Raising Investment Capital and Fundraising – Not the Same

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Image courtesy of jk1991 at FreeDigitalPhotos.net

In 2016, I worked with five nonprofits engaged in The Patterson Foundation’s Margin Mission Ignition program. After completing a strenuous business planning process, it was time for these organizations to implement their plans. A key part of any social enterprise plan – and ultimately successful implementation – is raising investment capital.

It’s not uncommon for nonprofit organizations to pursue social enterprise activities to diversify their revenue. However, even organizations that have previously had great fundraising success, sometimes find challenges when trying to raise the investment capital needed to implement their social enterprise endeavor.

Fundraising for social enterprise investment capital is different than regular fundraising – but, not completely different. All types of fundraising share some basic principles.

You’ve likely been part of fundraising before, so let’s start with the similarities.

Cultivation
Fundraising is about building relationships on behalf of your organization and cultivation is the biggest part of this. Sometimes when we are so excited about an idea (like our new social enterprise), our enthusiasm leads us to skip the cultivation step – a big mistake! To cultivate a potential investment capital prospect, a nonprofit must reach out and seek to build a relationship.

Listening
The most critical skill in fundraising, both traditional and investment capital, is listening. When cultivating investors, our natural inclination is to “pitch” our idea by doing all of the talking. STOP TALKING and listen to your prospect (they are often filled with great ideas). The more we listen and learn from them, the more they will engage with our project.

Ask
After all of that sharing and listening, surely the prospective investor knows we need their support, right? NO! Every successful investment invitation needs to include an ask. If you’re not specific in what you need, the prospect could either give you something you don’t need or nothing at all.

Shared Values (Mission)
Investment capital donations have the very same core as all other donations: shared values. A social enterprise may have the strongest business plan, leadership, etc. but if the mission of the organization does not inspire the prospective investor of their shared values, no investment will ever take place.

 

See, you’re more prepared that you realize. Now, let’s talk about how raising investment capital and fundraising are DIFFERENT.

Non-Financial Support and Engagement
Social enterprise investment donors don’t want to write a check and walk away. They want to participate and provide support beyond cash contributions. This participation varies by investor, so you have to pay attention (see Listening above) and respond to each donor accordingly. As you cultivate the relationship, think of how their expertise could bring value to your new venture – marketing, leadership, mentorship, coaching. Be careful not to see their desire for engagement as a threat to your plan. Instead, use it as an additional research opportunity and battle-tested resource.

Business Plan Required
Donors who invest in social enterprise want to see that careful planning has gone into the project. Your organization must be ready to demonstrate how you conducted research that lead to thoughtful planning. As a general rule, a nonprofit should never embark on a social enterprise without careful planning. Knowing your investors will want to see that plan just reinforces the importance. Don’t take their questions (sometimes challenging) as lack of interest, they are looking to make a good investment.

Innovation Appealing
Typically, donors who invest in social enterprise are attracted to innovation. While creating your business plan, take the time to highlight new ideas (and understand them thoroughly) so you can share them with potential investors. Some social enterprise ideas aren’t brand new but are new to your nonprofit. Make sure that you focus on that innovation.

Risk Tolerant
Investment donors tolerate more risk than typical nonprofit donors — with innovation comes risk. Investors know that a venture may not succeed. They are often more comfortable with the risk than the nonprofit leadership. But when a project fails, the investor wants to see that you learned from it and take the time to make improvements going forward.

Performance Measurement
Investment capital donors are interested in how things are going throughout the implementation of your social enterprise. Be sure to have a plan for communicating with donors once your enterprise is operational. Measure performance and communicate with investors. Don’t worry if all of your measurements aren’t exceeding expectations. But, be sure to include what adaptations are being made so they can see that their investment provided an opportunity for your organization to learn and improve.

While there are some new things to consider while raising capital for a social enterprise, you and your organization have completed some of the hardest parts through the research and plan development process. At the funding stage, everyone is excited about getting this new project started and you can use that excitement to make an impression on potential investors

I hope with the realization that you can build on what you already practice in fundraising in your organization, that you approach this with confidence.

A quick note: this blog was written for The Patterson Foundation’s blog. If you’ve never read it, you should. It’s loaded with great information.

Inspiration from Under the French Fries

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Image courtesy of phasinphoto at FreeDigitalPhotos.net

Inspiration comes when you least expect it. While having dinner with my children at McDonalds, I was challenged by the verbiage on the tray liner. You know the tray liner – that piece of paper lining the tray that usually contains a special offer for an amusement park or a promotion of the latest McFood. But this time it was a statement about McDonalds’ corporate beliefs, starting with “We believe that when you say something people should be able to believe it.” They concluded with this statement: “To be the best company we can, we have to create the best opportunities. And we’d like to believe that some of the best ones around, are right here.

So here’s the challenge to us in the nonprofit community: do we offer our employees the best opportunities around? Do we invest in their training and development? Do we let them try new things? Do we listen to their ideas?

Many – maybe even most – of our employees took their current positions because they believe in the mission of our organizations. Sure, they need the paycheck but there are plenty of places to get those. Do we capitalize on their commitment to our organization?

Although we often blame ‘tight budgets’ for our lack of employee development, some opportunities are free. Even the opportunities that require some budget are worth it. By investing in an employee’s next step – through training and opportunities – we develop the next generation of nonprofit leaders.

Training and education
The nonprofit sector has a language all our own and some basic training will benefit employees at every level. Watch for web-based trainings, share interesting articles or invest in training from a professional association like AFP.

Opportunity
Find where their interests lie and let them work on a project, try out a skill or pitch in when things are exceptionally busy. Look for areas where your organization is lacking talent, social media for instance. Challenge an employee to become a specialist in that area by researching best practices in other organizations.

Feedback
One of the most valuable things you can provide aspiring leaders in your organization is honest feedback on their performance. Find places they can improve and be proactive in providing the opportunities needed to make those improvements. Don’t wait for annual reviews, provide ongoing feedback so your team can be constantly improving.

I have no idea what kind of workplace McDonalds truly is. But I’ve been in the nonprofit sector for over 25 years. Can the employees in the nonprofit sector agree with the statement on my McDonalds tray liner: “we have to create the best opportunities. And we’d like to believe that some of the best ones around, are right here“?

Don’t Confuse Overhead with Fraud

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Yesterday’s morning paper greeted me with a big headline about charity fraud. The Federal Trade Commission has filed a complaint against three national charities. I am pleased that action is being taken against charities who claim to make a difference in people’s lives but don’t. However, I fear that a national conversation will lead to confusion between overhead expenses and fraud.

If you missed the story here it is: Tampa Bay Times 
It was also on TV: CNN 

What are fraud and overhead? I like to start in the dictionary. Here’s how Dictionary.com defines them:
fraud – deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage
overhead – the general, fixed cost of running a business, as rent, lighting, and heating expenses, which cannot be charged or attributed to a specific product or part of the work operation.

The charities in question claim that their high expenses are overhead. Charities need overhead, “fixed cost of running a business,” to operate. Staff must be paid. Buildings must be repaired. Fundraising activities must be conducted. I would urge everyone – nonprofit employees and board members, individual and institutional donors, regulators – to not confuse legitimate overhead expenses with the fraudulent practices at corrupt nonprofits.

As a career fundraiser, I am very aware that fundraising expenses are often maligned in these conversations. Many people say they want all of their donations to go directly to program support. That is not realistic. What if everyone said that? Nonprofits would not be able to operate without someone supporting the overhead expenses, including ethical fundraising activities.

In a written response to the action of the Federal Trade Commission against the three national charities, Association of Fundraising Professionals (AFP) President and CEO Andrew Watt stated, “These kinds of fraudulent organizations are not charities in any sense of the word, nor do they in any way represent the vast majority of charities that work tirelessly on a wide variety of causes.” I am a member of AFP and proudly adhere to the Code of Ethical Principles and Standards.

When making decisions about where to make a charitable gift, do your due diligence. Make sure that the organization is providing the program support it claims. But don’t make the mistake of thinking that any amount spent on overhead is bad. Those overhead expenses keep your favorite nonprofit operating and thriving. If you have questions about an organization, do some research before you give. There are resources online to help. The best way to learn more about a charity is to get involved – volunteer, take a tour, ask how you can best help.

Don’t let yesterday’s news deter the work of your nonprofit or your charitable giving. Never confuse fraud with overhead.

If you are interested in learning more about the Overhead Myth, check out these resources:
The Overhead Myth 
“The Way We Think About Charity Is Dead Wrong” a TED Talk by Dan Pallotta