Long-term grantee relationships are common, even among funders who make only one-year grants. But long-term does not usually mean forever. Donors may seek to end a funding relationship for many reasons, including:

• Financial considerations
  • The foundation is spending down
  • Market returns have caused a reduction in foundation assets
• Strategic considerations
  • The donor or board adopts new priorities
  • Even without new priorities, the donor wants to free up funds for new initiatives
• Performance considerations
  • Donors worry about long-term grantees becoming too dependent on them

If a funder does want to prune its current portfolio for reasons that are not specific to individual grantees, they should decide first how to determine which grants to exit, and then how to exit graciously and constructively.

Deciding Which Grants to Exit
Once you've decided to exit some of your grants, it's important to think analytically and hold emotions at bay for the decisions of which grants to exit. If the decisions will be made by a group of people, such as foundation board members, allowing emotions into the room could unleash heated conflict.

One effective way to proceed is to develop a simple rubric on which to score current grants. The rubric could include elements such as importance to the foundation's mission, depth or breadth of impact, and cost-effectiveness. These categories should be tailored to the strategy of the donor/foundation. All the decision-makers can participate in the scoring of each item, allowing for more buy-in and increasing the likelihood that intellect rather than emotion drives the process. Using a scoring rubric is also the most equitable and defensible process to explain to grantees.

Exiting Constructively
The key to a successful exit is to maximize the grantees' success in replacing your funds. Beyond the financial pain, terminating a grant generates anger, feelings of abandonment, and perhaps even panic. Here are 5 steps to take to help with the transition:

1. Communicate clearly and often with the grantees so that they understand the reason and timeframe for your exit. Ongoing communication can also demonstrate your emotional support for the grantees, even though future funding is not possible.
2. Unless it is absolutely necessary to exit swiftly, provide at least three years of advance notice, with declining grants over the three years. This gives the organizations the ability to replace your funds over time instead of all at once.
3. Consider matching grants to entice other donors. While declining funding will compel grantees to begin raising funds from others, framing the grants as "matching" creates the perception of "a bargain" that appeals to many funders. You might also consider matching funds on top of the final, declining grants you make.
4. In your final years of funding, you might make a special grant intended to increase the operational capacity of the grantees, especially in the areas of fundraising and finance. This short-term investment may lead to greater short-term spending than you anticipated on the way out, but it gives the grantees the best opportunity to replace your funding and thrive.
5. Open your contacts to the grantees, smoothing the way for them by explaining to your peers why this is a powerful philanthropic investment even if you cannot continue to fund it. Your relationships and credibility are great assets to your grantees. Do this as early as possible so that you will still be providing funding when you make the introductions.

By taking at least some of these steps, you will increase the likelihood that your funding is replaced, and you will convey to the grantees your commitment to them and their mission. By communicating early, sticking with your grantees through a few years of declining grants, and helping them to approach other funders, you demonstrate commitment and empathy that can help to salve the emotional wounds generated by a decision to terminate a grant relationship.

If you would like advice or support in developing a policy for terminating grant relationships or developing a capacity building program, please contact Yossi Prager, Senior Managing Director of JFN Consulting, at yossi@jfn.org.

There are strong arguments in favor of accepting unsolicited proposals.

1. It is difficult to imagine that we already know every organization capable of developing and successfully implementing important projects. This is especially true for foundations that fund broadly and do not have intimate knowledge of every field in which they operate. A blanket refusal to accept unsolicited proposals may deprive both the funder and the field of a meaningful advance.
2. Expanding the pool of potential grantees also expands the networks to which we have access. A previously unknown organization might introduce us to thinkers, funders, or evaluators who become valuable partners in other areas of our philanthropic work.
3. Openness creates space to discover emerging organizations that are not yet household names but could become the next Hadar, Repair the World, or Leading Edge. Many of today’s most influential institutions were once unknown quantities.

At the same time, there are serious reasons to decline unsolicited proposals.

1. Opening the door widely will generate significant additional work. While there may be diamonds in the rough, staff will need to sift through many cubic zirconia to find them. During my decades at AVI CHAI, I saw everything from humorous submissions, including a museum in New Jersey dedicated to Jewish egg farmers and an equestrian therapy camp with no connection to Jewish identity building, to proposals that were closer to our mission but came from unfamiliar academics and organizations. Investigating even the relevant ones would have required staff time that might otherwise have been devoted to projects in which we already had deep confidence.
2. There is also the question of what unsolicited proposals truly measure. They often surface not the most effective organizations, but those most capable of writing compelling proposals. We all know highly effective organizations that struggle to articulate their impact on paper, and weaker organizations that excel at presentation. A process that privileges written submissions may unintentionally privilege polish over performance.
3. If a foundation maintains open channels of communication with peer funders and with its grantees, it is likely to learn about promising new organizations and initiatives organically. Strong networks can surface innovation without the need for an open submission portal.

There is no universally correct answer to the question of unsolicited proposals. What matters most is strategic clarity. Foundations that are clear about what they are trying to achieve and that are well-connected in their fields will naturally be part of the conversations where new ideas and organizations emerge.

It's also worth noting that this is not a binary choice. Even a foundation that formally declines unsolicited proposals and sends a standard response letter may occasionally encounter a submission that warrants a second look. Although AVI CHAI did not accept unsolicited proposals as a matter of policy, one of our longest-funded projects began with an unsolicited letter from a well-regarded organization that had not previously worked in our field. Its reputation prompted a phone call. That conversation, followed by thoughtful engagement from both the organization and our staff, led to a highly successful grant program.

Policies matter. They shape default assumptions, staffing allocations, and operational discipline. But the strongest foundations combine policy clarity with intellectual flexibility. Even when the door is officially closed, they remain open to the possibility that an unexpected letter may turn out to be a jewel in the foundation’s crown.

If you would like to think through how this question applies to your foundation’s strategy, governance, and staffing model, please reach out to JFN Consulting at yossi@jfunders.org

Unfortunately, I have learned from personal experience that the enthusiasm generated by a proposal can blind a funder to hard questions. As a result, funders sometimes conduct limited due diligence that is subject to confirmation bias, the tendency to interpret information received so as to confirm what the funder already believes.

Complete due diligence, which is necessary for the largest grants, would answer the following questions:

At the level of the organization:

• Are the grant-seeking organization’s goals aligned with yours?
• Do their values align with yours?
• Does the organization have a clear strategy for its work that leads to effective tactics and demonstrated impact?
• How much does the organization's leadership monitor and evaluate their work?
• How well do they know their field?
• Have they fully and on a timely basis complied with legal requirements (e.g. filing federal and state forms)?
• Do they have conflict-of-interest and financial control policies?
• Do they have adequate staff capacity, and what is the reputation of their staff?
• Is the Board diverse and playing an active oversight and fundraising role? It is often wise to meet the board chair in the due diligence process.
• Do two years of the organization’s audited financial statements show a financially stable future?

At the project level:

• How much market research did they do?
• What evidence is there that the project has a good chance of success?
• Do you know enough about the possible impediments to success to ascertain whether the activities to be undertaken can overcome them? If you don’t know, who can help you inform you?
• What assumptions is the organization making that would have to be true for the project to succeed?
• What financial and reputational risks would you be taking by funding the project? Is there a risk that the project could actually do harm?
• Is the budget appropriate for the work needed? A budget that is too little to get the job done is no better than an oversized budget.
• How likely is it that the organization will be able to continue the work when your funding ends? Wishful thinking based on no track record doesn’t count.
• If it is not likely that the project will outlive your funding, does it make sense to require matching funds from the onset so that other funders are invested from the beginning?

Answers to these questions could come from information provided by the prospective grantee, peer funders, prior independent evaluations or independent research.

Not every concern uncovered through due diligence should be treated the same. Some issues are cautionary and manageable. Others should prompt serious hesitation or a decision not to proceed.

Yellow flags are warning signs that merit further inquiry, mitigation, or close monitoring. On their own, they may not be disqualifying, especially if the organization is self-aware and taking steps to address them. Examples of yellow flags include gaps in evaluation capacity, an overly optimistic sustainability plan, limited experience with a new line of work, or a budget that appears tight but plausible.

Red flags point to deeper problems that are unlikely to be resolved through additional funding or oversight. These include misalignment of values or goals, weak or inattentive governance, lack of basic financial controls, failure to comply with legal requirements, repeated leadership turnover, or a project built on assumptions that are demonstrably false. Red flags raise the risk that a grant could fail or cause reputational harm, regardless of intent or effort.

Context matters. A single yellow flag may be acceptable if counterbalanced by strong leadership, transparency, or a compelling track record. Multiple yellow flags, however, can aggregate into a red flag. Ultimately, due diligence is not about eliminating risk entirely, but about understanding which risks you are willing to take and which you are not.

If you would like to discuss specific situations or learn best practices in due diligence, please email JFN Consulting at yossi@jfunders.org.

Grant agreements should enable funders to reconsider the grant commitment when projects underperform, grantees experience leadership changes, or unforeseen issues arise. They should also govern the use of intellectual property created through the funded work. If your current grant agreements do not address these issues, they should be revisited. 

To guard against funding projects that are not succeeding, grant agreements should contain clear benchmarks, along with an explicit exit right if those benchmarks are not met. This does not mean funders should exit simply because a project is progressing more slowly than anticipated. Social change is not always linear, and effective grantees will learn from setbacks and adapt in ways that lead to eventual success. Still, when a funder has lost confidence in a grantee or the project’s direction, the agreement should allow the funder to withdraw.

Another common concern arises when key staff members leave an organization. Grants are often awarded based on confidence in specific individuals, not just the institution itself. Well-drafted grant agreements can provide an exit right if key personnel depart, which in effect gives the funder an opportunity to participate in discussions about replacement staff.

Over the past two years, many funders have sought to protect themselves against grantees that adopt anti-Israel or antisemitic positions after a grant has been committed. Funders have developed a range of contractual approaches to address this risk, typically including language that provides an opportunity for conversation with the grantee before funding is terminated. In practice, however, no legal language is effective once a grant has been fully paid. Although it is theoretically possible to require the return of funds under certain conditions, many grantees will not agree to such terms, and enforcement would require litigation. The most practical protection is to fund over time, rather than paying grants in full upfront or endowing them.

Many foundations give little thought to the use of intellectual property rights deriving from a funded project. Depending on the situation, a funder may seek the use of the property (or seek to enable other grantees to use the product) through a license. In other cases, a funder might want to negotiate ownership of the rights while giving a license to the grantee. Like much else in grant agreements, context is everything.

There are other grant provisions that should be in any grant letter, including the timing of payments and reports, the benchmarks that need to be achieved, an evaluation process, a requirement that grantees make their records available if the funder seeks an audit, and in some cases, sharing of contact information of participants in the project.

JFN Consulting helps funders tailor their grant agreements as part of a best practice review of foundations. If you seek to engage us in a best-practices review, please email Yossi Prager.

But informality has limits. A foundation is still a legal entity entrusted with public resources in the form of tax-advantaged dollars, and its board members carry significant responsibilities. When those responsibilities are handled casually or without adequate preparation, a foundation can unintentionally cross legal redlines or diminish the likelihood of the funds achieving their greatest impact. This is why board training matters. It equips family members with the knowledge and skills needed to steward the foundation effectively, protect it from risk and maximize the good it can do.

This need for training becomes clearer when we look at the framework in which foundations operate. Private foundations are governed by a detailed set of federal tax rules that shape almost every aspect of their work. These rules govern how the foundation invests its assets, how it meets its minimum annual payout (generally 5 percent), the procedures it must follow to make overseas grants and the extent to which family and board members may receive any personal benefit.

Consider a few examples. Donald Trump’s foundation was penalized for purchasing a painting at a charity auction that Trump hung in Mar-a-Lago, because the purchase provided him with a personal benefit. A more everyday situation arises when a foundation pays for a table at a charity dinner. Here, family members attending the dinner need to reimburse the foundation for the cost of the meal. For family members who serve as paid staff, the rules for demonstrating the reasonableness of the salary become very important.

Beyond complying with the federal law, there are state obligations on board members that require them to pay close attention to the operation of the foundation generally, and conflicts of interest in particular.

All foundation board members should get a basic education on the legal requirements, and ambitious foundations will help their board members grow in other ways. Board members should have job descriptions that identify their obligations, and they should have have training to enable them to perform their jobs.

Great foundation board members are trained in:   

• Developing strategy
• Implementing grantmaking guidelines
• Reviewing proposals
• Conducting due diligence (noting red and yellow flags)
• Preparing grant agreements that provide ongoing protection and leverage for the funder
• Reviewing reports, making site visits and helping add value to the funded project
• Considering renewals and exit strategies
• Avoiding common mistakes
• Annually assessing board functioning and foundation impact

In staffed foundations, some of this work is performed by professional staff, but the buck still stops at the board level. It is easy to give a way money; it is much harder to do so effectively. Zalman Bernstein, the founder of the great money management firm Sanford C. Bernstein and Co., once wrote, “The business of business is much easier than the business of philanthropy.” The science and art in effective philanthropy is not transmitted with mother’s milk. The best foundation boards have invested time in learning and applying best practices.

If you would like to explore training for your board, please email Yossi Prager at yossi@jfunders.org.

Why do some choose to spend down? A few reasons rise to the top:

• Spending funds sooner to meet urgent needs and avoid wealth hoarding .
• Recognizing that in a family foundation, the next generation may be unable or uninterested in dedicating the time needed to make wise philanthropic investments.
• Addressing concerns tha, over generations the founders’ values may fade in the minds of future board members. In the worst-case scenario, a foundation might eventually support projects the founders would have found objectionable.
• The presence of an overwhelmingly compelling philanthropic opportunity requiring much greater funding than the annual payout presents itself. For instance, the Whitaker Foundation spent down in 2006 in order to create 40 biomedical engineering programs at universities across America.

On the other hand, many foundations point to compelling arguments agains  spending down:

• Family foundations may want to honor and perpetuate the founders’ legacy while giving future generations an ongoing opportunity to work together.
• Strategic foundations understand that meaningful societal change can unfold over years or even decades, and a spend-down could end grantmaking before the goals are achieved.
• Transformative philanthropic opportunities emerge in their own time. While spending down ensures near-term impact, it may prevent a foundation from being present when a breakthrough opportunity to address root causes emerges.
• Effectively spending a large sum of money in a short period of time is extraordinarily challenging. Both Michael Bloomberg and Bernie Marcus made very large philanthropic gifts and still found that market growth of their assets outpaced their giving. The pressure to spend quickly can push a foundation to drift from its strategy, make endowment gifts it would not otherwise make, or rush decisions without sufficient due diligence.

The decision  whether or not to spend-down is interconnected with values, strategy and core beliefs. The decision-making process for each foundation will be different. If you want to begin the process of considering whether a spend-down makes sense for you, please email me at yossi@jfunders.org.

Foundations in Focus: Guidance from JFN Consulting

One effective way to navigate this handoff is through a Legacy Letter, something I recently helped a JFN Consulting client create. A Legacy Letter captures the story and spirit of a foundation, offering future board members a clear understanding of what matters most: the founders’ values and principles, lessons learned, and which elements are open to evolution.

A thoughtful Legacy Letter can include:

• The family’s history
• The founders’ values and philanthropic philosophy
• The foundation’s mission or statement of purpose
• Examples of meaningful grants and lessons learned
• Expectations for governance and board structure
• Operational considerations, such as spending rate, investment policies, and whether the foundation should exist in perpetuity or spend down
• Grantmaking guidelines, including focus areas, openness to multi-year or collaborative funding, and red lines to identify organizations that do not align with core values

By clarifying which of these elements are fixed and which may adapt over time, the Legacy Letter helps future board members honor the founders’ intent while continuing to respond to changing circumstances.

Some families also choose to include a living section, such as a family tree or a running list of successful grants, that can evolve as the foundation’s story continues to unfold.

Developing a Legacy Letter should not be a one-way exercise. It is best used to spark cross-generational conversations and structured board training for the next generation. Done well, the process creates clarity, transparency, and a shared sense of purpose that ensures the foundation’s values continue midor l’dor (from generation to generation).

If your foundation is beginning a generational transition, Yossi Prager can help guide the process and craft a Legacy Letter that reflects your family’s unique mission and values. Reach him at yossi@jfunders.org.

Foundations in Focus: Guidance from JFN Consulting

Foundations in Focus: Guidance from JFN Consulting