Mission-driven organizations conduct year-end reviews, but often don’t connect the dots between departmental priorities. Marketing wants better donor engagement tools. Finance needs a faster month-end close. Development wants expanded capacity.
These sound like separate requests—until you realize they’re all symptoms of the same problem: disconnected systems creating duplicate work. While significant expenses can be intimidating to seek approval for, they are often necessary for your organization’s health.
With the multiple other priorities your organization has to budget for, how do you make the case for significant capital investments? Too often, strategic initiatives are shelved or downscaled due to financial constraints. So what can your organization do?
What is an Innovation Fund?
What is an innovation fund? These funds are funded by setting aside a dedicated portion of the annual budget or allocating year-end surpluses into a restricted or board-designated reserve specifically for innovation. Still, they can also be supported by donors (and typically present a grand narrative to raise funds).
It’s common to use innovation funds for significant capital expenses, like technology improvements, capital purchases, and other initiatives outside of your typical budget year.
Innovation funds:
- Give opportunities to try new funding approaches without disrupting core operations
- Dismiss the idea that “you don’t have the budget for that.”
- Create funding for proactive changes instead of reactive changes
- Highlight a commitment to funding the future
Tip: Organizations that track investments through accounting software can better monitor how innovation funds are allocated and spent.
Best Practices: Building Your Innovation Fundraising Case
Innovation funds unite your organization and bring them together to support the fund’s goal. Working with development teams, your organization can raise funds by sharing the story of why this initiative is necessary to meet the needs of its beneficiaries or members.
Some innovation fund best practices include supporting your development team by supplying testimonials from you about how the fund will support initiatives critical to your organization. These testimonials humanize the innovation fund campaign and turn it from a financial goal into a people-driven one.
Innovation funds are a straightforward way for your organization to tell its story while advocating for funding and they are a practical means to fund innovative initiatives with a far-reaching impact.
Using Innovation Funds for Tech Investment
A common use of innovation funds is tech investment, such as eliminating the aforementioned duplicate systems.
While your organization budgets for software costs, such as subscription fees, implementation, and training. Justifying larger tech investments often takes a back seat, despite the pressing need created by disconnected systems. Enter an innovation fund.
When creating an innovation fund to address disconnected systems, start with your people. Organizations often fail to budget for the costs of disconnected technology, including staff time. When your team spends less time in disconnected systems, they have more time to focus on operations and meet your mission.
Watch: Learn how successful nonprofits and associations kept their budget agile during 2025 and are better prepared for the uncertainty of 2026.
Follow these three steps to figure out the scope of what your innovation fund will solve for:
1. Ask for and encourage candid feedback from your team.
Hold a meeting with members from across your organization to identify the issues that are slowing them down. Consider asking how many hours per week your team spends on:
- Entering the same donor or member information into multiple systems?
- Creating board reports by pulling data from different platforms and manually combining it?
- Reconciling discrepancies between your accounting system and your donor database?
- Training new staff on multiple platforms instead of one integrated system?
Disparate systems create redundancies and extra work that bogs down effectiveness. Too often, organizations stick with what’s working because it’s worked before. Just because you’re using the technology doesn’t mean it’s the best option available today.
2. Aggregate this feedback into common pain points to solve for
As you have these conversations, common pain points will emerge. These pain points are what your development team can use to influence their campaign. While needing faster tools for the month-end close isn’t a central fundraising point, highlighting the time spent away from your mission on administrative tasks is. If a connected system gives your team more time to support its mission, it can reach a greater number of beneficiaries and members.
3. Consider the size of your technology investment and start an innovation fund
Perhaps through a combination of factors, you have enough budgetary surplus to fund the whole kit and caboodle in your innovation fund; if so, good for you!
More likely, your organization will need to designate funds based on project importance.
Some questions to ask before any technology investment include:
- Does this connect to our existing systems, or create another data silo?
- Will this reduce manual work, or add new administrative tasks?
- Can we obtain the necessary information for budgeting and board reports without requiring additional effort?
- If our needs change next year, can this adapt?
- Does this vendor offer any additional tools that we can integrate in the future?
Spending smarter on technology means choosing tools that work for your organization today and can proactively respond to your group as it grows in the future. Choosing scalable systems that connect across departments—like Momentive’s accounting software—ensures your innovation fund delivers measurable ROI. With a scalable solution, as your needs change, they’ll have the tech you need as you need it.
Once your technology ask is determined, your organization will start an innovation fund. Allocating a portion of its budget, and any unused surplus from the previous years into this restricted fund.
An Example Innovation Fund Campaign
With the needs identified and a clear investment goal in place, it’s time to tell your story. When it comes to telling your story, follow these four best practices to build and kick off your innovation fund campaign:
- Clearly define why this is needed
Share the why behind the investment. Clearly link this proposed investment to the successful delivery of our mission and the direct benefit it provides to our members and beneficiaries. Furthermore, explain how delaying this action would increase operational risks, consume valuable staff time, and result in a measurable reduction in the quality or availability of services.
- Build your business case
Present the initial and ongoing costs of the investment. Consider:
- Capital outlay
- Implementation/support costs
- Staffing/training needs
- Demonstrate long-term value or ROI:
- Cost savings
- Risk reduction
- Scalability for future growth
Present scenarios of how the funding will be spent to support this initiative.
- Bring in stakeholders
Too often, the conversation becomes about numbers, add the people element to your debate and demonstrate how it affects them.
- Communicate clearly and strategically
Consider creating supplementary materials to support your request. Consider including:
- An executive summary
- Strategic rationale
- Financial breakdown (capital vs operating)
- Timeline and milestones
Launching Your Innovation Fund Campaign
Your donors want to support your organization. They believe in your mission and the good you’re doing. As you collect donations to your innovation fund, share how the initiative is being funded, strategic milestones you’ve passed, and how it’s impacting your team and beneficiaries by including regular Impact Reports. Organizations that use fundraising software can automate donor updates and impact reporting tied to innovation campaigns.
By establishing an innovation fund for tech investment, you’re not just budgeting for a new expense; you’re proactively investing in efficiency, mission-delivery capacity, and your team’s ability to focus on what matters most.
Ready to modernize your organization’s systems?
See how Momentive’s accounting software and fundraising platform help organizations manage innovation funds and invest in efficiency.
If you’re evaluating technology as part of your 2026 budget, learn more about how Momentive can help.
FAQ
1. What is an innovation fund?
An innovation fund is a dedicated pool of money set aside by an organization to finance new ideas, technology upgrades, or process improvements that drive long-term growth.
2. How does an innovation fund work?
Innovation funds are typically created through annual budget allocations, board-designated reserves, or donor support. Teams submit proposals, and approved projects receive funding for initiatives that improve efficiency or deliver new value.
3. What does an innovation fund do?
It provides flexible, proactive funding for projects that wouldn’t fit within a normal annual budget—such as digital transformation, research, or pilot programs.
4. How is an innovation fund funded?
Organizations can fund them by allocating a percentage of annual budgets, directing surplus revenue, or running donor campaigns focused on innovation and modernization.
5. What are best practices for managing an innovation fund?
Set clear objectives, establish transparent approval and reporting processes, involve cross-department input, and measure outcomes to demonstrate ROI and accountability.
6. What’s the difference between an innovation fund and an innovation grant?
An innovation fund is internally created and managed by an organization; an innovation grant typically comes from an external source (like a foundation or government) to support similar innovation goals.
7. What types of projects are funded through innovation funds?
Common projects include technology integrations, process automation, research and development, new service models, and efficiency improvements.
8. How can organizations raise money for an innovation fund?
Organizations can launch targeted fundraising campaigns, secure board approval for dedicated reserves, or seek restricted donations specifically tied to innovation goals.
9. What are other innovative funding methods besides innovation funds?
Crowdfunding, impact investing, public-private partnerships, and performance-based grants are all alternative ways to finance innovation.
