Welcome to the series, Showing Our Work, where we pull back the curtain on how the Constellation Fund evaluates nonprofits — the data we use, the questions we ask, and the reasoning behind every grant we make.

Business Investors Have Clear Signals of Success

In business, investors usually have clear signals to guide their decisions. A company sells a product, customers pay for it, and financial results help show whether the business is creating value. Investors can compare costs, revenues, and risks to decide where their dollars will have the strongest return.

Philanthropy is different.

Social Impact is Harder to Measure

Donors and foundations are also trying to make the most of every dollar they invest, but the goal is social impact rather than profit. The challenge is that social impact is much harder to measure. It is relatively easy to count how many products a company sells. It is much harder to determine how much a nonprofit improves a child’s chances of graduating, helps a family avoid homelessness, or improves long-term health and stability.

Philanthropic Dollars Can Produce Real Returns

That does not mean the nonprofit sector is ineffective. In fact, our experience shows the opposite. Across more than one hundred organizations we have evaluated over the past seven years, the average return has been about $3.50 in social benefits for every $1 invested. Our portfolio has a $10.09 return for every $1 invested. That is a strong result and a reminder that philanthropic dollars can do real good when directed well. 

Still, many common measures of philanthropic “efficiency” do not answer the most important question. A widely used metric is the share of funds that goes to programs rather than overhead, like administrative costs. While this can be helpful, it does not tell us whether the programs themselves are achieving meaningful results. A foundation can have very low operating costs and still fund work with limited impact. Another may spend more on research and due diligence, but direct its grants to organizations producing far greater outcomes.

What Does the Money Accomplish?

At Constellation, we believe the better question is not simply how much money goes out the door, but what that money accomplishes.

Our model addresses this in two ways. First, every dollar donated to our grantmaking fund goes directly to grants. Operational costs are funded separately, primarily through support from our board of directors. Second, we evaluate the expected social return of each grant dollar and build our portfolio around organizations that combine strong evidence, strong execution, and strong impact. 

A Focus on What Interventions Matter Most

But even return on investment is not enough on its own. A nonprofit may show a strong return, yet that does not automatically mean it is advancing our highest-level goal: reducing poverty in the Twin Cities. That is why Constellation is also developing a milestone framework to identify the points in life where the right intervention can make the greatest difference. This helps us focus not only on what works, but on what matters most.

Our goal is simple: to help philanthropic capital flow to the organizations creating the greatest change in people’s lives.

In our next post, we will share more about how this approach is shaping our recent grantmaking and how we are building a portfolio designed for both impact and alignment with mission.