What’s in a name? That’s a challenging question when it comes to fundraising. The nomenclature behind philanthropic giving has evolved over the years. Terms for what is essentially giving money or resources to a nonprofit have ranged from making a donation; contributing; making a gift; giving a grant; making an investment; venture philanthropy; and, impact investing. They all are valid and have value within their own context.
The concept of “impact investing” is the most recent strategy in regards to philanthropic giving. In August, 2011, this blog presented an overview of “social impact bonds” – also known as “pay for success.” Especially relevant for human service provider organizations, these are percolating in Massachusetts and also at the federal level. They are based on the concept that if programs backed by investors succeed in reducing or eliminating the need for costly services and interventions, the government will realize big savings. In turn, investors are rewarded with healthy returns from Uncle Sam or state governments. On the other side of the coin, if the programs fail or do not deliver to performance standards, no returns change hands. Under these circumstances, investors would become donors.
According to the Washington Post, a growing number of grant making organizations in our nation’s capital have begun to experiment with loans and equity investments. These require nonprofits or socially minded businesses to repay the money over time. Known as “impact investing,” the practice has been embraced by organizations like the Case Foundation and Accion International. These sorts of funders increasingly are looking to provide seed money to non-profits to launch profit-making social enterprises that advance a social mission while generating meaningful revenue for the nonprofit. The Calvert Foundation in Bethesda, Maryland, has invested in nonprofit organizations for a decade and a half but insists that organizations have a track record of success, assets of at least $5 million, and experience in repaying borrowed capital.
Due to scale and other logistical factors, it is safe to say that impact investing as described here is applicable to very few NPOs. But here’s another way to look at the idea behind all of this, in a way that is relevant to almost any nonprofit organization. Consider impact investing by boards of directors to support or launch new revenue generating programs within their own organizations. Rather than a board collectively coming up with $50,000 in donations to start a program, board members may be more inclined to come up with $100,000 – the amount really needed – if the money is considered an investment that comes with a competitive return.
My direct mail colleague Nelson Checkoway cites a perfect example of “internal investing.” One of his clients allowed him to show their board that the anticipated return on investing $1,000 in direct mail acquisition returns $3,000-$4,000 over four years from donors who were acquired and remained donors. This presentation was based on based on the organization’s own historical data. The board was asked to make a $50,000 investment because the organization could not afford the funds for a direct mail program from their operating budget. The board was offered a rate of return competitive with what the organization was earning on its reserves and a promise to get the original investment returned in under three years.
It is a well know fact that the initial investment in acquisition mail almost always results in negative or flat results. But over time, the ROI is in the 300-400% range. It’s hard to find a better return than that!
This internal investing approach can be used for many types of NPOs. For the arts, a new exhibit or performance may promise to elevate ticket sales by X% – resulting in an increase in net revenues that can pay back investors in the project. An additional benefit here – new members are secured in the process. In human services, an agency may want to start up an earned revenue training program that has been successfully piloted in other cities. This could be an ideal opportunity for the board to make an investment in the organization, the community, and of course, their own personal ability to give generously into the future.
- Look at philanthropy’s role in generating a return on investment to pay back investors.
- Keep an eye on giving trends in the event you can demonstrate local leadership.
- Business investments from donors may be a model that may work for your organization.
For more information about Copley Raff and its spectrum of not for profit consulting services, please see www.copleyraff.com.
Have a development, executive recruitment, or campaign strategy or management challenge? Let’s talk! Click here to connect with Rebekah Kaufman, Director of Consulting Services at CRI.