In this challenging economic environment, nonprofits are scrambling to raise the funds necessary to continue providing quality services and programs in the face of increased demand. Even during the best of times, the pressure, and cost, of constant fundraising can divert precious resources that might otherwise be used in direct pursuit of organizations’ social-change agendas.

Recognizing that nonprofits are perpetually struggling just to stay afloat, some of the donors I’ve worked with over the years have found that by supporting nonprofits’ growth and development, rather than targeting funds for specific programs, they can invest not only in an organization’s current work, but also in its ability to adapt and sustain itself into the future. Indeed, these “capacity building” grants are often the only funds an organization receives that it can access specifically for planning and infrastructure-building purposes. Without these funds, organizations either forsake these critical activities altogether or use precious general operating funds, thus depleting funds needed for crucial programming.

Understanding the dilemmas of the current nonprofit financing model, the Nonprofit Finance Fund, a community development financial institution focused exclusively on nonprofits, has taken the concept of investing in nonprofits’ long-term sustainability a step further. The NFF is promoting the development of a capital marketplace for “philanthropic equity”–enterprise level investments intended to subsidize organizations until they reach a point when their activities are fully sustained by donors. This “high stakes capital” is distinct from more traditional types of funding such as bricks and mortar, program or general operating support, and is meant to provide nonprofits with the capital they need to scale impact and create lasting social change. Unlike for-profit equity, however, investors realize a social, rather than financial, return on investments.

But can the current nonprofit financing system in which organizations are rewarded for maintaining tight margins actually be replaced by one in which equity investors provide organizations with unrestricted capital? And would providing nonprofits capital that they could tap into for growth and development purposes (much the same way that for-profit entities do) actually lead to more responsive and efficient organizations?

The NFF thinks so. To illustrate the potential of this financing model, the NFF released a report last month analyzing both the opportunities and challenges presented by engaging in philanthropic equity investing. The report reveals that the NFF was able to leverage $312 million in philanthropic equity investments over four years through capital campaigns. Unlike the capital campaigns most donors are familiar with, the purpose of these campaigns was not to raise money for buildings or endowments, but rather to bring together investors interested in supporting the nonprofits’ strategy development process.

For the nine organizations that partnered with the NFF in philanthropic equity campaigns (and for which multi-year data is available), access to seed capital allowed them to focus on improving programs and attracting dependable income on an a continual basis. In fact, all nine of the organizations enhanced their program delivery track records and increased the sustainability of their operations. For example, by comparing baseline and current rates of program growth for each organization using such metrics as “number of students enrolled” and “education reform victories”, NFF found a compound annual growth rate of 57%. At the same time, the organizations’ business model revenues expanded by a total of $30 million compared to pre-campaign baselines.

Undoubtedly, these campaigns have been successful in providing nonprofits with an ongoing source of funds that can be tapped expressly for business development purposes. And while I ultimately believe that this type of financing system has the potential to lead to a more sustainable, innovative nonprofit sector, I also know how difficult it will be for both individual donors and institutional funders to depart from business as usual. Many donors value their ongoing relationships with the organizations they support and would be reluctant to simply provide a one-time equity investment and then step back. Others require evidence of how their money has made a difference in the form of program outcomes and may not have the patience to monitor a nonprofit’s progress towards sustainability over several years. In addition, I would argue that many individual donors are not yet accustomed to thinking about the long-term sustainability of the organizations they fund, focusing instead on giving money to organizations that appear to do good work on issues they care about.

However, there is room for what George Overholser, NFF Capital Partners founder and managing director, calls “buyers” and “builders”. Overholser explains that while “buyers” make contributions to organizations to cover the costs of program implementation year after year, “builders” pay for the growth, the trial and error, and the shifts in business strategy that allow organizations to improve their operations and change directions in response to community need. Just as both customers (buyers) and investors (builders) contribute to the success of for-profit enterprises, both donors (buyers) and seed investors (builders) are critical to not only sustaining nonprofits, but also allowing them to innovate in response to need and to plan strategically for the future.

While the discussion of “philanthropic equity” may seem like the latest in a string of calls for donors to “go beyond the grant” and apply venture capital finance techniques to philanthropy, this investment strategy is a viable option for donors with an appetite for risk and an interest in contributing to the sustainability of organizations with both promising and proven program models. And, the more donors dare to invest outside the lines, the more innovative and efficient our nonprofit organizations will be.

Betsy Brill is founder and president of Strategic Philanthropy, Ltd. , a philanthropic advisory practice based in Chicago and serving clients worldwide.