Fundraising in an Era of Venture Philanthropy

1. Fundraising in an Era of Venture Philanthropy

2. About me…

3. Ground rules!

4. Learning Objectives • Understand the practice of venture philanthropy, where is it working, with what generations. • How do we reconcile incorporating these methods and sustaining traditional philanthropic models with existing donors? • How to do this without having a donor mandate what our priorities are (i.e. a donor who wants to make an impact in a way that is not included in our strategic plan and/or what if their plan is better than ours?) • How to engage Venture Philanthropists and outline potential implementation strategies.

5. Defining venture philanthropy

6. Defining Venture Philanthropy Venture philanthropy is donors using business model, championed practices of venture capitalists, and decision making procedures to drive their philanthropy and ongoing engagement withnonprofit organizations. (Backer, Miller, & Bleeg, 2004; Capers, 1998; Frumkin, 2001; Kumashiro, 2012; Reis & Clohesy, 1999; Romirowsky, 2007; Saltman, 2010; Wolfe, 2002)

7. Setting the stage…

8. Setting the Stage • Philanthropy may be experiencing the greatest revolution in more than 50 years with the emergence of venture philanthropy and the financial benefits can be significant (Cobb, 2002; Marcy, 2001)

9. Setting the Stage There is a competition for dollars and education programs are becoming increasingly market driven. Economic challenges are facing our organizations and we are challenged to increase revenue. (Drezner, 2011; Duderstadt, 2003 ; Elliott, 2006; Strout, 2005; Wolfe, 2002)

10. There are both UP’s and DOWN’s • State aide to higher education is DOWN • College tuition is UP • Tuition revenue as a percentage of total revenue is UP • Higher Ed accessibility is DOWN • Millennial income is DOWN • Student loan debt is UP • 40 million+ people with debt totaling 1.5 Trillion! • Millennials living at home is UP • 30% of college grads move back home with their parents

11. The changing landscape

12. The fundraising landscape has changed dramatically over the past 25 years. • The number of U.S. nonprofits has more than doubled since 1991 (517k to 1.1M in 2012), expanding job opportunities for top fundraisers. • The proportion of gifts that are unrestricted in nature has declined considerably, likely due to stronger donor interest in directing funds to specific initiatives and programs. • There has been a tremendous shift in the gift pyramids, with a significant uptick in the portion of campaign funds that the top 1% and top 10% of donors represent.

15. Fundraising is about Major Gifts Absent the top level leadership gifts… …the smaller donors won’t have confidence in the goals, ideas or vision. Bentz Whaley Flessner 2012 per J. Daniel

16. What do we know about leadership prospect potentialfor major gifts? • The Wealthiest 20% (the top quintile) own a total 87% of all American wealth. • The wealthiest 5% of the US population controls 62% of all the wealth in the country. • The next 15% own the next 25% of the wealth. • The middle class (the 3rd and 4th quintiles) together own 12%. • The poorest 40% of the population (1st and 2nd quintiles) own less than 1%.

18. Deloitte predicts growth for U.S. millionaires from $39T (in 2011) to $87T (by 2020)

19. To many, this may seem counter-intuitive… The “actual” US wealth distribution compared to “estimated” and “ideal” distributions. Source: Norton and Ariely, Perspectives on Psychological Science, 2010

20. Giving is very, very resilient… • In current dollars, philanthropy began the decade at $235 billion. • It soared to $312 billion and fell back to $285 billion during the recession. • While markets contracted by 50%, giving lost only 6%. • In 2012, giving was back to $300 billion—a 28% increase from 2001. And in 2017, it was at $400 billion.

21. “Modern” Fundraising bears the lessons of this evolved distribution Pareto’s “80/20” rule has evolved: • 90 % of donors (the masses) give only 7 % of the funds. • The top 10% of donors now give 93% of the funds. • 71% of funds raised comes the top 1% of the donors. • The next 22% of funds raised comes from the next 9% of donors.

22. Donors are testing their gifts

23. Participation is on the decline • Annual giving participation from alumni is on a 20+ year decline. • From the donors perspective: Annual gifts are viewed as being “discretionary”; as it is often a decision between giving to alma mater or “date night”

24. Alumni participation decline

25. Donors are shifting their designation Donors are shifting their support from unrestricted gifts to restricted gifts …and yes, this absolutely tells us something about donor behavior and their shift to more accountability and investment of their gifts

26. Is altruism dead? Head vs. Heart? • Some studies proclaim that giving is motivated by the heart; a concept coined the “warm glow” theory. • Others argue that it’s all about the head; donors leverage research and data to ensure their gifts have impact.

27. Changing Climate • Nonprofit organizations are operating under new challenges and pressures. Changes have forced organizations to be entrepreneurial and creative. Privatization, commercialization, and competition are altering the way nonprofit organizations operate (Skloot 2000). • As nonprofit budgets continually decrease, fund raising becomes quite important. Organizational leaders continually receive pressures from board members and stakeholders to incorporate practices that can strengthen the bottom line (Bornstein 2001).

28. Discussion • How has fundraising changed for you, or your organization, over the last decade?

29. Understanding venture philanthropy

30. Venture Philanthropists Seek ROI • “Our entrepreneurial background influences • our approach to philanthropy…to make • our giving more effective, scalable, and • sustainable. The return on this investment • is stronger, more resilient communities.” Paul Orfalea, Founder Kinko’s (now FedEx Office)

31. Venture philanthropists are individuals who have generated a substantial wealth and decide to invest their experiences and resources to impact the organization. (Bornstein 2001)

32. The Center for Venture Philanthropy defines the practice as… Venture philanthropy refers to the nonprofit sector’s application of certain practices used by venture capitalists when investing in new business ideas. Our venture philanthropy model applies five key elements: • Investments in long-term (3-6 year) business plans; • A managing partner relationship; • An accountability-for-results process; • Provision of cash and expertise; and • An exit strategy Investors make long-term funding commitments, closely monitor performance objectives through pre-defined measurement tools, and problem-solve jointly with the nonprofit leadership team on a regular basis. Like private sector entrepreneurs, venture philanthropists take the initiative. This often means bringing together people and resources including funding from other sources

33. The Washington Regional Association of Grantmakers notes several characteristics that define new philanthropists… • They want to make a “significant impact” that they can see and measure. • They want to apply their professional skills and business contacts in achieving their philanthropic goals, not just come to board meetings. • They incorporate an exit strategy in their philanthropic involvement. • They need comprehensive information about the nonprofit landscape in order to understand it better and work in it more effectively. • They are more likely to see the advice of their peers and the opinion leaders from within their own community to shape their philanthropic investment. (http://ww.washingtongrantmakers.org/WG/Give/Venture/Venture_Index.asp, n.d.)

34. History of venture philanthropy • The history of venture philanthropy dates back to more than 100 years. Early philanthropists were engaged heavily in the decisions made in governing colleges and universities. • Andrew Carnegie, John D. Rockefeller Sr. and Leland Stanford were some of the most influential philanthropists of all time. Now, each of them could be labeled venture philanthropists. • The ambitiousness and aggressiveness of venture philanthropy has remained constant since its conception. The demand for results and outcomes is more prevalent than ever with donors attaching limitations and expectations on their gifts. • Charities are forced to engage donors and achieve measurable results. What is the fear of not meeting donor expectations? The answer is simple, loosing needed funding. • (Allen 2002; Byrne 2002)

35. Venture Philanthropistshave a different philosophy than traditional donors. • Unlike traditional philanthropy, which sought, at least in principle, to ‘give back’ to society, venture philanthropy parallels venture capitalism in its goal of investing capital in ways that earn more. • Donor Investors (Donor-vestors)are interested in seeing results, and seeing them immediately. ROI is central to their giving. • They bring a level of engagement that is more intense.

36. Venture philanthropy is changing the giving landscape • The transfer of wealth to the baby-boom generation. Estimated at approximately $1 trillion for philanthropy. • Society’s intractable social and economic problems are not solvable through fragmented, single sector programs – all sectors need to work together. • The rapid adaptation of entrepreneurial solutions for sustainability of innovations and financing. • A momentum for new kinds of social investing for greater impact and effectiveness.

37. Do you have donors that look like this?

38. Donor Examples

39. Without changing our fundraising approach, substantial numbers of new donors will be discouraged, turned off, and lost.

40. Discussion • Think of a major project within your organization that you are seeking funding. Does it embody the following: • Does it have a significant impact? It is measurable? • Does it solve a problem? • Do you need help solving the problem beyond money? • Is it replicable? Can others benefit? • Do you feel comfortable leading this type of conversation? • Are you prepared to manage this type of relationship?

41. How to work with venture philanthropists

43. Venture philanthropy donors are increasingly more interested in personally directing their philanthropic gifts and in the outcomes of those gifts. Venture philanthropy donors continually engage beyond the initial gift date in the management of their donations.

44. What excites venture philanthropists?

45. (The Washington Regional Association of Grantmakers 2005; Bornstein 2001; Colvin 2005)

46. (The Washington Regional Association of Grantmakers 2005; Bornstein 2001; Colvin 2005)

47. Strategies to attract venture philanthropists

48. Venture philanthropy has the potential to yield unprecedented financial support.

49. Discussion/Exercise – How to engage venture philanthropists?

50. Challenges