fundraising for capacity
In a previous article on About.com, I discussed the idea of capacity capital, an incredibly exciting new funding vehicle for nonprofit organizations. Capacity capital is the money that nonprofits so desperately need to build strong, effective, sustainable organizations that can create more social change. It is a one-time investment of money to add new technology, an evaluation system, a new revenue function–ultimately money to grow or strengthen the organization. And it is infinitely more effective at achieving social impact than a traditional bricks and mortar capital campaign.
There are many perceived benefits to a bricks and mortar capital campaign. They can be a vehicle for asking for bigger gifts, a way to get in front of the community and be “noticed,” and a method for energizing the board and giving them something to do.
But there are often huge downsides to these campaigns. Often the cherished new building has much higher ongoing maintenance costs that were not factored into the campaign. A capital campaign can also cannibalize regular annual donors. And most detrimental, a new building often does not increase the nonprofit’s ability to create more social change. Does an in-school mentoring program really need a big, new headquarters? Do the costs for a nicer, larger office space directly result in more children being mentored or mentored more effectively?
What if instead of raising millions of dollars for a new building, a nonprofit raised that much money, through a capacity capital campaign, for the things they really need to create more social change:
- New technology
- New online fundraising software
- A new donor database
- Highly skilled and experienced development staff
- A program evaluation study
- A more effective program-delivery system
If those organization-building elements were in place, a nonprofit could start:
- Doing a better job of delivering the program
- Raising more revenue annually through a more effective fundraising function
- Securing more external support because they can prove program results
Instead of depleting the organization through cannibalized donors and increased on-going maintenance costs (as a traditional capital campaign does), a capacity capital campaign actually strengthens the organization and allows it to achieve more social impact, more effectively.
Before your organization decides to embark on a traditional capital campaign, take a big step back and ask your staff and board some hard questions:
- What are we hoping to gain from this capital campaign?
- Will this new building contribute to an increase in outputs (services) or outcomes (changes to our clients’ lives)?
- Are there other items we need more than a new building in order to effectively do our work?
Nonprofits need to stop raising millions of dollars on physical monuments such as buildings, annexes, and new wings and instead start raising millions of dollars for the capacity elements that will actually help them create more social change. That would be revolutionary.
Learn more about financing, not fundraising and the new normal that is transforming older fundraising methods into new ones more suitable to a fast moving, digital, and results-oriented 21st century.
Photo Credit: Glyn Lowe Photoworks
Last fall I wrote a blog post arguing that small nonprofits need access to philanthropic equity (money to build their organizations) just as much as larger, more sophisticated nonprofits do. My post was in response to George Overholser’s Social Velocity blog interview where he argued that philanthropic equity (or growth capital) campaigns, where a nonprofit is raising money to build the infrastructure of the organization, are not feasible for small nonprofits. George’s argument and my subsequent post set off a chain of events that led Social Velocity to work with Charlotte Chamber Music to plan and prepare for a philanthropic equity campaign. Over the course of the next several months I will give you an insider’s view of our work with CCM in order (I hope!) to prove my argument that philanthropic equity campaigns can and should be accessible to any nonprofit that has a vision for something bigger and the determination to put that vision to action. Today is the first post in this Raising Money to Grow On series.
In George Overholser’s September 2010 Social Velocity interview he argued that philanthropic equity campaigns just aren’t feasible for small nonprofits:
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.
A Social Velocity blog reader, Elaine Spallone, Executive Director of Charlotte Chamber Music took issue with George’s argument and responded in the comments:
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?
Since that is exactly why I launched Social Velocity, to help smaller nonprofits benefit from new ideas like philanthropic equity, Elaine and I began to talk about the challenges that Charlotte Chamber Music was facing.
Elaine felt that CCM was stuck. As a small, but beloved arts organization they had a great product, but they couldn’t get beyond the vicious cycle of never having enough money, never being able to expand their presence and impact. They had a solid board, and a great vision for the future, but lacked philanthropic equity to build the organization to achieve that vision. They had been talking to consultants about conducting a capital campaign to raise money for a permanent artistic director and a new or refurbished building. As Elaine recalls:
At first, we thought we had to launch a major campaign to raise funds for an Artistic Director- that was our major missing piece, and we seemed lost as to how to make that leap in securing significant funds. That is where we were stuck — for over a year.
But I counseled Elaine that they couldn’t get unstuck until they created a strategic direction and plan to get there that included the various infrastructure elements they needed to get to the next step. Again, Elaine recounts:
What Nell helped to clarify in the beginning is that investing in infrastructure will change our picture. It’s not just about one person [an artistic director]. We were a step ahead of ourselves. To get there, we needed to create the compelling plan for philanthropic equity…we were missing a huge step by not having a detailed plan for our future.
I suggested that they launch a philanthropic equity campaign, to raise money for an artistic director, fundraising infrastructure, technology, systems, all the things they needed to build a more effective, sustainable organization. But, before they think about a philanthropic equity campaign, they needed a compelling strategic direction and a plan for getting there. Because people don’t invest significant money in an idea, they invest in a coherent, compelling, executable, exciting, measurable plan for the future.
We put together a proposal for how Social Velocity could help Charlotte Chamber Music create
- A compelling, investable strategic plan, and
- A pitch and prospect strategy to raise the philanthropic equity needed to execute on that plan.
Elaine then went to her board and a few key major donors to make the case that in order to get out of the vicious starvation cycle, expand their impact, and become the top-tier arts organization they knew they could be, they had to invest in an organization-building process. A couple of key donors stepped up to make the investment to hire Social Velocity.
In the next post in this series, I’ll discuss how we went about creating a compelling, investable strategic plan and the pivotal moment when Charlotte Chamber Music realized that they had a tremendous opportunity to develop a new model for the 21st century arts organization.
Photo Credit: naitokz
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