Can PRIs Support Fundraising and Capacity Building?

Lucy Bernholz is hosting a great conversation on her Blueprint Research and Design website called “What Capital When?” As part of their work with the John D. and Catherine T. MacArthur Foundation in their Digital Media & Learning initiative, Blueprint is hosting this online conversation around the theories and strategies of program-related and mission investing to advance knowledge and research in the field. They asked that I do a guest post on using PRIs (program related investments) to improve the fundraising effectiveness of nonprofit organizations. Below is that post. You can also read the post on their What Capital When site here, and you can read the whole series here.

I think there is a tremendous opportunity that most foundations and nonprofits are missing.  PRIs (program-related investments) are an under-used tool that could provide much needed capital for nonprofits to transform how they finance social impact.

PRIs are loans that foundations make to nonprofits at low, or no interest.  At the end of the loan period (typically 3-7 years) the loan is repaid, or forgiven.  PRIs are usually used for capital projects or land purchases in the nonprofit world.  But they could also be used to increase the fundraising capacity of a nonprofit organization, through increased fundraising knowledge, planning, tools and staffing.  The current economic climate seems like the perfect opportunity for this new use of PRIs when foundations are trying to hold on to their dwindling corpus while maintaining their past level of community support.

A nonprofit could use a PRI to improve their fundraising infrastructure in several ways:

• Create a strategic development plan. Many nonprofits don’t have the expertise or time to put together a strategy for how they will bring money in the door.  With funding to hire an outside consultant to put together such a plan, the nonprofit would have a much better chance of increasing their fundraising revenue.
• Get fundraising training for their staff and board. If a nonprofit staff and board have the tools and expertise for successfully raising money, they will be more likely to do so.
• Hire a seasoned Development Director. Many nonprofit organizations can only afford to pay the bare minimum for a Development Director, which means that they are often forced to hire someone with little experience who must learn on the job.  If instead they had enough funding to pay a market rate salary for a seasoned fundraiser, they could hit the ground running, increasing the likelihood of fundraising success.
• Purchase a new donor database. A key element to success in individual donor fundraising is an organization’s ability to capture and use data about donors and prospects.  A good donor database makes this effort easier and more successful.
• Upgrade their website, email marketing, social media efforts. As direct mail appeals (a nonprofit fundraiser’s traditional standby) continues to become less and less effective, nonprofits need to move effectively into the online world.  Funds for technology upgrades and staff could help them do this.
• Launch a major gifts campaign. The vast majority of private funding in the nonprofit sector comes from individuals (80+%), so to stay competitive nonprofits need to move into the world of major gift solicitation.  But that takes expertise, staff, collateral and other infrastructure elements.

These are just a few examples of how nonprofits could make investments to strengthen their fundraising efforts. But currently it is difficult to find funding to support things like this.

But a PRI could provide an initial investment that sets the nonprofit on a path toward more diversified, more sustainable fundraising for the social impact they are working to create.

There are tremendous benefits to a PRI program like this.  First, for the foundation:

• Increases their ability to meet past levels of giving, despite any losses they might have found in the market, because the loaned money will eventually come back to them.
• Encourages their nonprofit grantees to be proactive in creating fundraising streams that will make them more sustainable.  Thus, increasing the likelihood that their nonprofit grantees a) won’t have to come back to them year after year for ongoing support and b) will become more sustainable and thus achieve greater social impact.
• Stretches their capacity-building dollars further. Because PRI money eventually comes back to the foundation, they can increase their level of impact by helping more nonprofits improve their capacity than they could with grants alone.
• Increases the level of accountability among nonprofit recipients because of the expectation of repayment.

And second, for the nonprofit:

• More diversified and sustainable fundraising streams.
• Increased fundraising knowledge and experience.
• Increased ability to work towards social impact.

Although PRIs used in this new way seems, at least to me, to be an obvious win-win, very few foundations are doing it.  PRIs in general are used (according to the Foundation Center) by only a few hundred of the thousands of grantmaking foundations in the country.  And I know of only one example of a foundation using a PRI to upgrade the fundraisng capacity of a nonprofit (the KDK Harman Foundation in Austin just launched a program like this last Fall, but does not yet have any participants).

So what is holding foundations back from launching a PRI program like this?  A number of things:

1. Nonprofits lack the expertise to put a plan together and pitch it to foundations. This is where Social Velocity comes in to help nonprofits create a plan to upgrade their revenue function and pitch that plan to foundations and other funders.
2. Most foundations  have an aversion to capacity building funding and prefer that their money go to direct program service.  However, as more nonprofits can demonstrate to funders that capacity building actually results in even more impact, this aversion can be alleviated.
3. Foundations lack awareness of or experience with PRIs.  However, this is changing, especially in the last year when the poor economy has made foundations increasingly interested in finding alternative ways to maintain community investment levels.
4. Foundations that are experienced with PRIs are not aware of using them to improve a nonprofit’s fundraising function.

So there is a disconnect.  But I am optimistic that as nonprofits learn to put a plan together to upgrade their fundraising function and articulate to funders how PRI’s could finance it, more examples of this new use of PRIs will surface.

Tags: Blueprint Research and Design, Development, Foundation Center, Fundraising, John D. and Catherine T. MacArthur Foundation, KDK Harman Foundation, Lucy Bernholz, nonprofit, PRIs, program-related investments, What Capital When

The Power of a Case

Most businesses that are looking for funding know the power of a case for support, although they probably call it their “pitch” or “deck.”  But most nonprofit organizations don’t have an articulated case for support, and this is a real missed opportunity. A case for support is absolutely critical to any kind of fundraising campaign, in the nonprofit or for-profit world, and whether the money sought is investment capital or operating revenue.

A case for support lays out a clear, articulate, compelling argument for why someone should invest in the solution you are providing the marketplace.  Nonprofit organizations do tend to put together a case for support when they embark on a capital campaign to raise significant money for a new building.  But a case for support should be the fundamental building block to ANY fundraising campaign.  Without a case for support, nonprofits are just holding out a tin cup.

I’m not suggesting that a nonprofit create a case for support and then trot it out whenever they meet with, mail or talk to a potential donor.  Rather a solid case for support is a starting point from which the nonprofit can pull arguments and language for use in every aspect of their fundraising operations:  website, appeals, thank you notes, presentations, major donor calls, foundation proposals, etc.

The very exercise of a nonprofit board and staff creating a case statement can be, in itself, transformative.  It makes the organization as a whole articulate why someone should invest in them and what the payoff is.  This articulation can energize and focus the organization and make their fundraising efforts that much  more effective.

A case for support has some key elements:

1. The Need (Market Opportunity)
   What social problem exists in your community, region, state, country, world that needs to be addressed?  Why is this problem significant, why should people care?
2. The Solution
   What is your solution to the social problem? Why is this the right solution?
3. Competitors and Competitive Advantage
   Why is yours a superior solution to other alternatives out there? Something that is often missing in nonprofit articulations of their case is how their solution fits into the competitive landscape.
4. Value Proposition
   Why is your organization uniquely positioned to deliver on this solution?  What is the value proposition you offer and how do your core competencies feed this solution?
5. Resources Required
   How much money, what type, and over what timeline do you require for this particular project (start-up, growth, increased capacity, general operating, etc.)? This section will vary based on the fundraising campaign.
6. Projected Social Return on Investment
   What does the potential investor get by investing in your organization (change to a social problem, increased breadth or depth of service delivery, etc.)?  If you can demonstrate a social return on investment, that’s great.  If you can demonstrate an increase in program and operational efficiency (in the case of a capacity building fundraising campaign) then do.

A full case for support is not something you would normally share with potential donors.  However, the process of articulating your case for support and then using elements of it in all of your fundraising work can dramatically increase your ability to effectively communicate with and secure investments from donors.

Tags: capital campaign, case for support, Fundraising, nonprofit

The Social Side of Entrepreneurship

In less than a month, Austin’s premier entrepreneurship conference, RISE, will be in full swing. March 1st through 5th brings a SXSW-style conference that is quickly becoming the place to be for anyone thinking about launching or growing an enterprise. This year, RISE has added an official social entrepreneurship track to the conference, which seems to be a sign of the times. Social entrepreneurship is starting to take its rightful place next to “regular” entrepreneurship. Perhaps in the future there won’t even be a distinction.

But until then, I’m delighted to announce the lineup of this year’s Social Entrepreneurship track at RISE. Social Velocity is hosting the track, and it is sponsored by the Silverton Foundation.  Jessica Shortall, Director of Giving at TOMS Shoes, and I have put together what we think is going to be a pretty great group of sessions exploring all aspects of social entrepreneurship. In addition, Blake Mycoskie, founder of TOMS Shoes, will be one the keynote speakers of RISE on Tuesday, March 2nd.

The Social Entrepreneurship track will run on Tuesday and Wednesday of RISE week, March 2nd and 3rd. Here is the lineup of sessions:

• Social Investing, Social Entrepreneurship and Social Profit
• Overview of Social Innovation
• Austin’s Emerging Social Capital Market
• Social Enterprise Case Studies
• Seeking Capital for Social Enterprise
• Design Thinking and Social Entrepreneurship
• Economic Development: Microfinance to CDFIs
• Social Media and Social Impact
• Balancing Social Mission and Business Pressures

You can find out more about the entire Social Entrepreneurship track at the RISE website and sign up for those you want to attend. Sessions are already filling up. I hope to see you there!

Tags: Blake Mycoskie, RISE, Silverton Foundation, Social Entrepreneurship, Social Velocity, TOMS Shoes

What We Can Learn From Idealist

At the risk of going against the crowd, I’d like to add my perspective to the Idealist crisis.  Idealist.org is a job site for nonprofit organizations that has been around for 10 years.  It’s a great site that brings nonprofit organizations and aspiring nonprofit job seekers together.  It has launched many a great career, including that of Rosetta Thurman, nonprofit consultant and Gen Y leader who is a huge supporter of the site.

Earlier this week Ami Dar, Executive Director of Idealist, sent out an emergency appeal for funding to Idealist supporters.  It seems that the recession has taken a serious toll on the nonprofit organization, and they are desperate for funding to stay afloat.  Ami’s impassioned appeal has made its way around social media sites and raised quite a stir. They are hoping it will bring in some serious donations.  And it seems to be doing that–you can see the running tally of recent donations on their homepage.

I admire what Idealist does and think they serve a real need, but with this campaign they are making a mistake that nonprofits sometimes make when they hit a crisis like this.  An appeal for emergency funding can raise quite a bit of money, for a time, but then what?  What is the long-term plan? How will Idealist overcome the obstacles that got them to this place so that they can emerge stronger, more effective and more financial sustainable in the future?

In his appeal, Ami says that the weak economy got them to this place because of a significant decrease in job posting revenue over the past 16 months.  That is completely understandable.  But over those past 16 months what has Idealist done to diversify their funding model?  What has been the result of those changes?  And what are their plans for the future?  Ami is fairly vague on these points:

Very briefly, here’s what happened. Over the past ten years, most of our funding has come from the small fees we charge organizations for posting their jobs on Idealist. By September 2008, after years of steady growth, these little drops were covering 70% of our budget. Then, in October of that year, the financial crisis exploded, many organizations understandably froze their hiring, and from one week to the next our earned income was cut almost in half, leaving us with a hole of more than $100,000 each month. That was 16 months ago, and since then we’ve survived on faith and fumes, by cutting expenses, and by getting a few large gifts from new and old friends. But now we are about to hit a wall, and this is why I am reaching out to you.

I understand why they are in this position. But what I don’t understand is how they are going to get out of this position after the emergency funds that they are attempting to raise dry up.  According to Ami, their plans for the future are:

If in the next week or two we can reach everyone who’d give us a hand if they knew we are in trouble, I believe we’ll come out of this crisis even stronger than before. I believe this because while this has been a tough stretch, I’ve never been more optimistic about the future. The content on Idealist has never been richer, our traffic is surging, we are building a whole new Idealist.org that will be released later this year, and the potential for connecting people, ideas, and resources around the world has never been more urgent or more exciting. Your contribution will allow us to maintain all our services…and it will also give us some time to diversify our funding. Being able to breathe, recover, and plan ahead for a few months will be an incredible blessing.

If Idealist hasn’t been able to figure out financial sustainability in the last 16 months, why should I think that they will be able to do it in “a few months”?  And scarier still is the fact that economist are predicting that the jobless economic recovery will continue for the foreseeable future.  So I’m not sure “a few months” is really going to change things all that much.

What I would like to see from Idealist is a bold plan for action, a revamped business model that will allow them to continue to provide needed services to the nonprofit community in a financially viable way.  Emergency funding is great, but only if it is a stop gap measure that will get an organization through a very specific, finite period of time and that on the other side of the crisis is a new business model for a viable way forward.

I think the nonprofit sector can learn something from Idealist’s crisis.  There are many other nonprofits in this same position.  And many who are contemplating or have launched an emergency appeal.  But keep in mind, you can only cry wolf once.  So while you are working to stay afloat, you also need to be taking a hard look at how to radically change your approach, your business model, your funding streams. And you need to put those changes into a comprehensive plan and communicate that plan to your funders. In that way, you all will know that you won’t be back here again.

UPDATE: The Tactical Philanthropy Blog hosted a debate between Nell Edgington and Rich Polt from Louder Than Words about the Idealist appeal.  You can read the debate and comments here.  

Tags: Ami Dar, Idealist.org, Rosetta Thurman