SeaChange was founded in 2008 by Charles Harris and Robert Steel, two Goldman Sachs partners, who shared a belief that a dedicated team providing select investment banking services to the nonprofit sector could help donors and organizations achieve greater social impact. After an initial focus in education and youth development, SeaChange expanded into mergers and collaboration, credit, and advisory services. SeaChange has made grants and loans, and undertaken advisory engagements in over 250 transactions since it was founded, flowing over $30 million into the nonprofits involved.
This conversation is between Jessica Cavagnero a Partner at SeaChange and Cynthia Adams, CEO and Founder of GrantStation. Jessica joined SeaChange in 2012 following a career in investment banking at Credit Suisse. She leads SeaChange’s nonprofit collaboration work nationally and in New York City as well as its advisory services program.
CMA: Obviously, SeaChange is not a foundation. Could you share with us exactly how you are structured and financed? What sets you apart from a foundation?
I am so glad you asked this. With the name “SeaChange Capital Partners” we’re mistaken for a hedge fund as often as we are mistaken for a foundation. We’re a nonprofit intermediary supported through grants from foundations and individuals that believe in our mission, approach, and values. At our core, we offer support to nonprofits around a variety of transactions, such as grants to launch partnerships between nonprofits, loans to help nonprofits expand, as well as advice and consultation around specific business decisions. We describe ourselves as an “investment bank” for the nonprofit sector.
CMA: That is a great descriptive term: “investment bank” for nonprofits. How does this work?
We’re active in three important ways: investments, advisory services, and insights. Let me explain a little about each of these activities.
- Investments: We raise funding from individuals and foundations that we use to make investments – in the form of grants and loans – to nonprofit organizations. Our grantmaking work is exclusively focused on supporting nonprofits that are collaborating (e.g., merging, undertaking programmatic and administrative partnerships, etc.). We are active nationally through the SeaChange-Lodestar Fund for Nonprofit Collaboration, in New York through the New York Merger, Acquisition, and Collaboration Fund, and in Philadelphia through the Nonprofit Repositioning Fund. In our credit work we make loans to nonprofits serving low-income New Yorkers through the Contact Fund and the New York Pooled PRI Fund. Our loans are used for real estate development, working capital, bridge financing, etc. We’re positioned to be more flexible than many conventional lenders, but balance that by maintaining an ongoing dialogue with our borrowers throughout the term of the investments.
- Advisory Services: Many SeaChangers (as we call ourselves) have come to the nonprofit sector following careers in finance. Our previous experience gave us hard earned expertise in financial analysis, transaction support, etc., which we make available to nonprofits through advisory services engagements. In these engagements, we are hired as consultants by nonprofits that believe financial analysis can help them make better, more informed business decisions.
- Insights: A big piece of our work is creating tools and resources to build knowledge in the nonprofit sector. As you might imagine, we get a lot of phone calls from nonprofits that are doing things for the “first time.” (How often does any given nonprofit engage in a merger, develop real estate, divest a program, responsibly wind down, etc.). However, we are involved in these transactions all day, every day. We share what we’ve learned in supporting these organizations through research reports (like our Risk Management Report), articles, convenings, etc.
CMA: Who actually makes up your market? What types of organizations or people?
Our audience is typically nonprofit leaders, including board members, foundations, and individuals who are interested in the broader market trends.
CMA: I think our readers might be very interested in the Advisory Services you provide. Can you share with me a little more information about those services?
As I mentioned earlier, there are certain situations where nonprofits have a specific question that can be answered with financial analysis. We’re around to help with that on a fee-for-service basis. For example, we’re often engaged by nonprofits that are in the midst of or poised to being part of a strategic planning process. These organizations often find it helpful to ground their discussion in a program-by-program analysis of the fully-loaded cost of offering services to identify areas of opportunity as well as challenges. In these instances, we’re engaged to build a financial model with scenario planning capabilities to help leadership think through the potential dollar impact of their decisions.
CMA: I think it would help our readers to grasp the breadth and depth of what you’re talking about if they could relate it to a specific example. Do you have one you could share? (You can change the names to protect the innocent, if you like.)
Jessica L. Cavagnero
Ha – at SeaChange, we presume everyone is innocent; judgement isn’t in our DNA!
Let me paint a picture: Nonprofit A has a $5 million annual operating budget funded through a mix of philanthropy (mostly program restricted, but a bit of general operating), government contracts, and a small amount of earned revenue or maybe even investment income. The organization typically runs an operating deficit that is modest enough to be covered by the board. Its programs serve kids, adults, and seniors. It owns a building and has a staff of 50, split among different departments. (To make things easy, let’s call those departments kids, adults, seniors, and management, which includes fiscal, marketing, reporting/evaluation, development, IT, facility, etc.). Nonprofit A has good handle on what it costs to run its programs (it has to if it’s bidding for government contracts), but very often, that program cost number doesn’t include the cost of staff doing evaluation, development, marketing, or the cost of the facility, utilities, etc.
Now when the board asks, “Which of our program areas – kids, adults, or seniors – is contributing most to the deficit?”, Nonprofit A has to do some math to get to the fully-loaded cost (program plus facility, management, evaluation, etc.) of doing the work.
A lot of our engagements start with calculating the fully-loaded cost of programs against funding raised for specific program areas. From there, we can say to Nonprofit A, “You’re breaking even on your kids programing, running a surplus on adults, but have a deficit for seniors.” That bottom-up analysis provides a basis from which leadership can have an informed discussion around opportunities for growth, contraction, financial sustainability, etc.
CMA: I am sure this analysis could be incredibly valuable to almost any nonprofit that runs a variety of programs. I can even imagine applying it to the work we do here at GrantStation. So, now I am curious as to what other types of situations you help with?
Other times we’ve been asked to join deal teams to help leadership structure transactions and launch new initiatives. We are open to all situations where we think we can add value and where our work leads to real decisions or transactions. In situations like strategic planning (where there is a large market of high-quality providers) or where there is a direct conflict with our grantmaking or lending work, we try to refer nonprofits to the appropriate resources in our network.
CMA: I really find this fascinating. SeaChange is like the missing link for many nonprofits. A way to add business savvy to their decision-making process.
In all our engagements, we take a neutral, data-informed role. We never want to be in a position of telling organizations what to do and how they should do it, but rather, we try to ask the right questions, the tough questions, to promote a discussion that gets leadership to a solution that is best for the clients that they serve.
CMA: I really do appreciate this approach. I have this theory that you should be bold in your thinking but you need to base your decisions on the facts. So, what is the main impetus that drives a nonprofit to seek your support?
If I had to guess (and I’m really not trying to speak on behalf of the nonprofits that reach out to us), I think organizations seek us out at first because we have funding available to support the new, risky, unchartered activities that they want to pursue (mergers, joint ventures, real estate development, wind down).
Hopefully, once they speak with us (and we always make the time available; operators are standing by), they find that we also have some expertise and best practices to share from our experience and, just as importantly, that we are committed to neutrality and confidentiality. We want to create a space where nonprofit leaders can talk through some of the stickier points of their transactions without worrying that the discussion details will get out into the world.
CMA: I do think confidentiality is a concern for most nonprofit organizations that are undertaking significant change. Questions, such as when do we start discussing this with staff, our major donors, and other funders, are always at the forefront of these types of board discussions. Do you find this particular issue is fairly high on the list of concerns when a nonprofit is contemplating a significant change?
100%. From my experience – and I’ve seen over 600 of these types of transactions – keeping things confidential, at least in the early days, is right up there alongside funding on the “worry list.” It’s not hard to understand why. Imagine saying to your staff, your important funders, or even to some board members, “We’re thinking about doing something, but aren’t sure what it is, don’t know how we will pay for it, or if it’s even possible. But it’s going to take a lot of heavy lifting from the staff and board, and probably even some unrestricted funding to figure it out.” That is a total nonstarter for most people, regardless of how committed they are to the work.
However, this is often the point where we come in. I think we add the most value when nonprofits are getting organized and working to structure a deal. Yes, we provide risk-tolerant funding, but – and this is an open secret – our diligence process for grants and loans, as well as our advisory services engagements, are all structured to provide a framework that breaks down big ideas or challenges into smaller, more easily considered pieces. And because we’re committed to confidentiality, our grantees, borrowers, and advisory clients can all work through the benefits and risks of a deal, bounce ideas off of us, and get pretty close to a “plan” before they go out to their important, year-in-year-out core group of funders. As we like to say in the office, don’t announce the engagement until you are pretty certain the wedding is going to happen.
CMA: I love that approach. I think it is a great take away for much of the work we do day in and day out. I want to thank you, Jessica, for giving so much of your time, and for your candid and enlightening responses.
If you are interested in working with SeaChange you can read more about their mission and approach on their website.
About Jessica Cavagnero
Prior to joining SeaChange, Jess was an Associate Director at CCS Fundraising, where she created and executed fundraising strategies for some of the largest nonprofit organizations in the United States. Before her transition to the nonprofit sector, Jess spent six years at Credit Suisse, the first two years working in Leveraged Finance sales & trading and the last four years in investment banking as Vice President in the Client Strategy Group, where she was responsible for developing global coverage strategy for a portfolio of 50 of the firm’s most important clients across all lines of business and geographies.
Jess is a proud native New Yorker (Let’s Go Mets!) and graduate of Cornell University.