Podcast: Demystifying Project and Campaign Fundraising: Strategies for Success
Season 3, Episode 59
In this episode, hosts Amy Eisenstein and Andrea Kihlstedt tackle the complex relationship between fundraising campaigns and project financing. Do you need to raise all the money before the groundbreaking for your new project? How does the timing of your campaign affect its success? Buckle up as Amy and Andrea unravel these questions and provide actionable strategies for navigating the financial planning of your capital campaign.
Join us for an enlightening discussion that will leave you better equipped to lead your capital campaign to success!
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Andrea Kihlstedt:
Do you have to have raised all the money before the groundbreaking for your new project? Today we’re going to sort through for you the relationship between the project and the campaign. Buckle your seatbelts because it’s a little complicated.
Amy Eisenstein:
Hi, I’m Amy Eisenstein. I’m here with my colleague and co-founder, Andrea Kihlstedt. And today we are going to unpack a somewhat complicated topic of the project that you are working towards or on, and the campaign itself, the fundraising aspect of your project.
So Andrea, let’s unpack this somewhat complicated topic.
There Are Many Ways to Fund Your Organization’s Project
Andrea Kihlstedt:
Yeah, let’s start with this one, Amy, because I think lots of people are confused about it. When you are planning a new project for which you’re going to do a capital campaign, and for the sake of simplicity, let’s assume it’s a building campaign. It doesn’t have to be, but let’s assume it’s a building campaign.
You want to build a building that’s going to cost you $5 million, right? Just to make life simple. Many people believe that you have to raise all that $5 million through a capital campaign and that the capital campaign and the building expenses have to be the same. But in fact, that’s often not the case.
There are many ways to fund a building, one of which might be a capital campaign. So it’s time to start thinking in terms of some financial planning. Amy, how would you suggest people go about doing that?
Amy Eisenstein:
Yeah, I think that’s exactly right. The first step is figuring out what the project is. As you mentioned, maybe it’s a building, often it has a building component. But whatever your project is, the idea is then to figure out how you’re going to fund the project, how you’re going to fund the impact that you want to have.
And as you mentioned, there’s multiple sources of funding, but I think most people’s assumption is that it’s all through philanthropy. So let’s talk about a few alternative possible funding sources.
- One is you’re going to look and see what the organization has in reserves, and you may or may not want to spend those reserves, but it’s a place to start. You may be saving for a big project and now’s the perfect opportunity to use some of those funds.
- Second, you might get some government support from state, federal, or local funding. There might be some government support for whatever kind of project you’re planning or building you’re building.
- Third, you might consider financing, and that is not always a bad idea. In fact, sometimes it’s a really good idea to take a loan, a mortgage, either a short-term or sometimes it’s a bridge loan during construction, but often organizations will take a mortgage.
- And then you’re going to look at a campaign and how much you can raise in philanthropy and whatever you can raise in philanthropy will help supplement what you’re going to take from reserves, what you need from the government and what you need from a mortgage or financing.
So there’s lots of ways to think about this. And just one really quick example let’s give:
If you look at a hospital, they’re going to build a new wing or a new cancer center, and the price tag is $150 million. Well, they’re not going to do a campaign for $150 million. They might do a campaign for $20 million because they take from reserves, they take from income, fee for service, they take a mortgage and they fund their project, but the campaign is for a small piece of what they need to do their project.
What would you add to that?
Examining Different Funding Scenarios
Andrea Kihlstedt:
For an organization like a hospital, they might actually take out a bond, right? Have a bond issue to fund the hospital. That makes perfectly good sense for some institutions. So I think the point is that as you are thinking about a campaign, you’re thinking about a project, let me put it that way, you should get the smartest financial people on your team together and say, let’s look at the various ways we might fund this.
And then let’s create some scenarios. Say, if we can raise such and such, then how do we fund the rest of it, right? If we can raise so-and-so what does it look like? When do we need the money? What is the most beneficial way for us to be funding this project at various levels?
And once you’ve done that, once you actually have a couple of scenarios, kinds of scenarios that will work will depend in part on what interest rates are. If you can borrow money and let’s say 3%, and it wasn’t that long ago that we could do that, it makes sense to take out a mortgage because interest rates are very low. If you’re having to pay 7 or 8% to take out a longer term mortgage, then you probably don’t want to count on that.
So it’s going to take some careful thinking and you can be playing with and factoring in the numbers, including both philanthropy and all of the other sources that you might bring in. But start very early in the process by looking at the alternatives at the ways in which you might fund this and see where your capital campaign might fit.
Amy Eisenstein:
I think that’s right. I always like to talk about an A, B and a C plan:
- A is if you raise all the money for the project, great. That’s fabulous.
- B is if you raise some of the money.
- And C is if you raised less than you hoped for.
And what are the financial models that enable you to do the project? Often an organization that’s expanding their capacity, which is what usually campaigns are full, there might be more revenue fee for service opportunities. So at the end of the project, you’re going to be generating more income at your organization that can help pay off a mortgage.
So it’s not a terrible idea, an example might be a YMCA, they can have more members and that supports the budget to pay off a higher mortgage or an independent school that is able to add a new class or additional students. And that’s income that supports how you finance your project. So it doesn’t all have to come from philanthropy.
Andrea Kihlstedt:
Before we go to the second thing, I just want to add one more idea to this segment, and that is we often discuss that in capital campaign fundraising, the more you can engage and involve people who are leaders in your community or people of means in your community in the planning process, the better. And sometimes this financial planning process is a great way to do that.
It may be that there is no one on your board who’s particularly good at that kind of financial modeling, but that there is somebody in your community that there’s someone involved in the Chamber of Commerce, that there is someone that your board members know that you would like to involve in your organization. And this might be a great opportunity to go to them and say, listen, you are in the financial field. Would you sit with us to help do some financial modeling for this process?
And that way you accomplish a number of things all at the same time. You engage people you want to engage. You get some really top and top flight thinking in terms of how the financial puzzle might sort itself out. And you get a clearer notion of how much you might need to raise for your capital campaign.
Amy Eisenstein:
I love it. It’s such a great idea. Engaging people early is one of the things that we always talk about. It’s key to your success. And you’re right, this is a perfect opportunity to go talk to a variety of people about how you might think about financing, supporting, funding… I should say funding, not financing, funding your project. And it doesn’t all have to come from your campaign, and in many cases it doesn’t.
Consider the Timing for Funding Your Organization’s Project
All right, let’s talk about timing because I think this is another critical element of this conversation is:
- How much do you need to have secured in terms of funding before you break ground?
- How much do you need to have raised by the time you cut your ribbon?
- How does your campaign coincide or work together with your project?
It’s two things that you’re working on and sometimes the timing, it lines up nicely and sometimes it doesn’t. So what do we do in those scenarios, Andrea, what are the possibilities?
Andrea Kihlstedt:
Amy, there are some things that are really clear that we really know quite clearly and that you need to abide by. And the first of those is this:
That ribbon, when you’ve built the building, if your campaign is about a building, once the building is up and finished and the ribbon is cut, you will have a much more difficult time raising money for that project. Fundraising drops off a cliff once the doors are open and you’re actually using the facility. So that’s the end point of any successful capital campaign fundraising process for a facility. Count on it.
Amy Eisenstein:
That makes sense logically. Think about it from the donor’s perspective, they’re going to ask the question, why do you need my money if you’re already in the building, you already did the project, you did it. So now why would you need my money? So it makes perfectly good sense that fundraising would drop off once you’ve moved in.
Andrea Kihlstedt:
Right now you can keep raising money of course for other things. It doesn’t mean that all of your fundraising stops, but you have to start raising money for other things for the future, for what’s going to happen in the building for what’s next. The fundraising for the capital campaign for that building is at an end when the ribbon is cut, period. Keep that in mind.
Amy Eisenstein:
All right, so let’s back up though to the groundbreaking because I think that many people think that that’s the end of the fundraising and that is not the case.
Andrea Kihlstedt:
Right. And it’s kind of funny that it’s not the case actually. I understand why people think it might be because the thinking goes like this. Well, once the hole is dug, once the bulldozers are on the site, everybody knows we are doing this project. Everybody knows because we’ve got a big hole in the ground, right? If we’re already going to do the project, then maybe we don’t need their money. So isn’t fundraising going to come to an end then?
And in fact, what we’ve learned over these many, many years is that it does not come to an end then. That people like to give to projects that are in process. That they like hard hat tours. That hard hat tours often generate a remarkable amount of revenue for your campaign. So don’t think you have to have raised all the money when the tractors show up. You don’t.
Amy Eisenstein:
The thinking goes here that lots of donors don’t want to get in early because they’re not sure if you’re going to be able to do it. So here you’re confident you’re going to be able to do it and you need their help, and now is the time that they really want to jump on board and participate and be included because the project is a go and you need to raise the money and rally everybody together. So that’s another reason.
Let’s back up even more. So a lot of organizations wonder when can we put a shovel in the ground? How much do we have to have raised or how much money do we have to have in hand before we can actually break ground? The timing of a campaign and the timing of a project is complicated. There are a lot of important questions you should be asking yourselves. So how do you get organizations to think about that, Andrea?
Andrea Kihlstedt:
So Amy, this kind of ties into our first topic, which has to do with finances.
Consider How Financially-Solid Your Organization Is
So think about this… if you’re part of an organization that has very, very few cash reserves, that has no financial flexibility, that if there’s a disaster the organization is threatened. That kind of organization is going to make one kind of decision, namely that you have to have raised at most of the money before you put the shovel in the ground.
On the other hand, there are organizations that have a healthy cash reserve, that know that they can continue, their programs are really sustaining quite healthfully and happily. Organizations like that can take more of a risk. They can put the shovel in the ground earlier when a little less money has already been committed. Now they don’t want to be foolish about it. You don’t want to put the shovel in the ground and say, oh, whoops, now we need to raise money.
Amy Eisenstein:
Or we’re cutting the ribbon and we forgot to raise the money and now we’re going to try and raise the money. So that’s no good either.
Andrea Kihlstedt:
Right. Exactly that. You don’t want to do that, right? But take a good look at how financially-solid your organization is, right?
- Can you borrow money?
- Do you have a good relationship with the bank?
- Do you have good credit?
- Have you been around a long time so that you are a solid, sound institution, or not?
And many young institutions building buildings have to be very cautious here. So look carefully. Do an assessment and you might do that while you are doing your financial planning actually, while you’re trying to figure out where the money for the project is going to come from. You might then want to ask the question of, okay, how much money should we have had committed through our campaign before we actually make a firm commitment to our contractor?
Amy Eisenstein:
And that’s a decision that your executive committee or your entire board will need to approve and vote on. Do you want 50% of the money committed? Do you need 80% of the money committed or even more than that? So I’d say generally somewhere in there, 50 to 80%. So if you have better solid footing, it’s going to be lower. If you have less financial resources, then you’re going to want to have raised closer to 80 or 90% before you put that shovel in the ground.
Can You Do a Feasibility Study Before You Have a Site?
Andrea Kihlstedt:
Now, Amy, there are two more things I think we should discuss about this. The question comes up some about whether you can move ahead with a capital campaign if you haven’t yet identified a site.
Amy Eisenstein:
Yes.
Andrea Kihlstedt:
If you haven’t tied down a site, if you’re still looking for property.
Amy Eisenstein:
Can you do a feasibility study is usually the question.
Andrea Kihlstedt:
Right. Can you do a feasibility study? Can you move ahead? How far do you have to be in order to move ahead?
And while sometimes an organization can still be looking for property, it turns out to be fairly difficult to get people to make even early commitments if you don’t yet have a piece of property or land. Particularly if you are in a part of the country where it’s very difficult to identify and tie down the correct piece of property.
Amy Eisenstein:
Sometimes the real estate market is hot.
Andrea Kihlstedt:
Can take years to do that.
Amy Eisenstein:
Yeah. Right. So, the point you’re about to make or you’re making, Andrea, is that most organizations need to secure property prior to committing to a campaign, prior to raising money, prior to doing a feasibility study. So that of course begs the question that if you haven’t started raising money, how do you tie down property? How do you secure property before you’ve started raising any money? I think that’s where —
Andrea Kihlstedt:
Right. Exactly.
Amy Eisenstein:
Okay. And you’re going to answer that question.
Andrea Kihlstedt:
Going to answer that question. All right, here’s the answer. Well, there may be a number of answers.
Your organization may have enough reserves to actually put down something to hold a piece of property for a period of time while you do your due diligence and you do your preliminary campaign planning work. If your organization doesn’t have those kinds of resources, you can pull in your top three or four or five donors and ask them to put early gifts towards tying down a piece of property. It’s quite common.
And it turns out that often people who make early commitments to tie down a piece of property so you can move forward, will make gifts later again. They make sort of first installation gifts to tie down the property. And that of course makes them feel like they are the grandparents of this whole project eventually.
Amy Eisenstein:
They’re the grandparents of project.
Andrea Kihlstedt:
They are the grandparents, right.
Amy Eisenstein:
They’re the spearheads. It wouldn’t have happened without them.
Andrea Kihlstedt:
That’s right.
Amy Eisenstein:
And you can tell them that. You should tell them that.
Andrea Kihlstedt:
That’s right.
Amy Eisenstein:
That we’re coming to you for early initial gifts because we’re confident that we’re going to get this project off the ground, but we can’t actually start campaign planning in earnest with a feasibility study until we’ve secured property so that we can go out and talk to potential donors with a real plan in mind, with actual correct financing and planning. I don’t mean financing. What do I mean? With the financial plan for the project.
Andrea Kihlstedt:
Yeah. With a campaign plan and a financial plan. Don’t go to everybody. Don’t make that a full-blown campaign to raise the money to tie down the land. Go to your top and closest donors in a very small, small team of people to get that money and do it quietly. That’s the way to make that happen.
Amy Eisenstein:
Now, of course, some listeners are thinking, well, how can we secure the property if we don’t know if we’re going to be able to do the campaign because we haven’t done a feasibility study and we haven’t raised the money, so we don’t actually know if we can do that. And of course, you should be asking that question and that’s the right question to ask.
Now, of course, the answer is that you now have property and if for some reason your campaign is unsuccessful or push comes to shove, you sell the property. Now, I have to admit, I’ve never seen that happen. I mean, once you secure the property, everybody’s motivated to make the project happen and to make it work. And so I don’t know of any cases where it’s come to that, but certainly you could. That’s the fallback, fallback plan.
Andrea Kihlstedt:
Well, and sometimes you don’t actually raise the money to buy the property. You raise the money to hold the property for a period of six months. You take out an option, you buy an option on the property. And if it falls through, you lose that money. Okay. Just as long as everyone understands that, that’s the risk. It’s far less money than it would take to buy the property, but you need to hold it while you do all the other planning. So that works too.
Amy Eisenstein:
Right. And some owners are going to allow you to do that. And some owners aren’t going to want to do that. In the hottest real estate markets. They don’t have to do that and that’s not going to be an option for you. But sometimes it will be.
Andrea Kihlstedt:
And occasionally you can go to the property owner that you want and the property owner will be willing to say, listen, I believe in your cause, I’m willing to hold this property off the market for you for three months or six months. So don’t hesitate to ask about that either.
Amy Eisenstein:
Yeah, I think that that’s something people assume they won’t do. But I see more and more that the property owners are working with the nonprofit. They do have a soft spot in their heart for the nonprofit. They might be philanthropists themselves.
So even though they’re not going to cut you a deal or give you a discount, they will work with you. They want to make it happen for you, and they can do that. So that’s a great option.
I think this was a great conversation, Andrea.
Andrea Kihlstedt:
Yes, I do too, Amy. We should do these technical things more often. It was good.
Final Thoughts
Amy Eisenstein:
All right. So now everybody knows A, B, C plan. You raise all the money, you raise some of the money, you raise less money than you hoped. But there’s always multiple financing options and ways to do your project, even if it’s not all campaign or all philanthropy.
Andrea Kihlstedt:
Right. Amy, by the time people finish a successful project and a successful campaign, their brains become very agile and very good at following the opportunities and making lemonade out of lemons.
Amy Eisenstein:
Every campaign is lemonade out of lemons. All right, great.
All right, Andrea, thanks so much for sharing your wisdom, as always. We’ll see you next time.
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