Creating The Donors You Really Need

A new year is always a time to re-evaluate things, to forge a new approach, to finally change something that just isn’t working anymore. In the nonprofit world, how nonprofits and their major donors interact could stand a new approach. It is difficult, if not impossible, to be open and honest with those who fund your work, as Ann Goggins Gregory has pointed out. And sometimes nonprofits feel beholden to donors who are taking the organization in the wrong direction, in this case blogger David Henderson encourages nonprofits to “fire bad donors.”

This disconnect between nonprofits working to solve problems and the donors who fund them can sometimes seem a vicious, unending cycle.

But with a new year comes a new opportunity to alter this pattern. Here’s what nonprofit leaders can do to create the donors they really need:

• Inspire your donors. Make your ask for money from a place of impact, not need. Talk about your bold, ambitious strategies for change. Describe an opportunity so compelling, so invigorating, so inspiring that donors can’t help but reach for their pocketbook and follow where you lead. Part of your job as a nonprofit leader is to paint such a clear, desirable picture of a future goal that it becomes a magnet for the resources needed to get there.




• Ask for more. It’s not a donor’s job to automatically give you as much as they possibly can. Rather, it’s your job to convince them to give until it hurts. When a donor gives you less than you asked for, or less than it’s really going to cost, push back. Don’t just thank them and walk away. If they truly can’t or won’t give more, ask them to help you find a funding partner. If you want donors who share the burden of your work, treat them as such. Encourage them to give more, bigger, better. Not just with their pocketbook, but with their rolodex too. Be honest with them about how they could really make a difference and at what level.




• Command respect as an expert. Donors sometimes carry a hubris that they know best how to spend the dollars they invest in an organization. Work to forge a partnership with your donors that recognizes  you and your organization as the solution provider. A donor’s ideas and insights as an investor should be welcome, but at the end of the day you know what is best for your organization, its mission and the impact you are working to achieve. Make sure your donors know that.




• Stop apologizing for administrative costs. Educate your donors about how significant social change can’t be bought on a shoe string. If your donors are committed to the work your organization is doing, then they must invest in the personnel, space, technology, fundraising and other needs that are integral to that work. Don’t let funders only fund “direct program expenses,” as if such a thing even existed. Don’t let your donors make meaningless distinctions that end up crippling your organization financially.




• Educate donors about capacity capital. To take the last point even further, capacity capital (or money for personnel, technology, systems, space) is a new concept for philanthropists who tend to like to fund programs alone. But capacity capital could actually have a much higher social return on investment for donors because it strengthens an organization so that it can create more impact in perpetuity. But donors won’t understand that on their own. You need to make that case. Figure out what it will actually cost to hire the staff, secure the space, buy the technology you need. Then educate your donors about how funding those things could transform your organization and your impact.

It’s exhausting when you lack the donors you really need. But you can’t just wait around hoping they’ll see the light. It’s up to you to transform a mediocre or troublesome donor into a competent and willing partner in change.

Photo Credit: WTL Photos

Tags: Ann Goggins Gregory, capacity capital, David Henderson, fundraising from major donors, major donors, nonprofit administrative costs, nonprofit donors, nonprofit fundraising

Can’t Small Nonprofits Raise Capital Too?

In our two part interview with George Overholser of the Nonprofit Finance Fund, George made an argument that gave me and some of my readers pause. He argued that only the largest nonprofits can really benefit from his “radical” idea of using a capital campaign to build their organization (instead of a building). But with Social Velocity I have seen small and medium-sized nonprofits raise capital to grow their impact or  build a stronger, more sustainable organization, albeit on a smaller scale.

George believes that raising capital for building an organization is currently only feasible for the largest nonprofits, as he argued:

Only a small percentage of nonprofit organizations actually aspire to undergo major growth, or any of the other disruptive transformations that are inextricably linked to a capital investment…Still, what about the small organizations that DO aspire to undergo a big transformation?…I believe that it is absolutely vital that we come up with a way to better capitalize these smaller organizations. Sadly, though, at this stage of capital market evolution, it is still quite expensive to prepare for a successful nonprofit equity campaign. Unless several million is being raised [the costs are] prohibitively high. This constrains us to campaigns of $5 million or more, which, in turn, constrains us to organizations that are already pretty large.

This argument got me and some of my readers thinking. As one reader wrote:

As the ED for a very small nonprofit (<300K) I am greatly disheartened to essentially read “yes, we can cure the large guys, but for the rest of you -80% – well good luck! No answers for you yet.” WOW…Really is education and awareness for buyers to support the whole organization vs. its programs enough? (Although I agree wholeheartedly, a needed step) I believe there has to be a way to “create compelling ‘asks’ for equity capital” that is less expensive. There has to be way to finance a small organization’s desire to meet the needs of the community which could mean doubling their impact. We are asked to relearn, redo, change our practices to support (finance) the organization’s mission to change the world, but is no one considering the relearning, redoing or changing the expensive processes/methods so all nonprofits can benefit?

I agree wholeheartedly, and that need–to strengthen and grow smaller nonprofits–is why I launched Social Velocity. There is a category of capital that smaller nonprofits, who aren’t interested in or able to achieve major growth, can access. It can be capital to grow a successful program to other clients, other cities, other regions. Or it can be capital to strengthen and make more sustainable the organization.  For example, as any small nonprofit will tell you, it is nearly impossible to get a funder to pay for a Development Director, a donor database, marketing collateral, a new website and so on. These are the tools that will allow the “sales team” to raise the income necessary to run programs. What if these smaller nonprofits could hold a mini-capital campaign to raise the capital necessary to increase the enterprise’s ability to raise income. Or to purchase technology to increase operational effectiveness?  Or to grow, not to scale, but significantly?

True, a $5 million equity capital campaign is beyond all but the largest, most sophisticated nonprofits. But there is still the vast majority of organizations that are struggling within the vicious starvation cycle of not having the right elements of their built enterprise necessary to effectively deliver or grow programs. Yet money can be raised to build out that enterprise.

Social Velocity has worked with a number of small to medium sized nonprofits to create a pitch for capital to help the organizations strengthen their revenue function, grow programs, and so on (read about this here, here and here). The idea is the same as George’s, but on a smaller scale. With a good plan and the right pitch, any nonprofit can raise the capital required to achieve more social impact through a strong, sustainable, bigger enterprise. A nonprofit equity campaign is not just for the largest and wealthiest nonprofits. The principle can be applied to even the smallest nonprofit, and in that way, George’s radical idea could become revolutionary.

Photo Credit: Stuart Conner

Tags: capacity capital, George Overholser, growth capital, nonprofit capital campaign, Nonprofit Finance Fund, small nonprofits, Social Velocity

Nonprofits and the Emerging Social Capital Market

Last week’s Social Capital Markets Conference was an amazing experience.  You really felt as though you were at the beginning of something pretty innovative.

The financial market collapse of the last year has given the emerging social capital markets, where social impact and money converge, a voice and credibility.  Indeed some social investments, like those in the microfinance arena, have actually far outperformed the financial returns of the traditional capital markets in the past year.

Will it last?  And will money begin to flow more readily to organizations and projects that promise a social return?  Will, as some at SoCap forecasted (or perhaps hoped), impact investing become a significant part of a normal investor portfolio in the next five years? Will social impact become a necessary and prevalent part of the traditional capital marketplace? Who knows.   This whole space is evolving, and it is much too soon to understand how it will all play out.

One thing, however, that was lacking in last week’s conversations, and is worth a larger discussion, is how nonprofits, those organizations that have been creating “social impact” since before it was cool, fit into this emerging market. As I mentioned in earlier post, attendees to the session I moderated, “Growth Capital for Nonprofit Social Entrepreneurs,” appeared hungry for information, tools, advice, insight about how their organizations could play in this emerging space.

If you think of the overall market as a continuum with traditional charities on one end and traditional businesses on the other, the social capital marketplace, then, is everything in between.  It most certainly includes social businesses–businesses that not only make a profit, but also contribute some sort of social impact (like wind farms or organic groceries).  And there are emerging investment vehicles that can provide investors a financial return (sometimes equivalent to a traditional market rate return) in addition to a social impact return.

But the social capital market must also include new financial vehicles for nonprofit organizations. In order to effectively provide the public goods that for profit businesses (both traditional and social businesses) can’t or won’t provide, nonprofit organizations require seed funding, growth capital, capacity capital, loans, equity, grants, operating revenue and so on.

Although there was some discussion of these financial needs, the nonprofit side of the social capital market discussion was not as prevalent last week. And indeed some at the conference, including conference co-f0under, Kevin Jones, refer to nonprofits as “our cousins” in this space.  Indeed, the keynoter at the first SoCap conference  last year encouraged the audience to “set aside” nonprofit organizations because they were not what that conference was about.  And I have had a few conversations with leaders in the social business space who have told me: “Innovation will never come from the nonprofit side.  It must come from the social business side.”

But nonprofit organizations are very much part of this conversation and this emerging market. Social impact is not a new thing.  As much as those of us assembled at SoCap last week would like to believe that we are pioneers in all things, we are not.   Many of the financial vehicles emerging in this new space are exciting and new.  But creating social impact through entrepreneurial efforts is not new.

Nonprofit organizations have been around for a long time.  And their reason for being has always been to create some sort of public good that was not addressed by the market.  That is not to say that it has been done right.  Many would agree that the nonprofit sector and the philanthropy that funds it are dysfunctional, even broken.  And I think most of us would agree the government sector is fairly broken as well.

But we cannot discount and dismiss either sector.  In the true spirit of the social innovation space, we must recycle and reuse the nonprofit and government sectors, just as we are refashioning the private sector.  We must reconfigure the assets of all three sectors to turn them into more effective, more productive, higher functioning sectors that can work with, not separate from, each other to create solutions.

What does that look like?  It means that venture philanthropy funds are sharing investor prospects with social venture funds and vice versa.  It means that investors interested in a social return have portfolios that include not only social businesses, but also nonprofit deals.  It means that foundations are investing in both for profit and nonprofit social impact organizations.  It means that the SoCap conference list of attendees and speakers come equally  from all three sectors (public, private, nonprofit).  It means that the majority of nonprofit organizations that have an interest in and capacity for growth have access to growth capital and management expertise to scale.  It means that a nonprofit that is solving social problems is just as sexy and gets just as many resources, respect and mind-share as a social business that is doing the same. It means that those working on changing laws to help social entrepreneurs look at both for profit and nonprofit structures, incentives and restrictions.

The creation of the social capital market is a bold, chaotic, possibly insane, but potentially game-changing endeavor that has the power to completely rework how money flows through the market to shape society. Let’s not get bogged down in dichotomies and factions, rather let’s take a bigger picture view of the essence of what we are attempting to do.  And that is to completely reconfigure, and create a productive convergence among, the three sectors. Now that would be innovative.

Tags: capacity capital, government, growth capital, investors, nonprofit, Philanthropy, SoCap, social business, Social Capital Markets conference, social entrepreneur, social return

Transforming the Nonprofit Fundraising Function

I see it a lot.  A nonprofit organization is struggling to raise enough revenue.  Their fundraising function, everything that goes into their fundraising effort (development staff, database, website, messaging, collateral, board assistance, etc.), is hobbling along, barely generating enough to keep the organization going.  And especially in times like these when the economy is so poor, fundraising efforts are stretched to the breaking point, held together by band-aid solutions (an Excel spreadsheet instead of a functional donor database, an inexperienced fundraising staff, weak collateral, poor-performing events, need-based messaging instead of impact messaging, and the list goes on).

Nonprofits in this situation might complain  that they would like to do more, they would like to upgrade their fundraising function (who wouldn’t?) but there just isn’t a way to do it.  So they continue on this vicious treadmill of killing themselves just to raise enough to survive.  This reality of financially struggling nonprofits is a result of the fact that the sector is undercapitalized.  It would be wonderful if one day we all woke up and suddenly individuals gave 5% of their income to the nonprofit sector, foundations grew 100 fold, corporations began integrating their giving program into their business model and thus gave significantly more money, and the list goes on.  That probably isn’t going to happen any time soon.

But there is a solution.  Nonprofit organizations can raise “capacity capital.”  Capacity capital is the money required to upgrade the organization’s capacity, or in this case, their fundraising function.  By putting together a plan for how they might upgrade their fundraising infrastructure (hire additional staff, revamp their website, purchase a donor database, upgrade their messaging and collateral, etc.) and then securing investors in that plan they can revolutionize how they raise money and dramatically improve their fundraising results.

But where do these investors come from, especially in times like these?  Right in your backyard.  I have yet to meet a nonprofit organization that doesn’t have at least a handful of people who are passionately committed to the organization.  And those people, when convinced in a compelling way of what it is going to take to increase the organization’s infrastructure and thus their sustainability, are more than likely to want to invest themselves, or connect the organization to people in their network that can invest.

Let me give you an example. When I joined KLRU, Austin’s PBS station, in 2005, their revenue picture was bleak.  Individual donors were declining, much as they were at PBS stations across the country.  At the same time, the number of days KLRU interrupted programming to fundraise on-air had grown to an all-time high, and among the highest in the country.  Online giving was almost non-existent and there were few major or foundation donors. I put together a fundraising function upgrade plan which cost $350,000 over 3 years and included a new donor database and online giving software, a Webmaster, staff training, and market research.  We secured a handful of foundation and individual donors (who were already KLRU donors) to fund the project. The result at the end of 3 years was an increase of $1.6 million in annual operating revenue per year.

Not every nonprofit has access to potential donors with $350K to give, but this same scenario could easily be played out on a smaller, or larger, scale. If you’re interested in learning how to create a plan to upgrade your nonprofit’s fundraising function, check out Social Velocity’s upcoming seminar:

June 23, 2009
8:30am-12 noon

Click Here to Register

Tags: capacity capital, Fundraising, KLRU, nonprofit, PBS

Finding Investment Capital for Social Impact

RISE finished up late last week.  It was great to see all of the energy and excitement around social entrepreneurship.  Indeed it seems that Austin has caught the tide of interest in social entrepreneurship that is sweeping the nation in the wake of the economic meltdown.  Even the New York Times got on board last week with an article about how social entrepreneurship might be the best business model for some market opportunities.

In all of the interest in social entrepreneurship, one serious hurdle (among others, surely) is investment capital.  Good Capital is planning their second annual Social Capital Markets Conference for this coming September.  This is an opportunity for venture capitalists, philanthropists, social entrepreneurs and others to get together to talk about how we create a marketplace for capital interested in social impact.  SoCap is a great thing, and I’m really hoping it will continue to expand the conversation and get people thinking, talking and experimenting with investing in these new entrepreneurs.

But a social capital marketplace hasn’t hit Austin yet. I do think, however, that there is tremendous potential for some of the wealth we have here to be turned into investment capital for social entrepreneurs. With that in mind I hosted a session at RISE on Wednesday about finding Growth Capital for Social Entrepreneurs.  The session discussed two kinds of investment capital for social entrepreneurs: growth capital that helps an organization grow to scale (however they define scale), and capacity capital that helps an organization increase their capacity and sustainability.  Both types of investment capital BUILD organizations instead of BUYING services.  And both kinds of capital are difficult for social entrepreneurs to find, particularly in Austin.  However,  I laid out a plan for social entrepreneurs that takes them to their boards, major donors and friends to secure capital, much like a traditional business secures investment capital from angels and VCs.  I think there is a lot of potential in this model, which even suggests PRIs (Program-Related Investments) as a vehicle to use to increase the capacity (particularly the fundraising function) of an organization.
The session ended with a comparison of Austin’s versus the rest of the nation in the social innovation movement.:

As you can see, when compared to similar cities, Austin’s use of these new tools is low.  There is tremendous room for Austin to embrace social innovation.  And I think the excitement around social entrepreneurship evident last week at RISE is a great place to start.

Tags: Austin, capacity capital, growth capital, investment capital, RISE, SoCap, social entrepreneurs

Adding Equity to the Nonprofit Balance Sheet

Expanding on the argument for equity holders in the nonprofit sector, there has been a call for restructuring nonprofit accounting standards (FASB) to introduce equity capital.  The idea, proposed by Sean Stannard-Stockton, from Tactical Philanthropy, and George Overholser of the Nonprofit Finance Fund, is that we make a distinction in nonprofit accounting between revenue used to buy services (nonprofit operating revenue) and revenue used to build the nonprofit organization (philanthropic equity).  For too long nonprofits have been forced to carve out a piece of their ongoing operating revenue to build the infrastructure necessary to do their work.  That means that the infrastructure is ultimately lacking and the sector is undercapitalized.

In order for nonprofit organizations to become sustainable we must provide them the capital necessary to build their capacity and their infrastructure.  A nonprofit organization should not have to scrape together operating revenue in order to hire a Development Director, or forgo an earned income venture because they can’t find the initial investment required to make a go of the business, or not grow to scale because they don’t have the infrastructure to ensure that the program quality will survive growth.

The idea is simple, yet profound.  If we make a simple distinction on the balance sheets of our nonprofit organizations, we begin to recognize and have the ability to analyze the strength of the organization that is delivering the service.  In addition, nonprofits gain the ability to fundraise for philanthropic equity, or capacity capital (as I discussed in an earlier post), to build a stronger organization instead of apologizing for the “administrative costs” of the organization.

Once we make such a simple change we can start to understand which organizations are effective and which aren’t, which require further investment and which do not.  We start to create a structure and a system around which we move away from the increasingly dangerous position of taping together our social benefit delivery system and move to a much stronger position of well-capitalized, fully functioning, efficient organizations that are effectively delivering critical services to our society.

Tags: capacity capital, Nonprofit Finance Fund, philanthropic equity, Tactical Philanthropy