by Rick Jacobus, Consultant and Former Director, Cornerstone Partnership at Capital Impact Partners

For profit businesses are routinely able to raise significant capital in the expectation that a new technology will create higher profits over the long term. Nonprofits, by definition, can’t make this same promise and, therefore, find it much harder to raise the kind of money necessary to invest in transformative technology.

But the technology itself holds the same promise to totally transform everything that nonprofits do – it is just taking us much longer to realize that promise. We know how to sell donors on delivering services and even changing policy but we have always had a harder time convincing people to fund institutional capacity and technology is essentially a new kind of organizational capacity that is now competing with everything else for scarce resources.

When we are raising money for tech, we need to make the case that the investment will pay for itself in one of three ways: either by lowering costs, by raising revenue or by increasing our social impact.  Sometimes, our projects will offer all three benefits.

1. Lower Costs

In many ways, nonprofits are no different from other businesses: many technology investments will simply allow us to do what we do for less money over time.  While this increased efficiency can make organizations more sustainable, this category may be the hardest to get donors excited about because it may not directly translate to observable differences in our services.

Making the case for this kind of investment involves calculating a payback period – the period of time over which an investment in technology will pay for itself. Be careful not to assume that these savings last forever, though.  Every technology has a useful life and more innovative technologies often become outdated quickly.

2. Increase Revenue

Technology that helps organizations build stronger connections or more effectively communicate with their donors can drive real increases in fundraising.  Similarly, technology that helps organizations do a better job of capturing the social impact that they are having (whether through formal measurement and statistical metrics or simply human stories) can increase revenues enough to easily justify their costs.

Making the case for this kind of investment is also just a matter of calculating the payback period but now this is much harder to do because it is harder to predict the impact on revenue. So instead, turn the math around and calculate the level of annual increase in fundraising that would be necessary to €˜break even’ on the investment over the expected life of the technology.  Help funders see how easy it would be to exceed that level.

3. Multiply Impact

While there are plenty of examples where technology investment leads to long term cost savings or revenue improvement for nonprofits, we can’t always expect that.  In so many other situations we see the potential of technology to make a difference in our work but we know that the technology will increase our ongoing costs not lower it.  Too often we back away from these opportunities – we try to do more with less when we should be doing more with more!

A 2010 survey found that, while 95% of nonprofit leaders consider IT to be critical to their finance and accounting activities, less than half said IT was critical to their service delivery and programs and only 26% said it was critical to their public education and advocacy.

Making the case for investments that increase impact is much harder.  Just as start up entrepreneurs have to convince investors that a given technology is likely to create radical new business opportunities, social entrepreneurs have to convince donors that new technologies have the potential to radically transform our social change work.  But because we are not likely to find one €˜Angel Investor” who will make a very large bet on the technology, we have to also show how relatively modest incremental investment can gradually unlock the potential of the technology and create change that is more than simply incremental.

One of the reservations that funders have with funding capacity building of any kind is that these kinds of investments can be a black box – when money is being spent on something other than service delivery it is harder to know whether it is being spent on the right things.  It we want to avoid the nonprofit starvation cycle we have to shine light into that black box and help funders to see the inner workings so that they can understand why the specific technology investments we are pursing can help us do more of the good that they are looking to us to do in the world.