Category Archives: Fund Development

Is crowdfunding an option for your nonprofit?

Crowdfunding, a means of getting people to pool their money to raise capital, is no longer just for business startups and artists. Sites like Fundraise.com, CauseVox and Fundly now attract hundreds of nonprofits raising money for their causes.

Crowdfunding was inspired by crowdsourcing—networking to build collective cooperation and trust for a shared effort. Crowdfunding has long been a popular model for disaster relief, international microenterprise, and political campaigns.

But with the rise of social media, opportunities are soaring for nonprofits to crowdfund to raise dollars and visibility. Even sites like Kickstarter and indiegogo, which aren’t non-profit specific, are used more and more for organizational fundraising.

Crowdfunding sites let your nonprofit set up an online campaign based on a fundraising page, and you can accept funds directly from that page using the website’s credit card processor. The sites are designed so supporters can get their colleagues and friends to donate too, either by setting up their own fundraising pages or those that link to your “master” campaign page.

Some sites like Kickstarter are geared more toward tangible products like films and art exhibitions, and their nonprofit users tend to be arts organizations promoting such products. Others, like CauseVox, are more broadly geared toward nonprofits. But all crowdfunding sites work best for specific projects or campaigns, rather than general fundraising such as annual giving.

But crowdfunding is not a magic cure for all fundraising woes. It takes strategic effort to get traction on your campaign from your inner circle of supporters, and to create the compelling messages that will spread the word beyond that circle. The sites provide you with the tools to report and thank donors, but someone needs to manage the process. And crowdfunding works best for quick turnarounds—the money comes in and you need to use it for what you promised, without delay.

Crowdfunding sites vary in costs and features. Make sure you choose one that’s visually appealing, easy to use, and fits your needs. For instance, some sites like KickStarter require a video, while you only need pictures for others like Fundraise.com. Check out the total cost of the fundraising platform—some have set-up fees, monthly fees, credit card processing fees, fees for sending you a check, etc. Don’t forget to investigate what payment methods donors can use, including e-checks.

Also look at the actual networking capabilities. How easy will it be to link to and promote your fundraising page on social networking sites?  Can your supporters set up their own pages and have donations funneled through them back to you?

Most importantly, check out the site’s stats and success stories, and ask around. There are more crowdfunding sites hitting the web every day, but not all of them are widely attracting people to browse for causes and make donations. Pick a site that people are using!

You’ll learn much more about crowdfunding and its potential for your nonprofit, the Alliance’s upcoming conference Powerful Networks: Nonprofits, Social Media, & Community in just a week—register now! 

Fundraising in the cloud

Is your fundraising management in the cloud?

Cloud computing refers to applications and resources you use through the Internet, like Webmail. These are hosted and run by servers connected to the net–servers you don’t have to host or support.

Fundraising in the cloud has taken off in the last few years, with nonprofits using cloud-based customer relationship management (CRM) systems to find and manage donors. CRM applications that run in the cloud are the cheapest, safest, and most efficient way to streamline fundraising operations so that all your information is accurate, up-to-date, and smoothly integrated with your fundraising operations.

The Alliance is excited to welcome Tal Frankfurt from Cloud for Good to this year’s annual conference. Cloud for Good is a Memphis-based national consulting firm that helps nonprofits create strategic cloud-based solutions, including CRM. Frankfurt will present on how to use CRM databases to build fundraising capacity and get better results from your efforts.

Cloud for Good specializes in helping nonprofits implement SalesForce,  a CRM system that offers a version for nonprofits to track constituents, partners, donors and their donations, activities, volunteers, and more. SalsaLabs/Democracy In Action is another option, mostly for small organizations focused on social change. Many other systems are available, and customizable, for all kinds of nonprofits.

CRM can help your nonprofit target potential donors, establish plans for contacting them (not too much or too little), and convert them into actual donors. CRM systems keep track of all your conversations, interactions, and results. They help you develop channels for crafting specialized messages for different audiences, and for engaging people to do more—call their Senators, attend an event, read your new report. They tie into your website and link to social media avenues like Facebook and Twitter to help increase the reach of your efforts. They provide extensive analytical capabilities—you can chart the success rate of your campaigns and learn what worked and what didn’t. And they allow everyone in your organization to access a unified, continually updated view of donors and potential donors.

Have a recommendation for a CRM system you use and like? Want to know more about working smarter and faster through CRM in the cloud? Don’t miss our annual conference on May 2–register now!

Endowments, part 3: the campaign

A few weeks ago we discussed the pros and cons of endowments, and last week we touched on the key decisions and policies needed to get an endowment up and running effectively. Today we share some thoughts on running endowment campaigns.

Endowment campaigns are structured like annual campaigns, with specific goals, timelines, and gift charts.  However, they don’t happen every year. Some experts say that five or seven years should be the minimum time between endowment campaigns, and others say ten. They also differ from annual campaigns in that they focus on large givers. Annual campaigns are broad-based, relying on smaller gifts from a lot of donors. In an endowment campaign you might expect half or more of the goal to be raised from just a handful of donors.

So how do you prepare for an endowment campaign?

1. Set a goal. You’ll first need to determine how much interest income you want and the size of the principal needed to generate that much interest. In general, nonprofits can take out up to five percent of the principal each year and still have it continue to grow. A financial advisor can help with projections, and a feasibility study can help set ambitious but realistic goals.

Sometimes an organization will set a goal for their endowment that is higher than what it can raise immediately. Instead  a campaign is conducted to “seed” the endowment fund. For instance, your ultimate goal might be one and a half million dollars, but $500,000 is a more realistic target for an intensive endowment campaign. You continue raising money for your endowment after the campaign, with the hope that having raised the seed will make donors feel more confident that their gift is joining existing funds. The problem, say some experts, is that too often the endowment levels off after the seed is raised, and then the fund is too small to generate the interest really needed. A seed campaign only works with a good follow-up plan!

2. Create a gift range chart. Fundraising gift range charts are based on proven guidelines. For endowment campaigns, you will usually be seeking a lead gift equal to 20 percent of the goal, two gifts that equal ten percent, and three to five gifts that make up the next ten percent. That’s 50 percent of the goal from six to eight donors.

Remember that donors have several years to pay off their gifts—a donor’s pledge of $100,000 may be paid as $2,778 a month or $16,667 twice a year for three years.

3. Establish a timeline. Endowment campaigns usually run from two to five years. If this sounds like a lot, consider that it may take months to do prospect research and develop your written materials. Also, you can expect that soliciting lead donors will take place over several conversations. Experienced fundraisers say that five years is the maximum most nonprofits can sustain interest in the campaign and balance it with other fundraising activities, and that the active part of the campaign is best conducted over two to three years.

4. Develop communications materials. You’ll need a fundraising case in the form of a printed brochure or other documents. Although this may seem like a quick and easy step, a good endowment packet takes time to develop and involves major decisions about content and style as well as design, length, color, etc. Allow plenty of time but also be clear about how and when the decision-making process will take place so your materials don’t get hung up by endless discussion and debate.

5. Form a solicitation team.  Endowments are mostly funded by donors’ assets or estates, not their annual income. Your solicitation team should be comprised of people who are comfortable asking donors for assets. Usually they will be people who have made an asset gift themselves—they will be asking others to join them in funding this endowment. Typically a team of a Board member and staff member will identify a few people who are close to the organization and able to make a large gift. They will solicit gifts from these people and then ask them to be on the solicitation team. The team may start with just two or three donors and build gradually over time.

6. Develop a list of prospects. Prospects are people who demonstrate a commitment to your nonprofit, have money, and to whom you have access. Your list should start with the people who are closest to the organization, including Board members and major donors. You will have to think through this group of people to determine who can give the biggest gifts, and who is most likely to be excited about your endowment. The more you know about your donors and the nature of their gifts, the more likely it is you’ll create a strong prospect list. For instance, if a donor is already giving you regular gifts from her investment income, she may be willing to give you an asset to fund your endowment. A general rule of thumb for endowment campaigns is that you will need about four times as many prospects as the gifts you seek.

 7. Solicit the gifts.  Soliciting endowment gifts is similar to soliciting other large gifts. However, you must articulate and communicate a different kind of need for endowment gifts. Soliciting major gifts depends on communicating a pressing, immediate need to the donor, and capital gift solicitations must convey a specific need for a facility or some other investment. The case for an endowment must express your organization’s need to build long-term stability and convince the donor that her gift will help permanently sustain your mission in the community.

Endowments represent a big responsibility for nonprofits.  Supporters have to do more than just like your organization to be willing to give to your endowment. They must believe your organization can manage investing large amounts of money and that it can steward that money carefully in the future. No matter where you are in the process of preparing for or running your campaign, your most important job is to ensure you’ll do both.

We’d love to know if your organization is planning an endowment campaign now, or if you have lessons learned you’d like to share from past campaigns. Considering an endowment?  Give us a call–we can help you find a great consultant to help you evaluate whether to establish an endowment or to help you organize and operate an endowment campaign.

Steps to starting an endowment

Two week ago we shared our thoughts about what nonprofits should consider before starting an endowment. If you’ve worked through the pros and cons, and your organization plans to start an endowment, how do you get started? Your Board must agree on the role of the endowment, authorize its establishment, and put several essential policies in place. This week, a look at these important steps.

1. Agree on the purpose.  Why does your organization want an endowment? You may be surprised that Board and staff have different ideas about the role an endowment would play. Is it to provide some relief from fundraising? Pay for new programs? Start a satellite office?  What you use it for will help you figure out how big your endowment should be.

2. Authorize the endowment. This is a Board move, signaling its commitment to create the fund and hold the money in perpetuity. The endowment becomes part of their financial responsibility, and will be included as a separate line item in financial reports.

3. Create an endowment policy. You must create a policy that specifies how the interest income from the endowment will be used. The challenge of creating a policy is to make it broad enough to meet your needs without being too vague. Take time to think through the details, and include how the endowment will apply to expected change and growth.

4. Create an invasion policy. It sounds violent, but “invasion” refers to using the endowment principle. You wouldn’t do so unless circumstances are dire or you would be using it to pay for another long-term asset, like a building. Most policies stipulate that the principal can only be used if the organization is in danger of closing. Some Boards rule that the principal can be used to balance the budget for one or two years, and others rule that it can’t be touched at all, ever. It’s also important to detail how much of the principal can be taken and when it must be paid back. Last, invasion policies should specify who has the authority to decide whether to use the endowment principal—the whole Board, a percentage, the executive committee?

5. Develop a gift acceptance policy. You may have a gift acceptance policy in place before you start an endowment. But whether you’re adapting an existing policy or starting fresh, you’ll need to decide what types of gifts you’ll accept, who has the authority to accept them, and under what circumstances. Will you take buildings? Land? Expensive collectibles you may not be able to sell? If you decide to accept stock, are there sectors or companies that you don’t want to support? Complications associated with non-monetary gifts are why some experts recommend nonprofits start with a policy to accept cash, securities, and life insurance only.

The gift acceptance policy is also where you’ll have to explore the possibility of restricted gifts. If someone wants to endow a particular program, what will you do?

6. Establish an investment policy. An investment policy will state whether you’ll invest entirely for income or you’ll have a mix of investments to grow the principal and income. Will you require socially responsible investing, choosing screens to filter out tobacco or gun companies, or those that don’t support unions, for example? And how will you set or rank these priorities?

7. Create an investment committee. Once your endowment is established, your Board should create an investment committee. Non-Board members such as donors can be part of the committee as well. Although the committee manages the fund, the Board must still take responsibility for monitoring it. It’s important to have strong faith in the knowledge and intentions of the committee.

With your endowment authorized and policies in place, you can announce the fund and start including it in your fundraising efforts. You can also conduct an endowment campaign, with specific goals and timelines, which we’ll cover next week.

Social justice funding declines

Funding for social justice nonprofits has seriously declined since the economic collapse in 2008, according to a new report.

Social justice organizations work for systemic social change based on principles of equality, solidarity, and human rights. They include groups focused on progressive taxation and legislation and the rights of vulnerable and marginalized populations. They strive to eliminate disparities in areas such as health, housing, and education, and to create a level playing field for social and economic opportunity.

The report, published by the Foundation Center, analyzed the giving of 54 foundations that actively support social justice organizations. Grants from these foundations fell to below 2007 levels in 2009, the researchers say, and they’re unlikely to bounce back until at least 2015.

Social justice funding was on the rise in the first part of the decade, spurred in part by a “sense of optimism for the future with the start of the Obama administration,” according to a previous Foundation Center study published in 2009.

The new report, Diminishing Dollars, found that smaller foundations suffered the biggest losses and were most likely to have decreased giving for social justice. Grantees in the field are also typically small, community-based or member-led organizations without substantial financial resources. They have small, dedicated funder bases and high vulnerability to funding cuts. The report’s authors write that these groups “often lack the capacity to compete with larger nonprofits for public funds or for funding from more ‘mainstream’ foundations as the environment becomes both increasingly competitive (due to scarce resources) and focused on scalability and outcomes.” They rely on the funders that are struggling most to recover in the current economy. According to projections, foundations in the field with less than $50 million in assets will have 17 percent less in 2015 than they did before the crash.

The report notes that in response to the downturn, many foundations in the field have changed their processes and policies. They are spending less, either by changing review criteria, refusing unsolicited proposals, or funding only existing grantees. For this reason, the authors write, newer organizations and those seeking new funders will have a tough time securing grants in the next few years.

It’s no secret that the wealth gap is increasing, along with the social disparities it creates. Given the grim outlook for grants, social justice organizations will likely have to turn to non-foundation funding if they intend to stick around. It will become even more critical for most to build a solid base of individual donors who support their goals and means. At the same time, other mission-driven nonprofits will need to incorporate social justice advocacy and organizing into their work, and bring their funders along.

Read the Foundation Center report, Diminishing Dollars, here.

Starting an endowment: what to consider

Starting an endowment is easiest when the economy’s strong, but it’s also a way to create a reliable source of income for lean times. Just as we personally save money for emergencies and retirement, nonprofits that can set aside money should. This week, we offer a few thoughts on the benefits and drawbacks of endowment funds, and next week we’ll share tips for getting them started.

An endowment is money set aside to invest in mutual funds or certificates of deposit. Endowments are permanent savings accounts, and nonprofits that intend to stick around use them to generate income for ongoing needs and capital for long-term growth.

To start an endowment, an organization puts aside money as principal and a small percentage of that principal (typically five percent) is used for annual needs. In years when the principal increases more than that percentage, the organization has more money it can use. When the principal doesn’t increase, the nonprofit can still take out five percent of the asset without affecting the principal too much.

During a market crash, even the principal may lose value, and there may be nothing to use for operating expenses. With a good mix of investments, an endowment can usually tolerate economic flux, but it should always be part of a nonprofit’s diversified income stream.

In addition to boosting annual income and long-term financial security, endowments are useful for several reasons. Most importantly for some organizations, endowments enable people to make larger gifts than they would through an annual fund. Donors who make large one-time gifts appreciate that their gift is an investment and will help support a nonprofit’s long-term growth.

Having an endowment is also very important if you expect your organization to be the recipient of bequests. For the most part, people who write nonprofits into their wills want their donations to go into a permanent fund.

One potential benefit of an endowment is that it can provide unrestricted income for operating or program needs. If donations to the endowment are no-strings attached, they help nonprofits be self-determining. Endowment income can be used to prioritize operating or program support, invest in capacity building, and respond to new opportunities. Sometimes principal from endowments can be used for capital purchases and loan collateral as well.

But not always. There have been notorious lawsuits when endowment gifts are linked to certain donor stipulations with which organizations have been accused of not complying. This can happen when a donor dies and no terms were developed for changing how the funds can be spent.

There are plenty of other reasons not to start an endowment. First, managing an endowment is more work for staff and Board. Investment policy can also be contentious, and leaders may not agree about controversial investments. Most importantly, like any investment, endowments represent a financial risk, and as we saw in the post-Madoff years, they can disappear in a flash.

Some critics point to millions of dollars sitting in the endowments of large institutions, suggesting that the practice disconnects nonprofits from their constituencies and compromises their missions. If a nonprofit has that much money, they say, it should be doing more.

More ideologically, endowments are perceived by some as contributing to the privatization of services that our tax dollars should be paying for. Endowment money is diverted from the tax stream but it isn’t used directly for tax-exempt activities.  Should nonprofits be building tax-free nest eggs to compensate for government spending cuts?

Nonprofit leaders considering starting an endowment should carefully consider the pros and cons. If they wish to forge ahead, they’ll also need to agree to how their endowment will be used—open a new office? Expand a program? Raise salaries or staff retirement benefits?

Next week, the logistics of starting an endowment. In the meantime, we’d love to hear from you. Experiences with endowments? Questions or opinions?

Last minute grant writing

Let’s say you come across a new grant opportunity. The funder’s interests fit your mission, the guidelines match your program activities, and the grant size and timeline meet your needs.

Also, the proposal deadline is two days away.

Most of us have found last-minute grant opportunities and asked ourselves if we can pull off a proposal in time.  Sometimes it pays off. Sometimes it’s a flop, a waste of resources, a futile exercise in exhaustion. We pull staff from other work, scramble to find current data, make too-quick program decisions, dash off messy, unclear prose.

Of course the best way to avoid eleventh hour grant writing is to conduct regular funding research and have a grant writing plan in place.  But when a new opportunity with a quick turnaround appears, what should we do?

1. Confirm the deadline and the form of submission. (Many foundations still require hard copies of proposals sent through the mail.)
2. Determine whether a letter of inquiry (LOI) or short pre-proposal is requested instead of a full-length proposal. A LOI is not only shorter, but also requires less narrative and budget detail.
3. Carefully read and think through the questions or guidelines you’ll need to answer or address, and what it will take to do this.
4. Ask if major decisions need to be made about a program or service for this submission. Consider what you need to know to make the decisions, who should be involved, and how much time is needed.
5. Determine how much of what you need to write is already written. Can you draw most of the content from another proposal?
6. Estimate how much time is needed to write a strong proposal or LOI, determine who would write it, and consider it in the context of this person’s other work. Is this proposal worth prioritizing? Don’t forget to allocate staff time for proofreading and submission.

One way to be prepared for last-minute deadlines is to establish and maintain a grants file to house and organize your grant writing information. Keep the contents of this file updated and you’ll have a solid foundation on which to draft proposals, even with little time to spare. Having your ducks in a row can help you decide whether an unexpected deadline is worth the investment, and can take some of the pain out of the process if you do apply. You should include:

1. A copy of each LOI and proposal you’ve written in the last year or two.
2. A copy of each grant report from the last year or two.
3. A list of funders and grants awarded over the last three to five years.
4. Your latest Annual Report.
5. Your current strategic plan.
6. A summary of current, accurate, targeted needs data, e.g., unemployment levels in your county, disease prevalence, college attrition rates. Don’t forget sources!
7. A summary of impact data, gleaned from evaluations and assessments of your programs and services.
8. Short descriptions and bios for all key staff, including responsibilities and qualifications. Also keep your org chart current.
9. Current Board list.
10. Annual operating budget and income/expenses for most recent fiscal year and for current year-to-date.
11. Itemized program/project budgets with current sources of committed and pending revenue.
12. A copy of your 501(c)(3) confirmation.
13. Your most recent audited financial statement or Form 990, depending on budget size.
14. Letters of agreement from collaborating organizations.
15. Press clippings, notice of awards, or Web links to information on your work.

Happy New Year, from all of us at the Alliance!