Inside the Funder–Nonprofit Disconnect (and How to Close It)
Perspectives vary, but the goal remains the same: make each dollar matter.
Numerous funders have shared that they’re streamlining their processes, being more flexible with their expectations, giving more consideration to grassroots organizations, and focusing on where they believe their contribution can make a meaningful difference. The consensus among nonprofits is that their teams are feeling burned out, resources are stretched, and they're frustrated. Both groups care about impact. Both feel like they’re doing their best. And yet the gap remains.
Overall giving has bounced back, but donor participation continues shrinking; that disconnect is a risk we can’t ignore. Total U.S. giving reached a record $592.5 billion in 2024, according to an annual report from the Giving USA Foundation. However, the number of donors continues to decline, and giving is concentrated among fewer, wealthier households. That’s not just a fundraising problem; it amplifies power dynamics and pressure on the funder–nonprofit relationship.
Let’s discuss what’s really going on—and what to do about it.
What nonprofits are actually dealing with
Recent data from the Center for Effective Philanthropy’s "State of Nonprofits 2024" report indicate that burnout among staff and leaders is still a top concern. Many are navigating higher demand for services with thin reserves and uncertain revenue.
At the same time:
Donor counts are down 4.5% year over year, even as dollars hold steady, meaning many organizations are more dependent on a smaller pool of major funders.
Tight restrictions and short-term project grants remain common, and they directly contribute to nonprofits' administrative burden, exacerbating power imbalances.
So when nonprofits hear “we’re becoming more trust-based,” but still spend a significant amount of time writing complex grants and custom reports for each funder, it doesn't fully align with their lived experience.
What funders report doing
On the funding side, there have been changes.
The Trust-Based Philanthropy Project’s 2024 Grantmaker Survey found that the majority of surveyed funders have started to streamline applications and reporting, and are experimenting with more flexible practices. Mainstream articles now discuss reducing the reporting burden as a core trust-based practice, not a nice-to-have.
Funders are also:
Joining collaborative funds to pool resources and share due diligence.
Looking for better impact data and dashboards to justify flexible, multi-year, or unrestricted funding.
From the funder's perspective, they’re evolving, but nonprofits don’t feel the change where it counts.
Where the disconnect shows up
Most of the disconnect falls into three buckets.
1. “Trust-based” on paper, compliance-heavy in practice
Funders talk about trust, but nonprofits still:
Must find the resources to complete bespoke applications and reports for each funder.
Translate their work into different frameworks and metrics to align with each funder's priorities and expectations, which is especially apparent in grantmaking.
Navigate multiple portals, formats, and deadlines. Managing the grant process is a time-consuming task.
This is the “trust-based lite” trap—new language, same workload. As one 2024 commentary on flexible funding put it: restrictions and complex requirements are still reinforcing power imbalances and discouraging truly flexible support.
2. Metrics that don’t match the work
Funders want data, clear outcomes, and proof. Nonprofits live in a messy reality.
Recent guidance recommends that collaborative funds adopt a small set of shared, portfolio-level indicators—consistently defined and used across grantees—so results are comparable, equitable, and provide a clear view of overall impact. Outside of a collaborative funder model, organizations can apply this approach to simplify expectations and streamline their own reporting practices. These are a few examples of current expectations:
Short-term numbers that don’t reflect long-term change. For example, "300 mentoring sessions” vs. improved school attendance and behavior over a semester/year, or citing “200 nightly shelter beds filled” vs. permanent housing secured.
Hyper-specific KPIs tailored to an organization's preference.
Stories and stats that aren’t reusable from one funder to the next.
Nonprofits often prioritize producing polished, funder-facing reports and ad-hoc metrics, diverting time from using data for learning, iteration, and program improvement.
3. Relationships that feel one-sided
Nonprofits say they rarely get honest feedback from funders, and they’re cautious about giving feedback to funders for fear of losing support. The takeaway here is that relationships feel more pressured.
Collaborative funds and newer vehicles are gaining traction because they often build in a genuine partnership model that includes shared learning and peer accountability.
How funders can start to close the gap
You can’t fix the entire system, but you can revisit your approach. Here’s where to start.
1. Cut the noise in applications and reporting
Reuse what already exists. Ask for audited financials, 990s, strategic plans, and public reports instead of made-for-you versions. Sector guidance now explicitly recommends leveraging existing data instead of forcing unique reports.
Align with others. If you’re part of a collaborative or funding circle, adopt shared templates and indicators so grantees don’t have to reinvent the wheel for each of you.
Right-size the ask. The administrative burden shouldn't be out of proportion to the grant size.
If you’re not sure whether your process is a burden, ask three grantees privately and listen without defending. If you're a funder, consider using short forms, shared metrics, and brief check-ins so compliance with your grant doesn't feel like another project with already stretched resources.
2. Shift what you measure (and why)
Prioritize learning over seeing impressive numbers. Clarify which 3–5 indicators actually inform decisions for you—and drop the rest.
Include organization health as a success metric. Funding (or tracking) things like staff capacity, cash reserves, and organizational stability isn’t “extra”—it’s core risk management. If teams are burned out and cash is thin, program impact will decrease. Supporting resilience protects the results funders care about.
Create a joint learning process. Review results with grantees and ask, “What surprised you? What would you do differently if you had flexible dollars?”
3. Make flexibility the default, not the exception
Recent commentaries on the future of philanthropy argue that truly trust-based, flexible funding remains the exception—even when funders say they support it.
When possible:
Convert renewals to multi-year, general operating, or at least highly flexible project grants.
Fund capacity (operations, technology, finance, HR) in addition to programs. This is necessary to keep the lights on and the nonprofit running.
4. Invite feedback
Establish structured ways for grantees to give you feedback.
Normalize “no” with context. When you decline a proposal, a short, honest explanation along with encouragement to reapply if you have a better-fit opportunity helps preserve trust.
What nonprofits can do
Get clear on your most impactful work. Spreading your team too thin is a recipe for disaster; you can't do everything and you can't be everything to everyone, so ask yourself where your energy and resources are best used. That clarity makes it easier to know what you should and shouldn't do based on your guiding principles, or North Star. It's never advised to take on more than you can realistically do for the sake of securing another grant that won't fully cover the cost of the additional work you're taking on.
Proactively offer better data, not more data. A simple, consistent internal impact brief you share with all funders can keep them informed.
Name the pattern, not the person. When you give feedback, focus on how a process affects your ability to deliver outcomes—not on how “difficult” a funder is.
The goal is to co-design relationships so both sides can actually do their best work.
The opportunity in the disconnect
The disconnect between funders and nonprofits isn’t new. What is new is the level of pressure on both sides:
Nonprofits are expected to do more with less.
Funders are under scrutiny to be more equitable, strategic, and transparent about outcomes from their contributions—not just generous.
Use the disconnect to improve communication and work together to identify realistic expectations and design better processes:
Fewer forms, shared metrics, faster decisions.
More multi-year, flexible dollars.
Real feedback loops.
That pressure can either harden old habits or force real change.
If you’re a funder, closing the gap starts with a simple mindset shift: your practices are part of your impact. How you listen, fund, and measure shapes what’s possible for every organization you touch.
If you’re a nonprofit leader, you’re not powerless in this. Your lived reality is information the sector needs. The more clearly you can articulate it, the more you help move philanthropy from performative “partnership” to the real thing.
And that’s where the needle finally moves—from compliance to trust, from transactions to shared work.
Sources:
https://johnsoncenter.org/wp-content/uploads/2025/01/11-trends-in-philanthropy-for-2025.pdf
https://cep.org/wp-content/uploads/2025/05/NVP_State-of-Nonprofits_2025.pdf
w.barrons.com/articles/charitable-giving-stocks-economy-5c9db142
https://www.trustbasedphilanthropy.org/tools-resources/2024-grantmaker-survey
https://www.bridgespan.org/insights/philanthropic-collaborative-landscape
https://candid.org/blogs/philanthropic-collaboratives-new-ways-effectively-measure-impact