25 Feb Building Endowment Tips I Wish I had Known Then
By David Allen, Development for Conservation
In the early days of Nature Conservancy history, the organization spent a great deal more time figuring out how to buy land than they did how to take care of it later. As a result, by the mid-1980s, TNC nationally had a substantial stewardship burden with little else but annual fundraising to pay for it.
Not an ideal situation.
By the time I started my career with TNC, we were playing around with many different strategies for building management endowments as an afterthought. Since then, I have come to (at least) the following four conclusions that may help if you find yourself in a similar situation.
#1 Donors are funny about endowment.
Within a six-week span at TNC, I met two donors who were on opposite sides of the endowment fence. One offered $100,000 that he wanted used to start a named endowment fund. The other told me that he would rather give $10,000 each year for ten years than give $100,000 toward an endowment. “How do I know what you folks will do with that money fifty years from now? Maybe I won’t like it,” he told me.
So, as a general principle, it would be a mistake to assume that a donor you are meeting will feel one way or the other about endowment – or worse – that you can “sell” it to them. Assume nothing about how a specific donor might feel in advance. Instead of looking for endowment donors, simply look for donors and get to know them. You’ll find the ones you need.
#2 Partly because of #1 above, Endowment Campaigns are tricky
Endowment Campaigns are easy to over-estimate in terms of potential – regardless of need. They don’t work the same way campaigns do for other types of capital – like land acquisition, for example.
For one thing, it’s difficult to establish a credible case for urgency. And it has the potential for making the organization appear incompetent or sloppy. “Why didn’t you guys think about this before?”
If you decide to do an endowment campaign anyway, set it up in a very soft way with a longer timeline – say even ten years. Talk softly about perpetuity. Permanence. And responsibility – it would be irresponsible for an organization to accept permanent responsibility for a piece of land without the perpetual wherewithal to care for it.
#3 A much better strategy is to build in the endowment as you raise money for each project
Raise endowment as a named component of your conservation goal for EVERY land acquisition project. Raise money for the whole thing at the same time.
There are five fundraising components to any land conservation project.
- First: the value of the land itself – the full fair market value. This value exists regardless of whether the landowner is asking the full fair market value or not. (A landowner donating a $200,000 piece of property is a $200,000 donor.)
- Second: All the closing costs – inventories, due diligence, surveying, title insurance, and even carrying costs if you take a bridge loan while fundraising has a chance to create cash flow.
- Third is the stewardship endowment. This is calculated as that amount you will need to manage the property in perpetuity. Which presumes that you actually KNOW what it will cost you to manage the property in perpetuity!
- Fourth is first DAY stewardship – signage, trash clean-up, fencing and gates, and any other one-time costs associated with taking possession of the property.
- Fifth is first YEAR stewardship, because even a fully funded endowment will not generate any dividends until year 2.
The point is that these five costs, added together, could be considered the costs of conservation. Your fundraising could and should address all of them together.
In fact, it will be easier that way. Raising money for the endowment later is much harder.
#4 The best, long-term strategy for building endowment is a strong Planned Giving program.
You’ll need a policy in place to govern how unrestricted gifts are deployed, but a healthy portion of every unrestricted bequest can and probably should be devoted to endowment. When a new gift comes in, it is nearly always a windfall – a surprise. A perfect time to build up your endowment.
Resist the temptation to spend it on operational needs. Use it to build endowment instead.
Your turn – what have you learned about raising money for endowment?
Cheers, and have a great week!
Photo by Jeffrey Betts from Stocksnap.io
Michael StrigelPosted at 15:09h, 27 February
This is great, David! Very helpful as our board discussed creation of an endowment policy at its meeting this week…I’ll be sharing your blog with them. Thank you for your good work!
Louise TroutmanPosted at 15:35h, 25 February
I’m printing this one for my board meeting tomorrow night. Thanks, David!
Joe EngelPosted at 07:53h, 25 February
Excellent – succinct and timely, as always. Thanks David. Joe
David AllenPosted at 08:06h, 25 February
Joe and Sarah, Thank you so much for your comments and kind words. I appreciate knowing that some of what I write hits home. -da
Sarah LivesayPosted at 07:50h, 25 February
Exactly our conversation at the board meeting last night- such great timing! Thanks David
Lisa HaderleinPosted at 07:23h, 25 February
Great advice – as always! Thank you.
David AllenPosted at 07:43h, 25 February
Thanks Lisa, Trust all is well in McHenry County! -da