Endowment Campaigns

Every nonprofit wants an endowment—the bigger the better. Endowment earns income that does not need to be raised each year. For a nonprofit, endowment is the equivalent of teaching a person how to fish.

Why then do so few nonprofit organizations have endowments capable of producing income of significant size in relationship to their annual budgets? Because hard pressed nonprofits find it hard to justify raising $10,000 today and then setting it aside to earn at best a few hundred dollars for this year’s needs.

In reality endowment campaigns are just as important as any other fundraising effort an organization can undertake. They bring in the support that can provide the stability needed to allow a nonprofit to concentrate on mission rather than survival.

Articles about Endowment & Endowment Campaigns

In Search of the Elusive Major Giver

What a Major Giver is How to find them What you need to have in place before conducting a Major Gifts Campaign Your organization needs money. Big money. The kind of money you can’t raise by going out and asking for donations of $10, $20, $100, or perhaps even $1,000. Maybe you need the money to expand your services. Maybe you need it to build a new wing. Maybe you need it to match the largest grant you’ve ever been awarded. Maybe you need it just to stay alive. Raising big money is a different proposition from chasing down contributions to the annual fund. Let me draw an analogy. Money is the sustenance that nourishes an organization. Just as food nourishes our bodies, money keeps the organization alive, healthy, and growing. It is the lifeblood. The great majority of us get our food in restaurants a meal at a time and from grocery stores a bag or two at a time. That’s not unlike what we do in most of our fund-raising efforts. We go after small money—enough to keep us going for a cycle. That cycle can be measured in time—a few months or a year. Often it is measured conceptually—a specific project or program. Raising big money is more like growing our own food and then preparing every meal from scratch. That means we’d have to clear the land, plow the ground, plant the seeds, cultivate the crops, harvest the yield, and store it. And that’s if we’re vegetarians. I don’t even want to think about what I’d have to do for a steak. The point I’m... read more

How Much Endowment
Is “Right” for Our Organizaton

Is there a “standard” or “industry” percentage ratio of our endowment funds—funds working to provide annual income—which can relate that corpus/principal amount to  key financial statements such as the annual expense budget, operating deficit,  annual fund campaign results, etc.? I have been asked that question many times. My response is that I am certain there is no exacting standard. However, an endowment funds-to- operating-expense ratio is the one such “benchmark” at times sought by non-profit organizations—though there is no real justification or worthiness for such a number in any event. During the time I was at The Cleveland Orchestra, such a ratio was promoted—”suggested”—by the largest and most influential granting foundation in our area. The idea was that endowment funds, paid and working in the bank or otherwise invested, would total a three times the organization’s annual operating expense. This was an unofficial “suggested standard” which was not imposed on organizations in any way for them to receive grant consideration, nor was there any kind of measuring rationale made by the foundation regarding that ratio. Why did they tout it then? Because, everyone recognizes that that there is a need to somehow, someway measure the efficiency of non-profit organizations. This was yet another attempt. I believe that no ratio of any kind between working endowment funds and what an organization spends each year has any real meaning. The Foundation-inspired three-times rule/guideline/objective/standard—whatever one chooses to call it—could have others think that another percentage ratio might be arbitrarily determined just as well. It could be two times, four times, etc. of the annual operating expense amount. It seems obvious that any... read more

Making Your Endowment Funds
Work for Your Organization

Whether you already have some form or endowment or are about to embark on your first endowment campaign (see the article Endowment Funds Go on Forever But an Endowment Campaign Should Not ) you need to be ready, willing, and able to steward your endowment funds and maximize their impact.  And that raises two issues: Endowment fund investment, oversight and reporting. How, if, and when you spend endowment fund interest and dividends—and how, if, and when you might need to “invade” any of the principal. You can address the first of these by researching investment performance ratings and practices with your local banks and other companion firms with the guidance of your Board’s Finance Committee. Talking to the leadership and top staff of a few large organizations. Investment and finance committees will be a most useful exercise as well. This article addresses the second issue, and suggests the following guidelines. Endowment Funds and Income: To Spend or Not to Spend A non-profit organization currently holding endowment funds, or an organization which is planning to raise endowment funds for the first time, should give special attention to how the funds will be managed—not from an investment perspective as stated above, but rather how an organization will utilize the endowment income and principal in its operations. This endowment management policy should be instituted with the consensus of an organization’s leading officials and advisers. It should be cited in an organization’s bylaws, as well as entered and defined in its Financial Policy Manual. It’s that important because it represents an organization’s future. The first issue to address would be about how the... read more

Setting an Endowment Campaign Goal

How do we begin to set a goal? You first set a “target” goal, based on what you must accept as very loose factors; those being the changing rates of interest (meaning changing amounts of future income), the sliding scale of actual endowment funds at work as the pledges are paid (often over several years), and the determination of the costs of the programs and services or operations (often undefined and undetermined) the funds will pay for or reduce their costs over how many years. Very indistinct and elusive factors indeed, as you can easily see—but worth the exercise to be as close as possible to an ultimate endowment campaign goal which is feasible, and which makes some sense. When you set a goal for the campaign, do you later consider the goal achieved with pledges or promises of funds totaling the goal amount, or do you need actual cash in hand? You work to the goal and cite the progress and the achievements to that goal by applying any money pledged or otherwise committed. Never declare ongoing progress or final results with cash payments only, because endowment campaigns are successful to the highest degree when you can offer multiyear payments of pledges to donors and prospects. And, some pledges could very well extend over many years. That is why there are pledge cards and letters of commitment used as staples of such campaigns; so donors can tell you as best they can of the schedule of the payments they can make on their pledges. This may be declared with an initial cash amount given, with the balance due... read more

Endowment Funds Go on Forever
But an Endowment Campaign Should Not

There comes a time in an endowment campaign when the initial urgency of the need inherent in the campaign’s case for support begins to fade. The excitement of the kickoff, anticipation of success as the personal solicitations begin, the first promising results—can go for naught if the campaign goes on too long. As an organization’s endowment campaign begins to extend well into its second year of actual solicitation activity, volunteers begin to grow tired and donors will not believe there is a real and immediate need for their money. Invariably, campaigns of this type slow, stall, and sometimes fail because the management and implementation of the campaign plan were not well organized. The key to successfully completing an endowment campaign on or before its established and public deadline is, in a word, organization. How Is A Successful Endowment Campaign Organized? Because an endowment campaign is a special, widely-spaced occurrence, a non-profit organization must be certain its leadership fully understands the process of raising endowment funds, knows how such a campaign effort fits into their overall development plan and ensures the organization and resources are in place to carry it out. An endowment campaign is a fund-raising campaign that raises money for an organization to invest rather than spend. The proceeds from an endowment campaign are placed in an endowment fund, the income from which is used by the organization to meet ongoing expenses, cover capital expenditures, or fund special projects and programs. An organization which undertakes an endowment campaign does so in order to lessen its need either to raise money each year to cover any operational deficit—the difference... read more

The Name Is the Game:
Memberships and Named Gift Opportunities

In the nonprofit world, when it comes to “memberships,” we seem to be of two minds. On the one hand are memberships that convey benefits in exchange for a fee, and on the other, those that recognize donors for gifts made. Fee-Based Memberships In fee-based memberships, a patron of The Metropolis Museum can “join” that institution and become a member by paying a fee of $25 or $50 and receive a monthly magazine, free admission, a discount at the museum shop, special event invitations, etc. To my way of thinking, this type of membership is actually an earned income opportunity and is better left to the museum’s marketing department. Those fee-paying members have more in common with a performing arts organization’s season ticket holders than its donors, and their real value to a development effort lies in their potential to contribute to fund-raising campaigns, rather than the fee they pay for their membership. Philanthropy-Driven Memberships Recognition-based membership programs are tools used to convert prospects into donors and to increase the size of gift. They are one of the most useful tools fund-raisers have. Donors giving at a certain level to the annual fund become Friends of the organization. If they give at increasingly higher levels they have the opportunity to be recognized as Contributing Friend, Supporting Friend, or Sustaining Friend. Then there are those who give more that one could ever expect from a friend and enter the rarefied air of Benefactor or even Founder. Perhaps they become members of the President’s Circle. What matters is the concept, not the name. The idea is to tastefully and properly recognize... read more