Due diligence: next steps towards piloting a shared approach

Remind me why we’re doing this?  

Because it costs civil society in the region of £900m per year to apply for funding.  Large organisations spend about 5% of their resources on fundraising, and for small and equity-led organisations it’s closer to 20%. Funders must take steps to reduce these, alongside working in collaboration to tackle duplication and complexity. Due diligence is one part of the process where there is potential to save time and money, both for applicants and for assessors. We also hope that this project will enable us to learn how we can more effectively share risk among funders and increase their tolerance for risk. 

And here’s a quick reminder of what we mean by due diligence: it’s on the spectrum of activities with eligibility and assessment, and it’s the bit that focuses on identifying risks. Can this organisation hold, manage and spend a grant?  

What have we learned from our surveys?  

We have some new results from our survey of approaches to due diligence, which you can peruse in full here*. Here are some of the highlights:  

• 16 funders, or just under 10% of our members have now completed the survey. Whilst a small sample, it is an excellent spread in terms of their size and geography, and it includes grant makers from the public, independent and corporate sector. 

• There is consistency in the type of information requested for due diligence between funders – governing documents, financial documents (often just the last set of annual accounts, but this can include management accounts, cashflows and budgets/forecasts) and policies (usually only the safeguarding policy).  

• However, the level of analysis applied differs from funder to funder. Funders tend to differentiate their approaches based on the size of the funding request rather than the size of the organisation – not surprisingly, more detailed questions are asked for larger applications. 
• For example, in the annual accounts, you all look at the total reserves and the free reserves, but some of you check to see if there are plans to reduce or increase reserves not in line with the organisation’s policy and fewer still make an assessment of whether you think the reserves policy is reasonable.  
• Between them, our respondents can fund a very wide range of organisations, and the checks applied aren’t necessarily the same for all. But 40% of respondents would feel more comfortable funding different types of organisation if there were a shared approach to due diligence.  

*If you would like the survey results in a more accessible format please email info@londonfunders.org.uk 

What is the appetite to develop a shared approach?  

At our dinner with senior leaders, we heard a clear case for developing a shared approach and an appetite to do so. The due diligence diners identified a number of potential benefits: increased transparency and trust between funders and civil society, more time to build relationships, increased tolerance of risk. This chimes with what we’ve heard from grant managers, who’ve also identified the opportunity to create an asset-based approach to funding across London.  We also heard, particularly from smaller, local funders, that due diligence is about understanding the story of the organisation, rather than a simple checklist. Some felt their approach was already so light touch and relational that a shared approach might not be an improvement to their current practice. We need to be completely clear about where there is an opportunity to change practice through a shared approach, and recognise that there won’t be a solution that works for everyone.   

Potential pilots 

The approach that we want to pilot is a shared ‘platform’. Key documents from applicants, in the format they choose to use, can be uploaded once for review by multiple funders. Any funder can carry out the ‘due diligence’ analysis – this is a neutral identification of the key elements of the organisational ‘story’ that other funders would need to dig through the documents to find. Recognising that all funders have different tolerance of risk, there is no judgement of whether the organisation is fundable. Other funders can then review the summary analysis without needing to repeat it, and make their own decision. The aim is not to rule organisations out, but to screen them in, highlighting strengths and assets.    

We’d like to establish more than one pilot, and are looking for opportunities to work with groups of funders focusing on: 

1. Grants to small organisations – funding applications take up a much higher % of time for smaller organisations, so this makes a useful focus for a pilot  
2. Grants for a particular minoritised community that struggles to access funding e.g. led-by-and- for organisations for whom the costs of raising funds will be higher 
3. Funding an issue or sector e.g. youth work 
4. Funding in a place e.g. a local borough or collection of boroughs 
5. A group of larger regional funders with high volumes of grants (although not all of their programmes would need to be involved in the pilot) 

We think that pilots would need to run for at least one year, and involve a group of between 3 – 6 funders, ideally from different sectors, who are likely to receive at least 100 applications between them during the pilot period.  

Co-designing the next stage  

We’re inviting you to join us in a room in November to co-design some pilots, that we’ll aim to have up and running throughout 2024. We’ll be meeting in the afternoon of 16 November, with a big pile of biscuits and post it notes – register to attend here.  If you have practical ideas for a pilot, or are clear about the kind of pilot you’d like to take part in, get in touch with Geraldine at geraldine.blake@londonfunders.org.uk.