Making Capital Campaigns Work in the Recession

Thursday, June 25, at 12 noon, U.S. Eastern time

George Overholser is founder and managing director of Nonprofit Finance Fund Capital Partners, a division of the Nonprofit Finance Fund. He previously founded North Hill Ventures, a venture-capital firm in Boston, and was a member of Capital One Financial Corporation's original management team.

Leo Arnoult is president of Arnoult & Associates Inc., a fund-raising consulting company in Memphis. He serves on the board of the Giving Institute, and is a past chairman of the Giving USA Foundation, which publishes "Giving USA," an annual report on charitable giving and philanthropic trends.

Elizabeth C. Sullivan is vice president for community investment at the Community Foundation for Southeast Michigan in Detroit, where she oversees the program development and grant making, and is chairwoman of the Nonprofit Finance Fund. Previously, Ms. Sullivan was senior vice president of The Kresge Foundation, where she developed and managed the foundation's PRI program.

A transcript of the chat follows.

Maria Di Mento (Moderator):
    Greetings and welcome to today's live discussion. Today we’re discussing how the recession is affecting nonprofit organizations that are conducting capital campaigns, and strategies to managing campaigns n today’s financial climate.

Maria Di Mento (Moderator):
    Our three guests today include George Overholser, founder and managing director of Nonprofit Finance Fund Capital Partners; Leo Arnoult, president of Arnoult & Associates Inc., a fund-raising consulting company in Memphis; and Elizabeth C. Sullivan, vice president for community investment at the Community Foundation for Southeast Michigan in Detroit.

Maria Di Mento (Moderator):
    All three will be available for the next hour to take your questions.

Maria Di Mento (Moderator):
    For those who are new to this forum, please note that this is a text-based discussion. There is no audio. You can watch the discussion unfold on this page, which refreshes every minute with the latest questions and answers. To ask a question, simply click on the "ask a question" link on this page and type in your query. I'll direct your question to a member of our panel.

Maria Di Mento (Moderator):
    We will be offering a full transcript of this event after it is complete at http://philanthropy.com/live. You are welcome to refer to the transcript in the future -- and to pass it along to others who might find it interesting.

Maria Di Mento (Moderator):
    Without further ado, let’s get started.

Question from Janice Jensen, Habitat for Humanity:
    I'm interested in knowing more about nonprofit IPOs and how they are different from a cap campaign. How much have others' raised using the IPO concept? Is it a good idea in this era?

George Overholser:
    Thanks for the question, Janice!

As with many innovations, the type of campaign we have focused on at NFF goes by many names. "IPO" (for Initial Public Offering)borrows from Wall Street jargon, but we could just as well call them growth capital campains, working capital campaigns, or, my current favorite, a campaigns for Philanthropic Equity.

So far, I've witnessed about $300 million worth.

What makes them different is their particularly rigorous combination of nonprofit business plans, prospectuses and formal financial tracking of progress towards sustainability. Investors get an answer to the questions: "How much did it take to build this self-sustaining nonprofit institution?" and "Is it really self-sustaining now?"

I think its a great idea for our era, particularly for nonprofits that are undergoing some form of transformation, either in terms of growth, quality, sustainability or all three. With a clean separation between growth capital and sustaining revenues, it becomes possible to pre-raise large sums of money, and to bring many funders into alignment around a single plan and reporting scheme.

Management teams get to focus more on working backwards from a plan that delivers on mission in a financially sustainable way.

Question from Andy, small nonprofit:
    What are the key factors to consider as you decide whether to plow ahead with a campaign in this economic climate or postpone a campaign because of this economic climate?

Leo Arnoult:
    Andy:

The first factors to consider: How strong is your case for support? How many of those donors do you think will give to your organization based on that case?

You may also need to approach a larger number of donors, especially if many of your donors will give, but at a reduced level. If your case is strong, but your prospect list is short, you may decide it is best to forego that campaign.

Question from Cindy Weber, Door County YMCA:
    Our board has trepidations on when we should look at starting our capital campaign. There is however a lot of preliminary work that needs to be done. How long is the timeline from when we decide we should do a capital campaign until the first "ask" and if we were to start tomorrow the process tomorrow could we put the "ask" section on hold if we are still uneasy about the economy?

George Overholser:
    You and your board are right to look before you leap!

There are many potential pitfalls to a capital campaign that are best addressed ahead of time.

Among them:

* Is our strategy well-honed and well-communicated? If not, the case may not be compelling, or, just as bad, the money could be squandered.

* Do we risk canibalizing our sources of long-term support? If an annual appeal figures into your long-term business model, then be sure to have a capital campaign ask that avoids a "last check" type of feel.

* How do we know this won't create an unsustainable surge in expenses? Many a nonprofit has raised a big chunk of money, only to discover that the expanded cost structure it pays for can't be sustained

* Do we have entree to the check-writers? Many a campaign has petered out, with embarassmnet all around. The rule of thumb on campaigns is to undergo a significant feasibility and quiet phase, preferably raising half of the dough or more before going public.

Our experience has been that if a client has a strong, well-comunicated strategy in place, a crisp financial plan for sustainabilty all laid out, and good progress on campaign feasibility, then the prospectus-writing part takes 2 to 3 months, and the money raising another 9 to 12.

Question from Nancy:
    Client is 60% of the way through $25M goal with board giving, and ready to move on to non-board giving. But some board members are balking at making commitments until they know what financing will look like. Financing will be contingent on pledges in hand, in part. How to crack this "chicken/egg"?

Leo Arnoult:
    Nancy:

What a great position to be in having your board giving such a strong portion of the goal. That fact alone should reflect positively on your organization as you approach your financial agencies looking for either short or long term financing. I would go ahead and have preliminary meetings with financial institutions who would provide funding and begin to assess the terms and costs associated so they can be factored into your project. This will give them further assurance the project is doable or at least identify areas that need to be addressed before you go public to make sure there are no surprises down the line.

Question from Steve Goldberg, Author, Billions of Drops in Millions of Buckets:
    Do you think federal stimulus funding for nonprofit capacity building will dovetail with or advance separately from the kinds of philanthropic growth capital that NFF Capital Partners, SeaChange Capital Partners and EMCF are putting together? Thank you.

George Overholser:
    Hi Steve. Love your new book!!! (Everyone should buy a copy pronto!)

I do think there will be opportunities to connect the growth capital work that we and others are doing with federal stimulous dollars.

Although fairly small at this point, the new Social Innovation Fund, part of the recent National Service Act, is designed precisely for this purpose.

More urgently, many organizations are needing Philanthropic Equity to gear up their capacities to take on the surge of federal funding that will soon reach them.

Question from greg flakus Clark County Food Bank:
    We started our campaign in October 2008..Our goal was $5.2 million including the land, $4.2 million in cash gifts...WE now have 3.4 million in, 2.4 million in cash..No foundation gifts so far..Any comments on how to now increase our success rate with foundation requests?

Leo Arnoult:
    Greg, you should be in a good position with these results to approach foundations including national ones such as Kresge who will see your results as positive. Given the current economy, I would suspect that local foundations would find your progress to date strong as well. I would recommend first approaching foundations you have had past relationships with or ones who really have a strong interest in your mission. With 50% of your cash goal realized, you have a credible level of support to take to the foundations. Some may even be interested in a back side of the campaign challenge to help you keep your momentum going. You might also use that challenge to get early supporters to increase the size of their earlier pledges.

Question from Michael:
    How might the role of prospect research and/or list screening change in these times?

George Overholser:
    My hope is that we will see the emergence of more and more funders that, like EMCF, are prepared to write large growth capital checks for particularly robust, measureable and compelling nonprofit business plans.

Ideally, we will come to a time where very promising plans/management teams will not have to search far and wide to find a short list of interested/able prospective Philanthropic Equity investors.

Question from Sharon:
    How important is it to do a feasibility study these days? Trustees seem to want to skip this step to save money, but it seems ill-concieved. What kinds of organizations might forego a study, or do a smaller number of interviews?

Leo Arnoult:
    Some form of planning or feasibility study is probably more important than ever if your board wants an objective assessment of your readiness to conduct a successful campaign. More than ever you will need to have adequately engaged and involved your top prospective donors in the preparations for the campaign and such a study is a concrete way to evaluate how strongly they have been engaged and are therefore ready to commit. It also helps you determine your ultimate strategy for the campaign and how broad based the campaign may need to be to raise the desired amount of funds. Lastly a good study in itself is a sophisticated form of cultivation and involvement that can help set the table for the campaign from the donors' perspective as long as you are prepared to take their advice that comes through the study.

Question from Ann, Count Basie Theatre Foundation:
    We're having a very hard time trying to set up meetings and appointments with potential donors - just suggesting coffee and a conversation about what's happening at the Theatre. They are savvy about our ultimate reason for calling and don't take the call or respond to voice mails. Any ideas about how to advance this process? Direct mail has not been effective.

Elizabeth C. Sullivan :
    The approach needs to be well thought through. It is probably most effective when someone close to the prospect contacts them personally, explaining why the meeting is being requested and following through on the cultivation effort (through to solicitation). Depending on ow close the prospect is to the organization, several cultivation contacts (visits, notes, meetings, tours) may be in order before solicitation is possible.

Often the first contacts involve telling your story and asking for feedback.

Question from Laura Jo Hawk, Hospital Foundation:
    Would you recommend a comprehensive campaign for both capital, endowment and operating support to attract a wider range of donors and funders; and how are planned gifts incorporated?

George Overholser:
    In many cases, a comprehensive campaign is just the right thing. Otherwise it can be difficult to manage cannibalization of the annual appeal, and/or to use the campaign as an on-ramp for long-term supporters. Also, as you mention, it is sometimes best to present a menu of giving opportunities, so individual wants and wishes can be catered to.

On the other hand, there are many nonprofit enterprises out there that do not plan to rely upon traditional sources of philanthropic support as their long-term business model. Perhaps they plan to build a highly decentralized "grass roots" model for sustainabilty (for example, an online model)that does not overlap strongly with capital campaign participants. Or, perhaps, they intend to find a way to be funded by the government in a way that pays fully for what they do. In these cases, it is sometimes best to build the campaign purely around the growth capital Philanthropic Equity ask.

Question from Sally Gilmore, small nonprofit:
    We lost a big Event Sponsor, but we rely on this event’s revenue. What can we do?

Leo Arnoult:
    You have a lot of company, so don't be discouraged. Identify twice as many prospective companies as you would normally, and try to identify ones that care about your organization and have not been adversely affected. Make sure there is a strong match between your mission and their customers so they can get maximum value from whatever halo effect they garner from aligning with your organization. Do their research for them before approaching. Also, generally speaking, in campaigns, events are not the driver. They certainly can be a part of your giving strategy for broader based giving to your campaign, but they should not be the decisive factor. Maybe you hold up the event this year and add it to your strategy after the economy bounces back, and focus now more on wealthy individuals and foundations.

Question from Judith McDowell, George Street Playhouse:
    a)What are your thoughts on starting a new campaign at this time?

Leo Arnoult:
    Judith: Major donors tend not to give to "desperate" organizations. And generally campaigns are skewed to some extent toward major donors, unless you are a huge national operation that has such a broad base of givers and your model is not built on major gifts such as some of the national health organizations. If my top donors were especially hard hit by the economy and my middle level donors collectively could not make up the difference, I would consider postponing. If it becomes clear that there are case issues that need adjusting I might go back to the drawing board. If I find that we don't have the right leadership team capable of implementing the campaign I would reconsider too. If the board is not fully committed and 100% pledged with stretch gifts, I would definitely not go forward.

Question from Mary Covington, higher education:
    Our board is enthusiastic, but not affluent. We have 100% board giving, but it is not a very large percentage of our goal. Will this hurt us with major donors and foundations?

George Overholser:
    100% participation from the board is essential. Having a "money" board is not - although it sure can be helpful when it comes time to network!

The key for the types of projects we work on to have a compelling "transformational" strategic plan for social impact, a crisp financial plan for sustainability, and an impressive managerial track record.

Question from Randall Hartzog, Theatre Memphis:
    Do you cannibalize your efforts by pursuing capital gifts in a time when it is expected that gifts will be lower? If you can only go to the well once, should you wait until the water is deep?

Elizabeth C. Sullivan :
    It depends on how close you are to your prospect and whether the ask can be made in a manner that leaves the door open for extending the pledge, or expanding the pledge once the donor's financial position improves. Even during tough times -- perhaps especially during tough times, it is vital to stay close to your donors. Donors may also be helpful in identifying others that can give -- the amounts may be lower today, but may be useful in buildng long term attachment to the institution.

Question from Nancy Green, Bethesda Project:
    My organization is in the very beginning stages of discussing whether to launch a capital campaign. Given the decline in donors' assets, would it make sense to delay doing a feasibility study until the market recovers?

Leo Arnoult:
    Not all donors have experienced a decline in assets or have declined to the extent that they are no longer giving. Despite the 2% drop in giving in 2008, last year was the second highest level of giving ($307+ billion) in the recorded history of philanthropy. Reassure your leadership that you will need to be focused and realistic. Through your donor research attempt to identify those who were not devastated by the market meltdown or persons involved in businesses that are either a bit recession proof or at least not as badly affected by the current declines. Not everyone was hit as hard as so many others were in the recent market decline. Some people actually made money.

It also depends on the urgency of what you are trying to accomplish. We have clients who are proceeding, because they really can't wait. As I responded earlier, either a feasibility or planning study would generally be a good idea, but only if you have done your homework with your donors and you believe they are involved enough to make your campaign a priority.

The key is to focus your research and try to focus on those you believe are doing relatively well and make sure you engage them in a way that they really want to help. Focus as much as possible on your existing donors -- rather than new prospects -- unless your case for support is really compelling to folks not already involved and where they may have strong interests in your project's outcomes.

Question from Julie Meredith, small community nonprofit:
    In the past, we have gotten a lot of foundation support. How can we replace this funding?

George Overholser:
    This is a tough one, because it can take years to put an alternative nonprofit business model in place. Also, of course, the type of model that works for you will depend strongly on the particulars.

I am seeing a lot more these days of investment in a more systematic approach to fundraising. Using tools like eTapestry or salesforce.com, and building up routines to introduce more prospects into your pipeline, it is sometimes possible to build up a loyal following over time that could replace some of the foundation funding sources.

This type of retooling takes time and growth capital. A growth capital campaign could possibly be used to pay for the deficits incurred while ramping up the new business model.

Question from Mary :
    What would make you decide not to go forward with a campaign during a recession even if we desperately need the money?

Elizabeth C. Sullivan :
    In these times, it may be more important than ever to conduct a careful feasibility study. Your major donor prospects can serve as a bellweather of potential success or failure with a campaign, and can be helpful in setting a realistic goal. It is especially difficult to raise endowment from donors that have seen the value of institutional endowments drop.

Lack of available/favorable financing can be another concern that could prevent you from moving forward with building project campaigns at this time.

Maria Di Mento (Moderator):
    As we approach the midway point in today's discussion, I'd like to offer a reminder that participants are encouraged to ask questions at any time. To submit your query, simply click on the "ask a question" link on this page and type in your question.

Question from Julie, Habitat for Humanity, Lansing, MI:
    Our organization is 6 months into a $1M campaign with nearly 1/5 raised or pledged. Progress has been slow and we know we have about 6-9 months of work left. Do you have any suggestions for us moving forward? Particularly, what can we say to donors and board members to encourage asks and gifts?

Leo Arnoult:
    Julie,

Many organizations start construction before the campaign is completed, but you may want to isolate out certain features that could be eliminated if the full goal is not attained and convey them as important final components that will not be included without the generous response of remaining potential supporters. Also you may want to ask one of your final phase prospects to provide a end of campaign challenge or match that could also leverage and motivate those final gifts.

Question from Ron Graves, Westminster College (Missouri):
    We are starting the planning for a Capital Campaign. There has been the discussion of putting it of my our Board, but we think that it is important to get started now. What are your thoughts on this and do you think that a new database 'scrub' (wealth screening) should be done. The last one was 2006.

Elizabeth C. Sullivan :
    It probably makes sense to scrub the data base and do some data mining to determine the curent financial status of your major donor prospects. While you may not want to publicly launch a major campaign, you can thoughtfully test the goal, seek input from major donor prospects and begin the cultivate other donor groups. This information will be vital in informing your decision to move forward.

Question from Patty Bond, Nonprofit theatre:
    We are close to meeting our $17.7 million Capital Campaign goal and require $3.7 million in pledges before the end of 2009. We plan a public launch and start of construction in the fall. Any thoughts on messaging to leverage support to push us over the finish line?

Leo Arnoult:
    Many organizations start construction before the campaign is completed but you may want to isolate out certain features that could be eliminated if the full goal is not attained and convey them as important final components that will not be included without the generous response of remaining potential supporters. Also you may want to ask one of your final phase prospects to provide a end of campaign challenge or match that could also leverage and motivate those final gifts.

Question from Ronald Stayton, Zoological Society of Florida:
    Have you seen a trend toward large ($1M plus) capital gift payouts being delayed or extended over longer periods? What are the downfalls, if any, to the organization and the donor?

George Overholser:
    We have indeed seen some of this "stretching" of payables, and it can be painful for nonprofits that are short on liquidity. Luckily, since campaigns often have a front-loaded nature, our clients tend to have enough cash in the bank to bridge these grants recievable.

The more difficult problem we are seeing out there is that funders, in their desire to live up to existing commitments, have tended to be more reluctant as of late to add new grantees to their portfolios.

For this reason, one client delayed a major campaign and another significantly expanded the time frame for its campaign.

Question from Jan Cline, Gordon Square Arts District:
    What tips can you offer to keep volunteer major gift solicitors motivated and upbeat? Many of them may be seeing their own wealth decreasing and be hesitant or discouraged from asking a prospect for a capital gift.

Elizabeth C. Sullivan :
    Keep those volunteer solicitors attached to your organization! -- this is an important cultivation tool to keep them connected as major donors, and will help inform their ask. A donor that has stretched to make a major gift is often best able to solicit major gifts from donors that are reluctant.

Question from Inga, St. Ann's Warehouse:
    Is it more appealing to ask potential donors to make multi-year gifts?

Elizabeth C. Sullivan :
    It depends on what you know about the prospect and what you are raising money for. In an annual campaign, you want to ask for a one year gift to support the institution. Once you've cultivated a donor and have received several gifts you may want to approach them for a multi-year pledge to support a specific program or project. Before asking them, it is important to know what connects them to your institution, what their capacity for giving is, and what other philathropic interests they may have.

Question from Paul Bradley, ROC USA:
    Are there special events for debt and equity capitalization for non-profit social ventures like what we see in the for-profit sector (like Investor's Circle or angel investor summits)?

George Overholser:
    Hi Paul!

You might want to check out xigi.net. It is an online exchange that lists and follows a wide range of social investing, including nonprofit deals. Good Capital, a West Coast firm, hosts an annual conference that has a growing pool of nonprofit equity/debt investment discussions. Mostly, though, this is still a rather cloudy marketplace to be sure!

Question from Michele, nonprofit arts organization:
    Given the current economic climate, what are the pros and cons of extending the first 'quiet phase' of the campaign in the event that it takes longer than anticipated to raise the conventional 50% of the funds before publicly announcing the campaign?

Elizabeth C. Sullivan :
    It makes sense to lengthen the silent phase until you are pretty confident that you will reach your campaign goal once you go public. There is a general understanding that campaigns are taking longer in this economy. But, once you announce your goal publicly, you will want to use time as leverage to complete the campaign successfully.

Question from Diane Joiner, South Area Solomon Schechter Day School:
    In this down turn economy, is it possible to do "dual" asks (for an annual and capital gift) and be successful?

Elizabeth C. Sullivan :
    YES! and, it is necessary because you do not want to sacrifice the annual fund for the capital gift. It is important to inform donors that their "stretch" gift to the campaign does not replace their annual contribution to your institution. If the campaign supports facility or program expansion, you will need a more robust annual fund to support your operations.

Question from R. Wilson, development director, university:
    Should a capital campaign in this climate emphasize gifts of securities, such as stocks?

Donors can recognize capital losses for tax purposes, and institution may realize gains, especially as we witness run-ups in the stock markets. Does this make sense?

George Overholser:
    I think it does make sense, although I would certainly call myself a layman when it comes to taxes! On the other hand, there have been many instances through the years, about big losses that came when the value of a large gift remained concentrated in a single volatile security, rather than quickly diversified.

Question from Emily, small nonprofit:
    Our lead donor (15% of the campaign goal) needs to extend the time to pay for his pledge 3-5 years beyond the end of the campaign. How can we make this work?

Leo Arnoult:
    Emily: I would accept the changed terms graciously and then modify my campaign strategy accordingly. If I am using a bridge loan to finance the project I would consult with the lender to see if we could in turn, stretch the payment period. You may have to increase your effective goal by the added interest cost to make sure your cash flow still works or you might consider a longer term payment schedule for the whole cost if you can favorable terms. You might want to also consider the Reinvestment Act loan provisions that could result in a lower interest rate that might help make this work! We have a client that was able to take out a larger loan due to the lower longer range loan because the bank was not being taxed on the interest due to the Reinvestment Act provision. Be creative and responsive to your donor's needs. It still is a fabulous gift regardless of the changed terms Congratulations!

Question from Jill Spira, Niagara County Community College:
    Our first Major Gifts campaign pledges are ending this year. My institution is interested in its first capital campaign. Our 50th anniversary is in 2012. Preliminary discussions include raising funds for a learning commons project (part of the library) and perhaps athletic field upgrades. I would like to have an unrestricted component to this as well, since our unrestricted pool of funds needs to be continually supplied. Do you feel we can add this as a component, or perhaps disclose that a certain % if all gifts will go into an unrestricted endowment?

George Overholser:
    Jill: Many capital (bricks and sticks) campaigns include maintenance endowment to ensure deferred maintenance doesn't become an issue later on so that is very standard to include such in your case for support. By your question you may also be suggesting adding an "unrestricted" endowment to fund the general operating budget which also can work. However, from a donor perspective you may want to pull out some aspect of your budget that is central to your mission such as endowed scholarship dollars for a university or professorships - two features that will continue into the future. You have to be careful about endowing permanently programs that may not be permanent. You could indicate a percent of each dollar raised will go to your endowment but that actually means your "quasi-endowment" if you follow that course because only a donor can restrict a gift to a permanent endowment.

Question from Diane Joiner, Jewish Day School:
    We started our capital campaign in 2005 with a goal of $7.5 million. We have raised $6.3 million to-date. We are having difficulty raising the remaining balance. At what point do we begin to look at closing the campaign? Should we move on to endowments as a possible way of closing the campaign?

Elizabeth C. Sullivan :
    A couple of ideas: Is it possible to get a board member or major donor to "challenge" campaign completion by a fixed date? Sometimes, a time limit can help mobilize your campaign committee into action and help leverage those donors that have been delaying their pledges. If the endowment gifts you reference were part of your campaign goal, you should count them, but if they were not, it will be important for you to look at goals that were not funded and determine how these can be achieved. Finally, you might consier asking some donors to extend their pledges for another year or two, or having a mini-campaign around a specific campaign goal.

Question from Steve Fredericks, The Growing Stage Theatre:
    Our organization has had a successful capital campaign in the past that we now want to evolve into a facility fund. NFF will be doing the facility report this summer to give us a starting point. Any suggestions as to how to create this type of fund?

George Overholser:
    That is exciting, Steve. I think it is very wise for you to be looking into the whole cost of ownership, through the life-cycle of a facility -- not just the initial cost of building/buying one. Years of experince at NFF has shown that the transition to owning a facility can be extrememly disruptive to a theatre company. When raising the capital, it is very important to pay for the "whole enterprise" expense of the facilities project. This includes, for example, the creation of reserves to fund depreciation, and, if you plan to have tenants, ample reserves to pay for periods of low occupancy. An integrated whole enterprise financial plan (as opposed to just a project budget) is a good place to start.

Question from John Langois:
    How does planned giving factor into a campaign especially during a recession?

Elizabeth C. Sullivan :
    Most major gifts to a campaign are "planned;" that is they are well thought out and considered from a tax efficiency stand point. Therefore you need to be concerned not only with the Why, What and When, but also the How of a campaign? All campaign staff and volunteers should have a basic grasp of such giving strategies as charitable remainder, lead and annuity trusts and whether you will accept them, but also anticipate which donors might be in a position to take advantage of them and create a financial "win/win" in the process. Of course you must also determine if longer term and possibly changeable bequests are acceptable, and if so what age thresholds will help determine whether you accept them as part of your count or not.

Most organizations should already have gift policies and campaign acceptance policies in place to reinforce planned giving as a strategy.

Question from China Brotsky, Tides:
    We have a member who is considering partnering with other organizations with a mission fit to create a more compelling case for the building as well as doing a joint capital campaign to increase the donor pool. Any feedback on this concept?

Leo Arnoult:
    Could be a very effective strategy. The "devil is in the details" as they say. As long as you have a clear agreement about the use of the building space and what happens if one party raises more from their related prospects than the other this could work. This is just one question however that not properly answered to everyone's satisfaction could make such partnerships difficult. Proceed with a little caution and make sure the agreement is airtight or at least that your interests are protected.

Question from Cathy:
    Do you have any further thoughts about a combined bequest/endowment campaign?

Leo Arnoult:
    Which comes first - the bequest program with a restricted pitch for endowment, or an endowment campaign that counts bequests? I would lean toward the latter. I am not sure you want to mobilize a campaign that says all bequests are going to endowment. Future donors may have that etched in their minds and may not want to give to endowment. So yes by all means organize an endowment campaign and allow donors of a certain age to include their bequests in the goal. It might be unfair however for a 50 year old donor to get equal credit for making a $1 million bequest provision as an 80 year old. When you take actuarial tables into account that 50 year old donor's gift may have a far lesser present value than the 80 year old. So you may have to think about a policy that gives you some cover and encourages the 50 year old to give something now and maybe augment with their will.

Question from Laura, Human Services Detroit MI:
    Dealing with poverty,foreclosure homelessness and hunger our needs are at an all time high and like everyone else funding is tight. We are considering a small project based campaign. Any effective strategies for an unconventional campaign?

Elizabeth C. Sullivan :
    Some ideas: Start with annual fund donors that have supported the organization/special project in the past and develop a cultivation strategy that personalizes the ask; develop a mini-challenge for a select group of donors that are committed to the small project; give donors an opportunity to connect more deeply to the organization through a project that links them to your special project. While the dollars raised may not be significant, you may find that you develop connections that build the donor base.

Question from Steve, new Catholic high school:
    As a brand new high school in a capital campaign, we do not have long-standing relationships with foundations. We have surveyed our board and found several connections with board members of compatible foundations. When is the best time to ask our board members to reach out to their connections? Obviously once the letter or proposal is sent, but are foundation program officers or board members more likely to steer us toward an appropriate ask?

Leo Arnoult:
    Steve: I would ask your board members to set up a preliminary visit with the foundation leadership if that is allowed by the foundation and if they are willing to do so. Together you can assess how well your project fits into the foundation's priorities. You can even ask the foundation representative what type of gift (outright, challenge, etc.) and what magnitude of gift they would give consideration to in that visit. If you have already submitted the proposal you might backtrack and ask the board member, again if that doesn't violate the foundation's protocols, if they would follow up with a contact with the appropriate party.

Question from Jim Obendorf, Habitat (w/Janice below):
    Relative to the IPO concept, George, what do you think about the concept of having dividends where there is an option to take or contribute the dividend? Also, making a market for shares (small percentage annually)to reduce perceived donor risk)? All based on the assumption the this organization actually generates a paper surplus currently.

George Overholser:
    Strictly speaking, the Philanthropic Equity concept involves no return of capital to the funder. This is due to the "nondistribution constraint" portion of tax code that governs 501(c)3 entities.

There are some interesting experiments out there, though, that are using deeply subordinated debt (PRI's) or recoverable grant arrangements as a way to replenish the philanthropic coffers of grantmakers that back financially successful nonprofit enterprises. (You might be interested in the structure we put together with Root Capital)

Also, in the debt market, we have some cases where we have built in a concept of "take-out" financing for PRI debt. This works particularly well for charter schools, who, at first, may not be attractive to the commercial market for municipal bond financing.

I have far fetched dreams about a secondary market for Philanthropic Equity that makes sense on paper... but it will be some years before it would make sense as a practical matter.

Question from Anne, Connections for Abused Women and their Children:
    Have started a 4.5 - 6 million capital campaign. Been at it about 1 year - Seems to be stalling with only $600,000 raised to date (primarily from internal sources - Board members and staff. What factors do you look at to determine if you should put campaign on hold/abandon - when - how long?

Elizabeth C. Sullivan :
    Was a feasibility study conducted? If so, it might be useful to go back to the findings and determine if the original plan was flawed. If so, you might want to use this time to change the campaign strategy. Is the campaign committee meeting regularly and are they asking for gifts? Did a major donor prospect not come through as anticipated? These questions may help determine whether you should lower the campaign goal.

Question from Jonathan, Family Services of Montgomery County:
    We're asking donors to put their family or company name on our building or in dedicated indoor spaces at our main office. We're doing this largely on a case by case basis, though we have some publicity out in a context of giving in general. A near next door nonprofit neighbor accomplished this a few years ago, so naming a building is part of the local culture. Any thoughts about extending this selective campaign to a larger audience?

Leo Arnoult:
    If you mean extending it after you have pretty much raised the goal, by all means! You can always raise your goal or even add to an endowment component. For that matter you can continue to use those naming opportunities after the campaign has concluded as future recognition opportunities for major donors who give to your organization later.

Question from Mark Reyes, LEDC:
    Can George Overholser define "the Growth Capital Philanthropic Equity Ask"?

George Overholser:
    Yes -- sounds like a whole bunch of gobbledegook, doesn't it?! The main idea is that an organization can paint a picture of what sustainability looks like in the future. The Philanthropic Equity pays the bills incurred en route to making that picture a reality. Just like for-profit equity, it is "burn capital" -- monye you burn through as an interim deficit until the long-term business model kicks in. For example, for one of our charter school mamnagement organizations, the numbers won't go around until 12 schools have reached maturity. The growth capital ask is to raise the money needed to subsidize that journey. It is one-time money, because once 12 schools have reached maturity, no more interim financing will be required to pay for the home office.

Question from Kate, small nonprofit, Philadelphia:
    Our organization is preparing to launch the public phase of our campaign in November; it is our first campaign. Managing costs, while always a campaign consideration, is on everyone's mind at greater levels. What can you offer on the use of electronic newsletters and email blasts over printed newsletters? I'm most interested in what, for some donors, is a perception of too much spending.

Elizabeth C. Sullivan :
    Electronic communicationm email blasts and electronic asks can be very effective - but only if you know that your donors are more likely to respond to them than more conventional methods. Complaints about too much spending are often tied to multi-colored case statements, events and donor premiums that may appear to be costly. If you already communicate through a printed newsletter, or through an emailed newsletter, you might want to stick to it, but use it to communicate the campaign appeal.

Question from Ron Walrath, small seminary:
    How long should an institution wait to begin a new campaign after completing a failed campaign?

Elizabeth C. Sullivan :
    This depends on how you handled the failed campaign and why it failed. You might want to go to the donors that participated in the earlier campaign and explain the situation, letting them know how you have planned the new campaign. While some of your donors and prospects may have memory of the campaign, your best approach might be to treat it as transparently as possible.

Question from lee - nonprofit with 2M budget; small staff:
    14M went "public in 2006" due to initail gift from the county which started it; not a fundraising board - have raised $6M in gifts and pledges then hit the economic wall - now getting ready to re-start. Have kept all donors informed throughout - We don't have/and won't a standard cc committee structure; we have individuals who have been long time advocates setting up with prospects; what are your suggestions for best methods to 're-start' a campaign with goal of breaking ground when have 11M - hopefully end of 2010.

Leo Arnoult:
    We have done many public private partnership campaigns. It sounds like you have a reasonably good start off public sector gift and have made some progress with private gifts without a formal campaign. If you are a publicly owned and run entity now might be a good time to establish a formal campaign group composed of both your top publicly elected leaders and prominent private philanthropists starting with those who are already on board. You have plenty of time prior to your ground breaking to get closer to your goal; however, I would try to get beyond the $11 million if you can. If this is a publicly owned facility, unlike private projects, it is harder to raise private dollars after the project is under way because private donors are more likely to assume taxpayers will fill the remaining gap.

Question from Inga, St. Ann's Warehouse:
    In our case, we're looking to move into a new space and we have a rather short timelime to make the move happen. Is it wise to begin a capital campaign before a space has been identified? What are the first steps?

Elizabeth C. Sullivan:
    It is harder because if you don't know the site you probably don't know your costs. This makes it hard to set the goal. If you have urgency for the move I would set that before proceeding with the campaign. The location may be key to donor motivations as well.

Question from Sandra Beer, public broadcasting:
    My station is considering a capital campaign. As we look ahead, given increasingly rapid change in media technology and the overall media market segment, we believe that we will need to do nearly constant capital equipment purchases for many years. How do we structure capital asks so that we can continue to keep up with the technology without burning out donors?

Leo Arnoult:
    You need to establish an ongoing case for major gifts that is not time bound. Each year you can refresh your case with the most needed tech upgrades to equipment and software. The donor would be given a longer time horizon to pay the pledge than a normal annual ask say three to five years. They key here of course is to lean more toward three years so you can return to satisfied donors who may structure their giving at those higher levels and effectively become "super" annual donors if they get accustomed to that level of annual investment.

Maria Di Mento (Moderator):
    I’m afraid our time is up. We received a record number of questions today and unfortunately it was impossible to address all of the great questions readers sent in.

Maria Di Mento (Moderator):
    Thanks to everyone who joined us today. I hope you found the conversation informative. Thanks, also, to Leo Arnoult, George Overholser, and Elizabeth C. Sullivan for a lively discussion.

Maria Di Mento (Moderator):
    Please join on Tuesday at noon Eastern time when we discuss corporate giving in the economic downturn. We hope to see you then.