specific project.

Restricted capacity building can also play a role, particularly where a need is important but unlikely to rise to the top without a dedicated route. Wellbeing is a good example. We know from Fair Collective’s research that 85% of small charity leaders in England reported poor mental health, with 20% describing the impact as severe. Yet, in Esmée Fairbairn Foundation’s survey, just 6% of organisations identified this as a priority for ‘funding plus’ support, meaning non-financial support alongside grants. Esmée Fairbairn Foundation’s provision of ringfenced support for wellbeing recognises that this may be exactly the kind of capacity need that gets crowded out unless funders create the permission and dedicated resources to address it.

So, the answer is not simply always unrestricted or always ‘funding plus’. The question is: what is the need, who has defined it, and what form of support gives organisations the best chance of using it well?

The power dynamic in ‘funding plus’

This is where funders need to be careful. Jim asked a sharp question: is your ‘funding plus’ offer what organisations need, or what you want to provide?

Capacity building has an inherent power dynamic. However well-intentioned, it can carry the message: ‘we know what you need better than you do.’ Sometimes funders may see patterns across a field that individual organisations cannot easily see, like the wellbeing example above.

But in general, good capacity building should be anchored in the aspirations and needs of organisations themselves. It should create room for organisations to say not only what they need, but also what they do not need.

From organisational capacity to system capacity

The most important shift in our discussion was the move from organisational capacity to system capacity. If the same need is showing up across a whole field, it may not be just an organisational weakness. It may be a landscape problem.

This matters for equity. If capacity building is only offered to current grantees, it may strengthen the organisations already closest to funders while leaving out those that did not get the grant but may need support even more. Jim raised the risk that capacity building can unintentionally widen the gap between organisations, giving some a competitive advantage while others fall further behind.

Tris pushed this further by arguing that the best capacity building can sometimes look more like field building. Some capacity does not need to sit separately inside every organisation. Digital, evaluation, learning, data, landscape analysis and strategy support could sometimes be shared across a field through infrastructure, communities of practice, fractional roles, open resources or shared knowledge platforms. At NPC, we have been thinking about the fractional resource for charities for a while. Have a look at this blog from our director for data and impact. 

This is especially important because so much of our sector’s work is knowledge work: understanding needs, identifying gaps, learning what works, mapping stakeholders and making sense of changing systems. Too often, that knowledge is created for one organisation or one funder, shared in one report, and then underused. If funders supported knowledge as shared infrastructure, capacity could live beyond a single grant or organisation. 

Funding is only one asset

This brings us to perhaps the most useful framing for funders: funding is only one asset. NPC’s Director of Philanthropy, Alex Hayes, shared the example of the European Philanthropic Initiative for Migration, which, as part of its strategic review, looked at the wider assets it held: its ability to take risks, connections, networks, reputation, legacy, skills and knowledge.

That shift in mindset matters. If funders see money as their only asset, capacity building becomes a question of what extra support can be attached to a grant. But if funders see funding as one tool among many, they can make more strategic choices about how to strengthen organisations and fields.

My main takeaway

My main takeaway from the session is this: the challenge is not just to fund more capacity building. It is to ask where capacity should sit, who gets to define it, and whether funders are using the full range of assets available to them.

If we want lasting impact, capacity building cannot be an afterthought. It needs to be part of how funders think about their role in the health, resilience and collective strength of the sectors they support.

A good next step for funders is to ask not just what they fund, but what else they can offer and whether that support is being shaped by the organisations and fields they want to strengthen.