28 Jun The Case Against Opportunity Funds
28 June 2022
By David Allen, Development for Conservation
It’s a conundrum as old as the oldest land trust out there. How do you raise money for projects that haven’t happened yet? And when they do happen, how do you raise money fast enough to close without incurring debt?
After all, most landowners aren’t going to give you 18 months to close.
Building and maintaining a “ready” fund or opportunity fund makes all the sense in the world. Doesn’t it?
Actually, maybe. It doesn’t make as much sense at it feels like it should. And it’s not a basket that you want to put all your eggs in.
I will give you that there are donors out there who will give to an opportunity fund. And I will also give you the point that having a fund in place to accept gifts that are restricted to “land acquisition” is a good idea in general.
But here are five reasons why spending organizational energy on building an opportunity fund is not the answer to your prayers (or your cashflow).
First, consider the possibility of the landowner who WILL give you 18 months to raise the money, instead of needing it right now. And compare and contrast the ease of raising that money for THAT specific project against the ease of raising money for some theoretical project some day. It will be far easier to raise money for the specific project every time.
Now consider the possibility that you do raise the money (with more difficulty) for an opportunity fund and then use it to conserve a specific piece of land. Now, with the fund depleted, you have to launch another campaign to replenish the opportunity fund (with more difficulty).
You are essentially creating an endless cycle of raising money the hard way.
One reason raising money for a theoretical project is more difficult is that it requires an intellectual “case” for giving. Giving money toward the conservation of a specific property creates an opportunity to make an emotional case. You cultivate that emotional case by taking donors there – letting them see the project for themselves (and imagining it remaining unprotected, potentially getting developed).
The emotional case is far more likely to meet with fundraising success. And it will quite possibly inspire larger donations.
Another reason fundraising for theoretical projects is more difficult is that the money actually needed is unknown. How much it will actually cost for the purchase price, closing costs, and stewardship cannot be known until the project actually happens. I’m not making the case that it can’t be done. I’m making the case that it’s more difficult.
Non-profit balance sheets are public records. Anyone, including the landowner, can see what you have stashed away, ready for the right project to come around. It is at least possible that having a large fund available to purchase land could affect the purchase price.
Many philanthropists are quite savvy about making money in the market. And egotistical enough to believe they can do it better than you can. (Many will be right in thinking this.) Why (some might ask themselves) should I give money to the land trust to manage until a project comes along instead of managing it myself until a project comes along?
Fortunately there are options. The best one involves working with the landowner to give you enough time to raise the money. That’s obvious.
Another is a “call” strategy where you ask a donor’s permission to come to them when and if a project closes in which they have expressed interest. In this case, you work with a set of donors to identify the kinds of project they might be most interested in and then come to them when such a project closes. How nice would it be to close on a project and know immediately who to go to raise the money?
The Nature Conservancy worked with a system of internal loans which were then repaid with interest. The interest was included in the project costs as a carrying cost. Conservation Fund loans work under the same premise. At least one land trust I know of has an invested stewardship fund managed by a separate nonprofit organization they created just for that purpose. They can take loans from that fund as they might from Conservation Fund, and then repay them, again with interest.
My recommendation is that land trusts establish and manage a land acquisition opportunity fund, but not spend much time and energy raising money for it. Certainly not build a capital campaign around it. When donors express interest, the fund will be ready for them. When someone leaves an estate gift restricted to land acquisition, the fund will be ready for them. When people are inspired to help and there isn’t a specific project need, the fund will be ready for them.
It will still be an opportunity fund. It will just be an opportunity for donors – and hopefully one among many.
Cheers, and Have a great week!
PS: Your comments on these posts are welcomed and warmly requested. If you have not posted a comment before, or if you are using a new email address, please know that there may be a delay in seeing your posted comment. That’s my SPAM defense at work. I approve all comments as soon as I am able during the day.
Photo by LeeChandler courtesy of Pixabay.
Lisa HaderleinPosted at 11:52h, 28 June
David – thank you for this thoughtful post. TLC created an Opportunity Fund (on paper) about 7 years ago, but never funded it because we were too busy raising money for actual projects that came along. We officially dumped the idea of an Opportunity Fund during our last Strategic Planning exercise – for exactly the reasons you offer.
From experience, one of the things we learned over those seven years is that for a relatively small amount of money, it is quite easy to buy the time you need to fundraise for a land acquisition project: earnest money. I’ll give two specific examples:
– In one situation, a $400,000 acquisition, we negotiated a $5,000 earnest money payment up front to give us 6 months to obtain grant funding to cover the cost. In exchange, they had to take the property off the market. As we neared the six month deadline, we realized that we would need 2-3 more months, so offered the seller another $5,000 to give us a 12 week extension. They accepted the offer, and we were comfortable taking the risk of potentially losing $10,000 (if we failed to close by a certain date), because we knew the money was coming, we just needed a few more weeks to receive it. The $10K was credited towards closing costs.
– In another situation, a $2.25 million acquisition, we negotiated a two phase agreement: (1) $10,000 earnest money when the contract was accepted, and if we did not receive a specific grant award by a specific date (that was about 4-months in the future), then the contract was void and we received the $10K back; (2) An additional $10K if the grant was awarded, and a closing date 3-months from the date we sent them the additional $10K. The $20K was crediting towards closing costs when we did close, and the property was taken off the market once we had it under contract.
Neither of the sellers had any reason to work with us to make the process easy for us – they just wanted to sell. In both cases, we were fortunate that the market was not “hot,” so there were not competing offers for the land.
David AllenPosted at 12:19h, 28 June
Thank you so much for sharing these two great examples. I hadn’t thought of the strategies you mention, but totally make sense. The bottom line in all of this is that fundraising is challenging. There won’t be a way to make it easy. We need to stop seeking the easy way out and keep looking for strategies that actually work best for the donors we know, instead of strategies that work best for us.