Philanthropic Investment

Chequebook charity: this was a term used years ago in philanthropy to imply that a donor would make a gift without concern for the return on the gift. The charity made a request and a donor would simply get out his or her chequebook and write the cheque. Of course, there were exceptions, with some donors demanding more from the organisation. The exception has now become the norm, however, with the concept of chequebook charity disappearing much like the physical chequebook. More and more donors seek more from organisations and as a result the concept of philanthropic investment is now central to understanding donors. But is there more to know about philanthropic investment?

The notion of philanthropic investment is about making a wise investment in an organisation. It now underlies most requests for support from potential donors and philanthropists. It works like this: the organisation positions the proposal for a gift as a philanthropic investment and demonstrates the return (or outcomes) the organisation is seeking as a result from the generosity of the donor. Donors have no interest in bailing out an organisation because of mismanagement or because the organisation failed to plan for a changing landscape that is negatively impacting the organisation’s revenue stream. Instead, donors demand, and rightfully so, that their gifts be used to support meaningful outcomes that will allow the organisation to fulfil its purpose.

Positioning a potential gift as a philanthropic investment and expressing the ROI (Return on Investment) is rather mainstream now throughout the fundraising landscape. Organisations carefully articulate and aim to demonstrate, through proper stewardship, that the donor’s gift is making a positive impact on fulfilling the organisation’s purpose. Unfortunately, some stewardship programs are better than others and, further, some organisations get the proposal wrong with respect to the expected impact of the gift, leaving donors to wonder why their generosity didn’t accomplish the desired outcome(s).

Granting foundations have been known to push back on organisations before investing in a proposal because they have learned over the years what is possible and what isn’t. Their raison d’être is to support the non-profit sector by awarding grants judiciously and they make better choices during this process by engaging in a robust application processes, by having experts provide critical insight, by sharing lessons learned among the foundation granting community, and, frankly, through years of experience. Granting foundations have perspective that many individuals don’t have given the volume of philanthropic work that granting foundations carry out.

In the early 2000s, Bill and Melinda Gates were concerned about the state of American high schools and invested $2 billion to develop smaller schools. However, in 2008 the funding stopped because, as Mr Gates explained, “The overall impact of the intervention, particularly the measure we care most about—whether [pupils] go to college—it didn’t move the needle much…We didn’t see the path having a big impact, so we did a mea culpa on that.” A lesson learned was the lack of required financial commitment from governments and/or acceptance by the wider-teaching community and the funds were being treated as chequebook charity. These experiences have made the Bill & Melinda Gates Foundation better at what they do and have resulted in more and more foundations using leveraged philanthropy.

Leverage is using something to maximum advantage. Today’s donors are seeking ways to leverage their giving by working with the organisation to develop a new structure or blended gifts.

The matching gift program is the historical leveraged philanthropic investment, but it was traditionally limited to government or businesses that provided a matching gift program for their employees. Usually an employee would donate $100 to an organisation and the company would match 1:1, 2:1, or even 3:1. The other more common matching gift concept involved a donor pledging, say, $100,000 and the organisation would use it for a matching gift campaign to attract first time donors: the matching challenge would be used to promote to first ever donors if they make a gift their gift will be match by Mr and Mrs Good Donors until the $100,000 has been reached. Both matching concepts, however, didn’t require much on the part of the organisation and that is where leveraged philanthropic investment is changing this. Organisations are asked to demonstrate how much they value the opportunity to secure a major gift.

For example, a university needs a new parking garage, but lacks the required capital. In conversations of this need at a board meeting, a member of the board, who also happens to be a philanthropist, understands the logic behind the situation and is interested in helping. However, the philanthropist has no interest in having their $5,000,000 gift be known as the gift that built a new parking garage. The parking garage would be a revenue generator given the demand and the fees for daily or monthly parking rates. The philanthropist instead elects to leverage their $5,000,000 gift by placing a condition on the gift—the future revenue generated from the parking garage will be used to fund scholarships for students who demonstrate financial need. Future funds generated from the parking garage are no longer unrestricted. Instead, the philanthropist is associated with a generous scholarship program, the university saves on the associated borrowing costs to build the parking garage, and the parking garage will serve as a mutually vested interest in advancing the purpose of the university.

Often the needs of an organisation and the desired interests of a potential donor don’t align. For example, the organisation may make the case that a particular project is critical to the organisation and there is an urgent desire to get the project underway. Although the donor can logically relate to this project, emotionally it does not move them.

Another scenario might involve an organisation that is undertaking a multimillion dollar campaign and approaches a donor for leadership support to advance a plethora of areas in hopes that one of these areas will resonate with the donor. In this scenario, the donor may have an emotional connection to one of the projects, but the higher the requested gift, the more likely the decision making will involve some critical logic on the part of the donor. This logic may have the donor asking about the organisation’s skin in the game or how the donor can leverage their philanthropic investment to make an even bigger impact with their giving. For example, the donor may ask the organisation to match his/her gift to create a lasting endowment that results in doubling the impact.

In some instances, organisations need to pivot from just acting as a receiver of generosity and acknowledgment via the standard stewardship program because philanthropists are looking for more. Donors are demanding their leadership gift be viewed not just on the face value of the dollars, but also in the creativity in how the gift is structured so there can be a multiplier effect. Organisations may want to rethink proposals to donors and brainstorm the opportunities how those major and leadership gifts can be leveraged.