Making Sense of Endowment and Your Capital Campaign

It’s hard to raise money for endowment through a capital campaign. So when an organization comes to us and says:

“We want to raise $10,000,000 in endowment through a capital campaign.”

When we hear that, we know that chances are good… they’re going to have a hard time.

What is Endowment?

Let me set the stage…

Most organizations use the word endowment to refer to a pot of money that is invested over the long term. The principle can’t be spent, but the organization can draw down the earnings on those funds. Organizations with endowments have board-approved policies that cover both the investment and the drawdown of those funds.

Two Categories of Endowments

For clarity’s sake, endowments fall into two categories:

1. Those that are restricted by the donor in the terms of the gift, and;
2. Those that are restricted by the board, but with board approval could be used in a different way.

Keep in mind that in round numbers, at 5% interest, you will have to raise $100,000 to add add $5,000 to your operating budget every year. Yep — at 5% you must raise 20 times the amount you want to spend annually. It’s simple math, but a daunting concept to present to donor.

Imagine saying this to your donor:

“Joe, I’d like to ask you for a gift of $100,000 for our endowment. Your gift would make it possible to add $5,000 every year to our bottom line.”

Giving $100,000 to your organization to generate a small amount into operating is probably not an appealing proposition for Joe or many other donors. The impact just isn’t big enough.

That said, some organizations are keen on raising money for endowment, and in this post, I offer some creative ways to make it more palatable.

These ideas have been generated by a wonderful conversation among our expert advisors who have worked with their clients on just these issues.

Most Endowment is Raised Through Planned Giving

Before launching into a capital campaign to raise endowment, make sure your organization has a planned giving program. While there are many complicated ways to make planned gifts, the simplest and most common when a donor includes your organization in their will. And a capital campaign is an excellent time to ask donors to do that.

Of course, planned gifts like that don’t yield immediate results, but the time you spend getting planned gifts now will pay off handsomely later.

Include a Planned Giving Goal in Your Capital Campaign

Rather than including a specific dollar goal for planned giving in your campaign, you might instead set a goal of a specific number of planned gifts you want to secure during your campaign. Or, you might set two goals. One of our recent clients set a $1,000,000 goal for cash raised for the endowment AND 10 estate planning gifts.

If your campaign is primarily a building campaign, you should consider adding an endowment component as well. Money raised for the building will have to be raised in current dollars or short-term pledges. But gifts to the endowment can be long-term. And having both components will give the donor a chance to make a larger, combined gift to your campaign.

Change Your Endowment Language to Motivate Donors

Consider moving away from the term “endowment” and instead, using language that describes specific endowed “funds.” Donors are more likely to give to a “scholarship fund” than to an “endowment”.

You might consider, for example, inviting donors to contribute to:

• an “emergency building maintenance fund”
• “scholarships funds”
• or a “future innovation fund”

The specific nature of the funds listed above are likely to be more appealing. Defining your endowment around specific funds will keep people focused on the mission rather than the money.

Consider an Opportunity Fund

If your organization is young or small and not ready for an endowment, but you know you will need resources to provide security as you grow, you might consider including an “Opportunity Fund” that will provide a cash reserve. These funds are intended to be spent down over a specific period to support the early growth of an organization.

You might define the time frame and ways in which those funds will be spent to make sure that the organization can thrive.

Some Organizations Are Ideal for Raising Endowment

While we generally don’t recommend it, some organizations have missions and donors that do lend themselves for raising endowment though cash gifts. If you have aging donors who have a long-term commitment to your organization’s mission, then raising money for an endowment through shorter term giving may not be far-fetched.

Consider, for example, an organization that provides long-term residential care. It may be that family members of residents would like to make endowed gifts to help ensure the long-term care of their loved ones.

In situations like this, you should test a larger endowment goal for your campaign than would be appropriate for other organizations.

Conventional Wisdom and Exceptions to the Rule

In closing, let me remind you that the conventional wisdom that endowment is best raised through planned giving is generally true.

However, not only are there exceptions to that way of thinking, but there are ways of raising cash for your organization that is not standard endowment.

You can develop plans that make sense for your organization and then test your plan through a feasibility study. Having conversations with donors about their views on giving to endowment through a Guided Feasibility Study will enable you to select just the right approach for your organization.