Newsletter: August 2009
Capital Campaigns For Small Groups
facilitated by Kim Klein
abridged from FundClass #29
For grassroots groups who have their hands full making ends meet from year to year (or even month to month), a capital campaign can seem daunting at best and impossible at worst. However, I have seen very small groups raise very big money!
Let's start by looking at three different groups and their capital needs.
An advocacy organization with an annual budget of $150,000 pays monthly rent of $600 for a two-room office with a shared bathroom and kitchen. Their landlord tells them that at the end of their lease their rent will increase to $1,000. As a result, the group is considering whether to buy a small house that could be converted to office space.
A modern dance company with a yearly budget of $300,000 rents a loft for $1,500 a month. The company managing their building tells them the building has been bought and they have two months to move. Desperately searching for space, they are invited to join other arts organizations in buying a large building. With so little time, they don't know whether to move to a temporary space and continue to look for a rental or take the plunge and help buy a big building now.
A developer wanting to build a mini-mart and parking lot on the property has approached an elderly owner of ten acres of forestland on the outskirts of a small town. A local land trust wants to convert the property to a park. The owner would sell to the land trust for less than the developer is willing to pay, but still the price tag is far more than the land trust can afford.
All three of these organizations find that thinking about owning property is both exciting and terrifying. They have no idea where to begin their planning process.
Putting the Campaign in Context
First, let's remind ourselves of the fundraising context for a capital campaign by reviewing what organizations need financially.
Organizations have three types of financial needs:
- Annual Funding: The money they need every year. For most grassroots groups, raising this money consumes all their fundraising time.
- Capital Funding: From time to time, groups need something that they don't need every year. Items such as computers, a new phone system, or furniture, or maintenance, such as rewiring or installing carpeting, are capital improvements. For these, additional money needs to be raised beyond a group's annual budget. For small capital needs, a group may just add the items to its annual budget and raise the money with an extra appeal, or submit a proposal to a foundation or an appeal to a generous major donor. When the capital improvement involves buying, retrofitting, or renovating a building, the group usually needs to conduct some kind of campaign to raise the money from a number of sources.
- Endowment Funding: Organizations that think they will be needed forever, or at least as far into the future as they can project, will want to invest some of their money and use only the interest from the investment as part of their annual income. The principal that is set aside to be invested is usually referred to as an endowment.
In capital campaigns you are asking donors to go to a whole new level with your organization, over and above annual giving, often paying their gift as a pledge over a period of several years.
What to Have in Place Before Beginning a Capital Campaign
- Case Statement
- Gift Acceptance Policy
- Strong Board of Directors
The Capital Campaign Case Statement
Once you decide that you want to embark on a capital campaign, you will need to develop a case statement for the campaign. The capital campaign case statement is a variant of the case statement every organization should have.
The case statement justifies the existence of the group and answers the question, "Why should this organization exist at all?"
The case statement for a capital campaign justifies the need of the organization for whatever will be bought or built with its capital campaign funds. The capital campaign case statement says, "To do our work properly, we must have this."
The Capital Campaign Budget
Probably the trickiest part of the case statement is the budget, which will be the basis of the fundraising goal of the campaign. This is because there are a lot of variables, and some of them are hard to estimate ahead of time.
Beyond these hard costs, you should factor in loss in annual income. A good capital campaign will not cause a decrease in annual income, but during a capital campaign it is unlikely that annual income will rise significantly. If you normally count on being able to increase annual giving from donors by 10% more every year, during the two or three years of your campaign you will probably not be able to do that. So, you will experience a "loss" of the increase in annual income you would normally count on. This means you either won't be able to expand programs during the capital campaign, or you will need to put some money aside for one or two years before beginning the campaign to cover your needs.
The good news about annual fundraising is that a well-run capital campaign will always produce an increase in annual income after the campaign is over. People will be excited about the new facility, many people will have realized that they can afford to give more than they had been giving, and you may well have attracted some donors to the capital campaign who then become annual fund donors.
A Good Database
Beyond the case statement and detailed budget, you also need a good database and systems for gathering and entering data. I see too many groups whose database cannot do the job. So, get a decent one. Of course the data entered into the database also has to be good, and a capital campaign has to have adequate systems in place to gather and record information.
Gift Acceptance Policies
These are policies that spell out what kind of gifts you will and will not accept. You may be wondering why you would turn down a gift. Consider that organizations have accepted houses only to learn that they were near an EPA SuperFund site, or had basements full of radon. Organizations have accepted art only to be unable to sell it for anything like its market value, angering the artist who felt that the group didn't try hard enough. Organizations have accepted gifts from corporations that were anti-union, accused of covering up sexual harassment or having racist hiring policies and then lost donors who were mad that the group accepted money from the corporation...and I could go on, but I won't.
An Active, Motivated, Enthusiastic Board of Directors
They need to understand how serious a capital campaign is and be willing to do their part to raise the money needed. In fact, board members should make the first gifts to the campaign, and to be willing to help ask for money and to find other people to help ask.
As you can see, the things you need for a capital campaign are the same things you need for a strong annual campaign. The stakes are just much higher with a capital campaign.
Kim Klein is the foremost fundraising trainer and consultant working with grassroots nonprofits today. Her deep insight into fundraising, combined with a warm, no-nonsense style have made her an international favorite
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