Why Raise Capacity Capital?
“Capacity capital” (or “philanthropic equity”) is just a fancy term for the money so many nonprofit organizations desperately need. It is a one-time infusion of significant money that can be used to strengthen or grow a nonprofit organization.
But before you can understand capacity properly, you must understand a critical distinction between two kinds of money in the nonprofit sector:
- Revenue is the day-to-day money required to run programs. For a homeless shelter, revenue buys meals, beds, sheets, job training programs, staff time.
- Capital is the one-time infusion of money that builds or grows an organization. For a homeless shelter, capital purchases a better system for gathering data on clients, a donor database, a Development Director.
Capacity capital is NOT the day-to-day operating money nonprofits are used to raising and employing. Rather, capacity capital is money to build a stronger, more sustainable organization. Capacity capital is a one-time infusion of significant money to fundamentally and positively change the functioning of the organization. A nonprofit could use capacity capital in many ways, for example to:
- Plan and execute a program evaluation
- Plan and launch an earned income stream
- Create a strategic financing plan
- Hire a seasoned Development Director, or other revenue-generating staff
- Purchase a new donor database
- Improve program service delivery
- Upgrade website, email marketing, and/or social media efforts
- Launch a major gifts campaign
But raising capacity capital is not like traditional fundraising. It involves determining how much capacity capital you need, creating a compelling pitch, deciding which prospective funders to approach, and educating those prospects about the power of capacity capital.
This guide will show you how.
How to Use This Guide
This guide is organized into 7 sections. Each section will require you to do some thinking, writing and planning. As you work your way through this guide you will be creating your capacity capital campaign.
Your nonpro!t’s capacity capital campaign cannot be developed in just a day or two, by a couple of people. You will need to get feedback and insight from staff and board. You also will need to gather some information for certain sections. This work will take time, so it may be a few weeks or months before you have a !nal capacity capital campaign plan that you can start executing.
This guide is broken down into the 7 sections of a capacity capital campaign as follows:
- Create a Capacity Building Plan
- Determine a Capacity Capital Dollar Goal
- Break the Goal into Investment Levels
- Create a Prospect List
- Develop a Capacity Capital Ask
- Demonstrate the Return On Investment
- Next Steps
Section 1: Create a Capacity Building Plan
You cannot raise money without a plan for how you will spend it. Funders need to be convinced that you did your homework and have a clear, actionable, measurable plan for how you will invest capacity capital dollars to result in a stronger organization that can deliver more impact.
To get there, start by answering these questions:
- What is holding our nonpro!t back from doing more and being more effective?
- What could we purchase to overcome these hurdle(s)?
- If we were able to purchase these items how would we use them and over what time frame?
- What can we reasonably expect to be the changes in our effectiveness and/or impact because of these things we purchased and implemented?
With your answers to these questions, put together a plan.
Start by creating 1-3 goals around the hurdles you identi!ed in #1 above. For example, you may have identi!ed in #1 that you don’t have adequate staff to raise enough money to achieve your mission. So your capacity plan goals might be:
- Create an overall money strategy to raise $450,000 per year.
- Hire a Development Director to implement the plan.
- Secure the technology and materials necessary to raise this money (database, website, etc.)
Or, if you are a much smaller nonpro!t, your goals might be more modest:
- Create an overall money strategy to raise $100,000 per year.
- Train the board on their role in fundraising.
- Upgrade our website to attract online donations.
Once you’ve developed your goals, make a laundry list of activities and purchases necessary to make each goal a reality. In some cases you may need outside help to determine how to get there. For example, you may not know how to put together an overall money strategy to raise $450,000, so you may have to hire a fundraising consultant to help you create that strategy. Also note roughly how long each activity will take.
So, your list of activities with a timeline for each might look something like this:
Goal 2: Train the board on their role in fundraising
- Discuss and get buy-in from board on a fundraising training (October)
- Find a date/location (October)
- Research fundraising trainers (November-December)
- Hire a trainer (January)
- Hold training (February)t Follow up with each individual board member on the next steps resulting from the training (March- April)
Once you’ve listed all of the activities to achieve each goal of your capacity plan, highlight activities that would require new purchases. Research a ballpark !gure for what each one would cost and then attach that !gure to those highlighted items, like this:
Goal 2: Train the board on their role in fundraising
- Discuss and get buy-in from board on a fundraising training (October)
- Find a date/location (October) [$50 for a meeting room for 2 hours]
- Research fundraising trainers (November-December)
- Hire a trainer (January) [$1,000-3,000 for trainer fee]
- Hold training (February) [$400 for food and handouts]
- Follow up with each individual board member on next steps from training (March-April)
List and research costs for every activity within every goal of your capacity capital plan. This will form the basis of your capacity capital dollar goal, which is the next step of the process.
Section 2: Determine a Capacity Capital Dollar Goal
Now pull all of your dollar estimates from the activities and goals of your capacity capital plan. Use them to create an expense budget. Start to combine expense items into categories, such as:
- Staff & Benefits
- Consultants or Contractors
- Technology (hardware, software)
- Marketing (web site, materials)
- Systems (an evaluation study)
- Space (rent for additional o#ce space or other)
Create your capacity capital budget by plotting these expenses out over the time frame in which you need to purchase them. For example, if one of your items is a Development Director, you wouldn’t need to fund their salary for years and years. Rather, because theirs is a revenue-generating sta! position, you only need to fund their position for the 12-18 months it takes for them to start generating enough money to cover their salary and then some. So, you might include the full cost of salary and benefits for a Development Director for the first year, and then half of their salary and benefits for the second year because by then they will be bringing in the other half of their salary (and hopefully much more!).
So, if your capacity capital plan involved hiring a fundraising consultant to develop an overall money strategy and then hiring a Development Director, revamping your website, and purchasing a donor database, your pro- jected capacity capital plan budget might look like this:
Therefore, in order to implement your capacity capital plan you need to raise $111,000 of capacity capital over three years ($22,500 in year 1, $63,500 in year 2, and $25,000 in year 3). So your capacity capital dollar goal is $111,000 over three years.
So let’s talk about how you raise that
Section 3: Break the Goal into Investment Levels
You can’t simply go out and raise $111,000. Rather you need to raise that amount from a combination of individuals, foundations and/or corporations. And those donors will give at varying levels. In order to !gure out how that happens, you need to create a gift range chart.
First, you need to set a bottom gift level for your capacity capital campaign. I recommend that with this capacity capital campaign you raise only major donor dollars since you are going to have to explain to donors what capacity capital is and why you need it. This must be done in an in-person setting, which is normal in major donor fundraising. Therefore, the bottom level of your gift range chart should be your beginning major donor level for your nonpro!t. A major gift is the giving level at which you currently have a few donors, but the vast majority of your donors are below. So for example, if you currently have a handful of donors at or above
$1,000, but most of your donors are below $1,000, $1,000 would be a major gift for your organization.
Remember in the example in the previous section, you don’t need to raise $111,000 right now, rather you need to raise:
- $22,500 in year 1
- $63,500 in year 2, and
- 25,000 in year 3
Therefore, you could have some donors who pledge a multi-year commitment to your capacity capital plan. If you de!ne a major gift as $1,000 or above, you would develop your gift range chart for your $111,000 capacity capital goal (from the example in the previous section) as follows (see the example gift range chart below).
- Lead Gift: The lead gift should be 10-20% of your campaign goal. In the example below, the lead gift is $10,000 per year, which is almost 10% of the goal of $111,000.
- Gift Amount: Create reasonable giving levels below that, in round numbers. In the example below I created gift levels below the $10,000 lead gift level of $7,500 per year, $5,000 per year, $2,500 per year, and $1,000 per year. The !nal level should be your beginning major gift level. Remember that in my example the major gift level is $500.
- # of Gifts: There should be one lead gift (in this case $10,000) but then multiple gifts at the levels below the lead gift. Increase the number of gifts as you work your way down the gift range chart. In my example I have 2 gifts at $7,500 per year for 2 years, 4 gifts at $5,000, 5 gifts at $2,500 per year for 2 years, and 6 gifts at $1,000.
- # of Prospects: For every gift you secure, you will need to work with a greater number of prospects because the rule of thumb is that it takes 4 asks to get a “Yes.” For the single lead gift, you will need to work with 4 prospects. Therefore determine the number of prospects you need at each gift level. Keep in mind that as you work your way down the gift range chart, you will need fewer prospects because although 3 of the 4 lead gift prospects will say “No” to the lead gift level, they may say “Yes” to a lower level. So your prospect-to-gift ratio will decrease to 3-1 and then 2-1 as you move down the chart.
- Total $s: Keep altering the # of gifts until the sum of your Total $s column adds up to your Capacity Capital Goal.
So your final gift range chart would look like this:
Keep in mind that when your capacity capital campaign is complete and you have raised all of the money, your actual number of gifts, number of prospects, and gift amounts may look nothing like your original gift range chart. But that’s okay. The purpose of a gift range chart is to give you a strategy for breaking down a large goal into manageable chunks.
Now let’s talk about how you find the 44 prospects you need to slot into this chart.
Section 4: Create a Prospect List
You’ll notice in the gift range chart above that you would need 44 prospects to achieve 18 gifts totaling the
$111,000 necessary to implement your capacity plan. Contrary to popular belief, anyone with money is not a prospect for your nonprofit. So how do you find appropriate prospects?
To be a strong capacity capital prospect for your organization, a person (whether they are an individual donor, corporate decision maker or foundation giving officer) needs to meet four criteria:
- The capacity to give at one of your capacity capital campaign levels from your gift range chart above
- A concern for your mission
- A connection to your organization
- A past contribution to your organization
Because capacity capital is a new concept in the nonpro!t sector it requires a donor to make the intellectual leap from loving what your organization does to recognizing that it will take an investment to allow you to do even more of that great work. Therefore your capacity capital prospect should already love your organization enough to have made a past contribution.
Finding prospects is very much a group activity. So you want to involve your sta#, board, other donors, friends of the organization, volunteers, and other supporters to help you brainstorm potential people and determine whether they meet the four criteria above. As you gather information about potential prospects (interests, giving to other organizations, connections, etc.) be sure to capture that data in your database.
Honestly, the possibilities for capacity capital prospects are endless. The trick is to be thoughtful and systematic about whom you add to your capacity capital prospect list. Evaluate every potential name for the four criteria above. If you don’t know whether they meet some of the four C’s above ask board, sta#, friends, volunteers, others for help determining whether they do.
Once you have a list of prospects who meet at least two of the four C’s, you are ready to start the process of moving them to capacity capital investors.
Section 5: Develop a Capacity Capital Ask
Here is where you create “the pitch” that will convince your prospects to invest in your capacity capital plan. Your pitch should take two forms:
- A 6-12 slide presentation
- 1 or 2 slides for each of the 6 sections below
- A two page (front and back) leave behind document
- 2-3 paragraphs or charts for each of the 6 sections below
Both of these items will include the following 6 sections, which gradually build your argument for why you need capacity capital:
- Opportunity (why you need capacity capital)
- Plan (your capacity building plan)
- Team (your staff/board that will implement this plan)
- Budget (the costs of the capacity capital plan)
- The Ask (how much you are asking from this particular prospect)
- SROI (the projected social return on investment for the donor)
In each section you want to clearly and convincingly answer the questions within that section:
- What problem(s) are you facing that an increase in organizational capacity would help you solve?
- If you were able to solve those problem(s) how would it allow you to reach more people, deliver more outcomes or impact, or create a more sustainable organization?
- What are the 3-5 goals of your capacity plan in Section 1 of this guide above?
- Why are you convinced that with the appropriate capacity capital you can bring this plan to fruition?
- Who (staff, board, and/or consultant) will be involved in making this capacity capital plan a reality?
- Why are they uniquely qualifed to make the goals of your capacity capital plan a reality?
- What is your total capacity capital dollar goal and what are the broad categories of items that make up that amount?
- Over what time frame will you spend this money?
- How much do you want this particular prospect to invest in this capacity capital plan and over what time frame (multi-year pledge)?
- If you raise your total capacity capital goal and execute on your capacity plan, what kinds of changes can you project to your organization, your clients, your mission, or your overall impact? Such as:
- X additional clients served
- X additional lives improved
- X additional programs delivered
You might say something like this:
Your $10,000 investment in our capacity capital plan will allow us to purchase a donor database. We can reasonably predict (based on other nonprofits’ experiences) that a good donor database increases the average donor gift by 20% and thus donor revenue will increase by 20% each year. We currently raise $100,000 per year from individual donors. We can expect to enjoy a total increase in donor revenue of $20,000 per year.
If we assume that will continue for at least the next 10 years, that will be $200,000 additional dollars to our nonprofit. That means we can serve 20 more clients per year, or 200 more clients over the next 10 years. Your
$10,000 investment then, can result in a $200,000 financial return and 200 additional clients served.
Section 6: Demonstrate the Return On Investment
Once you’ve raised your capacity capital dollar goal and executed on your capacity plan you want to continue to invest your capacity capital donors in the project. Make sure to do the following things to make them feel invested in what you have accomplished and excited about the return they received. The idea is that if they are happy enough in their capacity capital investment, you can go back to them in the future for general support, or even a future capacity capital campaign:
- Email, write or call each capacity capital investor at least quarterly over the course of the capacity capital plan to give them updates on how the plan is going, what results you are achieving.
- Whenever there is really great news (the Development Director has been hired, or your new donor database is in place) send them a special note or make a call to thank them again and share the good news.
- Highlight them (if they are agreeable) in a special part of your website, e-newsletter or other communication vehicle about the very special investment they have made and what it has allowed you to do.
- Invite the group of capacity capital donors to a handful of small gatherings at key points during the capacity capital plan (kick-o!, end of first year, completion of the plan, etc.) to get them further excited in the plan and to solidify their membership in this exclusive group of investors.
Your capacity capital investors are taking a big risk. The kind of money you have secured from them is probably fairly different than their past donations. You want to make absolutely sure that they are confident throughout the capacity capital plan that they made a good investment.
Section 7: Next Steps
I’ve given you a start at creating a Capacity Capital Campaign to help you raise the money necessary to strengthen your nonprofit.
After you have completed this guide, here are some things you can do next:
- If you got stuck and would like some help to get back on track, email firstname.lastname@example.org.
- If you would like to explore whether a Board Fundraising Training, a Financial Model Assessment, or an overall Financing Plan should be part of your capacity plan, email email@example.com to schedule a free consultation.
- If you want to read case studies of other nonprofits that dramatically increased their financial sustainability, go to the Clients page of our website.
- Check out all of the other Social Velocity Step-by-Step Guides here.
I hope you found this Guide helpful. As always, I welcome your feedback or questions about any Social Velocity tool. Please email firstname.lastname@example.org with questions, comments or feedback.
This guide was designed to help you transform your nonprofit. If you want a more customized approach, or need help engaging more board, staff and donors in the change process, call (512) 694-7235 or email email@example.com to schedule a free consultation with Nell Edgington.
Social Velocity is a management consulting firm that helps nonprofits become more strategic, sustainable, and above all, more effective at creating social change.