There are two ways to build an endowment. The traditional way, described in Chapter Twenty‐Four, involves creating an endowment, with all the policies you need to protect it and invest it properly, and add to it as you can. All legacy gifts are deposited there. In addition, many organizations discipline themselves to put money from their annual budget into the endowment on a regular basis, and they don't draw anything from the endowment until it reaches a certain size (generally at least $1 million). However, there is another way to start or expand an endowment by using a campaign strategy. This strategy is particularly useful when you want to move the endowment principal to a meaningful size.

Organizations with a donor base of very low‐income people need to think twice before launching an endowment. Even if such an effort could be successful, it means the organization will have a kind of financial security that few, if any, of its supporters have. This can exacerbate a danger present in all endowments: a perception on the part of donors that the organization doesn't need annual gifts and that, in fact, the organization has lost touch with its base. A further danger is that donors will give to the endowment instead of to the annual fund. As the saying goes, you will have robbed Peter to pay Paul.

As with other campaigns, the tasks for launching an endowment campaign include forming a committee of solicitors and compiling a list of prospects. As with a capital campaign, you also need to develop creative materials that describe the endowment campaign and its benefits. Once these tasks have been done, the prospects are prioritized and solicitation begins. Unlike a capital campaign, however, an endowment remains open for new gifts even after the campaign has ended. The gifts sought during the campaign are from donors who will give over the next few years; gifts through estates are not the focus of the campaign itself, but are the focus of building the endowment over time.

For all their similarities, there are subtle and not‐so‐subtle differences between the steps of endowment campaigns and those of capital campaigns, as we discuss in this chapter.

SETTING A GOAL

For an endowment campaign, you need to decide how much interest income you want your endowment to generate each year and what amount of principal will be likely to generate that amount of interest. A financial adviser will be able to help you with projections. In general, an organization can safely assume that it can take out the equivalent of 5% of the principal every year and the principal will continue to grow.

To generate $50,000 a year in interest income, then, will require an endowment of about $1 million; to generate $200,000 a year will require an endowment of $4 million. An endowment is not a quick fix to a cash flow problem! The principal of your endowment is not guaranteed to grow: it can fall behind both in inflationary times and, more obviously, with market crashes and economic instability. Organizations may have times when they cannot draw the amount of money they need from their endowment without eroding the corpus.

There are two ways to reach your goal: one is to conduct a campaign for that goal; the other is to conduct a campaign to “seed” the goal. If you need $1 million, your campaign goal is $1 million. However, if that sum seems out of your reach right now but you think you could reach, say, $250,000, you can conduct a campaign to get the endowment off the ground and to show donors you are serious about this effort. With this type of campaign, you do not draw anything out of your endowment until it reaches the initial goal you have set—in this case, $1 million. Once the campaign has ended, you keep raising endowment funds as part of your fundraising work, but without the intensity of a campaign. Your endowment will grow naturally if you have a strong legacy program in place (see Chapter Twenty‐Three). You can also set aside a fixed amount or a percentage of your budget to go into the endowment every year (the same way most people save money). You can be on the watch for donors interested in endowment and invite them to make gifts to the endowment as well as the annual fund.

Having some money raised will help donors feel more assured that their endowment gift is joining existing money. The problem with the “seeding” approach, however, is that too often the endowment levels off at the small amount raised by the campaign. The endowment principal is not enough to generate the kind of interest that will really help with the annual fundraising crunch. And because it is restricted to an endowment, the organization cannot use the principal for annual needs. If you decide to seed an endowment with a campaign, be sure that you have a plan in place for having the endowment continue to grow after the campaign is over.

Sometimes groups just want “something to take the edge off”—the stiff drink approach to endowments. They want a pot of money that generates between $5,000 and $10,000 a year, which means they only need between $100,000 and $250,000 invested. An endowment campaign is not the best vehicle to raise this small amount of money. For any annual need of less than $25,000, an organization should consider increasing its annual fundraising goal, perhaps by diversifying to a new strategy, or being more aggressive with current donors, or just opening a savings account. Generally, it is not worth the effort of starting an actual endowment campaign if your goal is to raise less than $500,000.

Of course, however much money you decide to raise in your campaign, you should always be seeking and accepting additional endowment gifts. But get your endowment moving by setting a large enough goal to be meaningful.

A note of caution: Some organizations have counted the unrealized value of bequests as part of meeting their endowment campaign goal, but this is both foolish and unethical. Bequests can be changed any time before the donor's death, so even when a donor has promised you a bequest, it may not come to you if the donor has a change of heart or circumstance. Only irrevocable legacy gifts can be counted toward a goal.

THE SOLICITATION TEAM

Another difference between endowment and capital campaigns is the composition of the solicitation team. Keep in mind that, traditionally, endowments are funded by gifts from estates. This is why traditional endowments are not generally funded using a campaign strategy; rather, they grow as donors leave estate gifts and as the investment grows. Your endowment campaign team needs to be composed of people who have made a significant gift themselves and have included your organization in their wills or estate plans. They need to be able to articulate a clear case as to why your organization needs to exist in perpetuity, which is very different from why you may need a new building or some other capital expense, and, as with a capital campaign, the solicitors have to be willing to ask for gifts that most donors are only going to be able to make by giving assets.

The solicitation team can be formed slowly. It can start with two or three endowment donors and, as more donations are received, new donors can be asked to join the team.

A CLEAR CASE FOR SUPPORT

The primary difference between major gifts or capital campaigns and endowment campaigns is in the case. A person being asked for a major gift needs to be convinced that there is a pressing, immediate need that your organization can meet and that this need must be addressed with, among other things, some very large gifts. A capital campaign makes the case that the pressing needs of the organization cannot be met adequately without a new facility, equipment, or some other large investment. The case for the endowment goes one step further, explaining that the organization needs stability currently and into the future. The case statement is an internal document for board and staff; it is used as the basis for solicitation materials for donors and emphasizes that the work your organization is doing will be needed as far into the future as we can imagine, and that approaches to the issue or the type of programming needed to solve the problem you are addressing will change over time. An endowment will make the financial life of the next generation easier, freeing them to make the changes to meet the needs of the future.