chapter 26
Raising Money for Capital
A capital campaign is an intensive, time-limited effort to raise money for a project that presents a one-time need over and above the annual budget. Capital costs are too large for the annual budget to absorb. For example, a few new computers are an annual expense, even though (we hope) you won’t have to buy them every year. But an entire new network system with conversion from the old system, training, and so on will often be a capital expense. Capital campaigns traditionally are employed to finance buying, constructing, or refurbishing a building, including making the space accessible to people with disabilities or making the office space “green” (that is, using more environmentally sustainable materials or systems).
The financial goal of a capital campaign is often at least as large as the organization’s annual budget and often many times larger. Most capital campaigns last two to three years; some go on as long as five years. As discussed in the previous chapter, capital campaigns allow donors to pledge a large amount and take as many as five years (and for very large pledges, ten years) to pay it off. Donors are asked to give to the capital campaign in addition to their regular annual donations, and they are explicitly asked not to decrease their annual gifts in order to make capital gifts. Capital gifts are usually so large that donors cannot finance them from their income and must donate cash from savings or other assets (stocks, bonds, real estate). This is a request that asks donors to go to a whole new level with your organization.
For a capital campaign, then, your donors’ earnings are less important than their savings. I have seen nonprofits mount successful capital campaigns with lead gifts from older donors living on fixed incomes who have some highly appreciated stock or a piece of property they are willing to give. Because the donor can deduct the fair-market value of his gift and avoid the capital gains tax on that asset, he is able to make a much greater gift than he might have thought he could.
BEST USE OF CAPITAL CAMPAIGNS
Some grassroots organizations have conducted what they called capital campaigns to raise money for smaller goals, such as to move to a new office space or send staff to conferences—which meant their goal was $5,000 or less, their time frame was a few weeks, and people were simply asked to put in a few extra dollars. However, capital campaigns are best used to seek gifts of assets from a wide pool of people and institutions, not just to seek “something extra” from the annual incomes of current donors. Capital campaigns should be seeking people in your donor base who may own property or securities and who would not help you in this way every year, but might give you a big gift once in a while. For this to be your intention, your capital campaign goal needs to be at least $100,000. If you need to raise less than $100,000, consider structuring your campaign as a major gifts campaign and run the campaign for a short time during one year, or seek two or three foundation or corporate grants to meet the goal and don’t run a campaign at all.
Although your most loyal annual donors will also give to a capital campaign if they can, there are many other types of people who give to capital campaigns who are not regular annual donors. Here’s an example: a local attorney helped a small community organization in Alabama file a lawsuit against its city. The attorney admired the group’s feistiness, its willingness to take risks, and the dedication of its sole staff person and volunteers. She did not charge for her assistance with the lawsuit, and she donated $100 after it was over. But she did not wish to become a regular donor to this group, so she did not respond to subsequent annual appeals. However, she stayed in touch with the executive director, and she continued to provide legal advice when asked. She bought a table at the organization’s annual dinner event for $1,000 for two years in a row, and she gave the group $2,000 when asked to help send a number of its constituents to the World Social Forum. When, a few years later, the organization decided to buy a building to house its offices, the executive director and board chair asked her for a lead gift of $20,000. The work she had done pro bono on the lawsuit had been worth about that much, and she seemed to continue to respect their work through her other gifts. She admired their boldness in asking her and agreed to make the lead gift. She gave $10,000 outright and pledged an additional $10,000 as a challenge to be met by other lawyers.
Some people like the idea of contributing to something as substantial as a building. Universities and private schools often receive a one-time gift to a capital campaign from an alumnus or alumna who had previously been a minimal donor.
To ask donors to stretch their own giving and to seek donations outside of the immediate “donor family” means having a goal that stretching will be required to meet. It must seem to a prospect—including a corporation, government agency, foundation, or religious institution that might not support your annual program work—that the organization cannot get this money simply by asking a few people or writing a single grant proposal.
BEGINNING A CAPITAL CAMPAIGN
A capital campaign begins when the organization has identified a large one-time need. The board of directors must fully concur with this need and must support the idea of conducting a capital campaign, which is a lot of extra work for everyone and may require an initial outlay of money to hire extra staff and develop materials.
Key volunteers who are not on the board along with long-time major donors should also be consulted about doing a capital campaign. Everyone who is important to an organization should have an opportunity to voice his or her concerns and to feel part of the decision. Too many capital campaigns go forward despite lack of total support from key people in the organization. Without firm community support, the resulting building may become more albatross than asset. Even if the organization could raise the money for the building, it may exhaust all its donors in the process and lack the money to run all its programs or sometimes even to finish furnishing the building, leaving the building underutilized. In other instances, campaigns have had to be called off in midstream when volunteers and donors leave the organization to protest doing the campaign in the first place. A capital campaign is a highly visible enterprise; it needs widespread support within the organization.
Estimating Costs
After all the parties have been consulted and there is agreement on the need, a goal has to be set. Similar to the understanding that in a fancy restaurant the eventual cost of the meal will be double the entree (with drinks, dessert, and tip), the true cost of a campaign is far more than the cost of the project itself. One agency learned this fact the hard way. It needed larger office space and decided that buying a building would, in the long run, be less expensive than continually paying rent. The agency’s managers found a building that suited them priced at $500,000. They launched their campaign for $500,000, forgetting that there would also be closing costs, insurance, furnishings, the cost of the campaign, and so on. In the end, the true cost of the building was $610,000. The organization spent two years climbing out of a $110,000 deficit caused by their lack of understanding the full financial implications of the building purchase.
The following items need to be added to the actual cost of whatever you are buying or doing with the money you are raising.
Fundraising Materials.
Materials need to be developed for the campaign, including at least some of the following: a case statement, brochures, pledge cards, background information for solicitors, pictures, architect’s renderings, a special newsletter to capital campaign donors to keep them informed of progress, and a prospectus (see below). And continual updating of the website to reflect the status and progress of the campaign must be attended to.
Cost of Staff Time.
Someone has to handle pledges, write thank-you notes, report to the board, work with the contractor, decide who will approve paint color or carpet choices, know what to do when someone donates stocks, and handle emergencies.
Accounting Systems.
The organization’s books need to keep the campaign’s income and expenses separate from the annual budget, and there need to be reminder systems for collecting pledges (which may extend well past the end of the campaign). If you plan to use current staff for that task, then you will have to figure out how the work they are currently doing will be done. In a multiyear campaign, it is unlikely that an organization could get by without hiring extra staff.
Office Extras.
You may need to put in extra phone lines or buy more computers. If you hire staff, that person will need to sit somewhere, so you may need another desk and chair.
For the Building Project Itself
Someone with expertise in this area will need to help you list costs related to the building, such as construction insurance, building permits, design costs, disaster preparedness, fire extinguishers, landscaping, plumbing, and wiring, and help you with how much to estimate for cost overruns or unforeseen delays.
Furnishings for the Building.
What are you going to bring from your current office and what else will you need? What will these items cost?
Debt Service on a Bridge Loan.
You will probably have to pay bills before pledges are fully paid, and you may have to borrow money to cover the gap between pledged and received income. The interest on that debt needs to be factored into the goal of the campaign. Banks will lend money with pledges as collateral, but you have to pay interest on the loan.
Additional Costs.
Add 15 percent to the grand total to cover people who pledge but cannot finish paying or decide not to pay. Add another 5 to 10 percent and you can feel reasonably safe that this will be the cost of the campaign.
In any fundraising endeavor, but particularly in campaigns with big-ticket items such as buildings, follow the adage: plan expenses high and income low.
Preparing a Case Statement
Once the need is established and the costs are known and provisionally approved by the board, the next step is to write up a case statement for the campaign. This case statement is separate from the organization’s overall case statement, although certainly it borrows from it. The capital campaign case focuses solely on the goal of the campaign and shows how this goal will help the organization meet all its other goals. The case statement implies or overtly states that the work of the group will be greatly enhanced by the addition of whatever the campaign is proposing to achieve and will be significantly slowed down or impaired by the lack of whatever is being proposed. The final page of the case statement is the financial goal displayed as a gift range chart.
Timing
The final decision the organization must make is about timing of the campaign. Try to find out what other organizations will be having capital or intensive fundraising campaigns during the time you wish to run your campaign and assess whether any of your prospects will be key prospects for those groups. It’s best to launch your campaign during years when you expect your annual campaign to be doing well and to make sure you do not anticipate any shortfalls in annual income. Because during the capital campaign your annual income will probably not rise, do not plan major new programs outside of the capital project.
Final Approval
Once you have prepared the case statement, with costs, gift range chart, and timing, bring the whole package back to the board, key volunteers, and staff for re-approval. While these people may have approved the concept of the campaign, when faced with the realities of the money and time involved, they may wish to change their minds. Without full board and staff ownership, the campaign will fail. Taking the time to make sure that everyone understands the implications of the campaign is imperative, because once the campaign is launched publicly, it must be seen through to the end.
The Prospectus
With the case approved, you will be ready to begin soliciting the lead gifts during the quiet phase, described below. For this, you will need to design a document called the prospectus, which is a brochure, a booklet, or sometimes a PowerPoint or video incorporating information from the case statement in a shorter and more artistic format. The prospectus will be given to all prospects, and it must look good. The prospectus shows the prospect that you know what you are doing and that your organization is able to handle large amounts of money and manage this large capital project. The prospectus should also be posted on your website after the launch of the campaign, along with regular updates on the progress of your campaign, your gift range chart, and how donors can contribute. Few, if any, gifts will come from the website, but it is good for visibility and consistency of message.
FOUR PHASES OF THE CAMPAIGN
A capital campaign is conducted in four parts. The first phase is the “quiet” phase: it starts when the case statement is ready and approved. The second phase is the “launch,” when the campaign is publicly announced and begins to seek support beyond the inner circle of donors. The third phase is often called the “public” phase; this is the most intensive and continues for the longest time. This is the phase when solicitors are visiting prospects and gathering commitments. When the campaign has reached between 85 and 95 percent of its goal, the “wind-up” phase or “topping off” phase begins.
The Quiet (or Pre-Campaign) Phase
Have you ever noticed how an organization will have an event to announce its capital campaign and declare, “We are proud to launch our $3 million building campaign today, and we are pleased to report that we already have $2.3 million pledged”? Do you wonder how it could have raised all that money in just one day? Of course, that money was not raised in a day; in fact, it may have been raised over a period of months or even years. The purpose of the quiet phase is two-fold: to test the concept of the campaign with people who could actually meet its goals and to give a feeling of momentum at the public launch. Everyone may feel good about the case and the need for this campaign, but the true test of its possibility for success is whether people feel good enough about it to give a big gift. Some campaigns have to be abandoned or seriously rethought at this phase if not enough people step up with early gifts, but no real harm is done because the campaign has not yet been made public. Once the campaign is made public, you want people to say, “Wow, that’s great they have raised so much money already. My gift can move them forward.”
The goal of the quiet phase is to obtain 40 to 50 percent of the campaign’s total from the top three to five donors. Most fundraisers feel that if you can get the largest gifts first you will be able to find all the remaining gifts needed. (The largest gifts are called the “lead” gifts, although they may not truly be the very first gifts, as those should come from board members.) Lead gifts provide momentum, instill confidence in the campaign, and inspire other big donors. Smaller gifts seem more worthwhile to the donors when they are put toward a goal already partly reached.
Starting a capital campaign without lead gifts is dangerous because the momentum lags. Furthermore, if an organization doesn’t know possible lead donors at the beginning of the campaign, where does it think it will meet them later? It is worth postponing a campaign for months or even years in order to ensure that the first gifts given are also the largest. At the risk of redundancy, let me repeat: an organization does not need to know all of its prospects ahead of time, but it must know those who are capable of making the lead gifts, and it must have a sense that it will ultimately know about as many donors as it needs for the whole campaign.
The Lead Gifts.
The lead donors must not only be able to give a big gift, they must also be people who like to set the pace, set an example, and take a leadership role. These first large gifts come from people who will gamble with you that the campaign will succeed and who actually pride themselves on being risk takers. Obviously, they must care very much about your cause and be committed to the capital project. Frequently (and ideally), the lead gifts come from a few people who were involved in the planning and approval of the campaign. If those people are not able to give the biggest gifts, they need to know people or institutions that can.
Approaching the Lead Prospects.
The process of approaching people who could make lead gifts is the same as approaching any major donor—a letter, followed by a phone call and request to meet, followed by a meeting at which the gift is requested—with one slight change. With requests for capital gifts, an answer almost never comes at the meeting; often the prospect wants more information that must be sent or brought to a subsequent meeting, or he or she needs time to decide what size gift to make.
When prospects seem to be stalling or wanting more information, see it as a good sign. In fact, many fundraisers believe that if a person says, “I need to think about it” in response to a request for a large gift, they have asked that person for just the right amount. The amount was not one she could give easily at the meeting, nor was it an amount that was patently out of her range. A person who says yes to a request for $10,000 in one meeting may be someone who has thought a great deal about the campaign and made her decision, but it also may be someone for whom $10,000 is not a stretch gift. Making a capital gift is a big decision. Most people will make, at most, a handful of capital gifts in their lifetimes. Even very wealthy people can’t afford to give capital gifts very often, and they want to make sure their gifts will be well used.
These gifts should be solicited by teams of two people—usually a board member and a staff person or two board members. The board members share the prospectus with the prospect and make clear that they are giving what is a stretch gift for them. They should be willing to share information about their gifts with the prospect. For example, the board member might say, “I am giving ten times my annual gift to this campaign and paying my pledge over five years” or “My partner and I decided this endeavor was as important as our car, so we are giving the same amount as our car payment over the next two years.” If the solicitor feels comfortable, he may also share the actual amount of his gift. The point to make clear to the prospect is that the people asking are giving as much as they can possibly afford and that their gifts have been made after a lot of thought. They are hoping the prospect will make a similar commitment.
Once the lead donors have agreed to a gift, they should be asked if they would be willing to help solicit other gifts. Some people find it flattering and sometimes emotionally moving to be asked for a gift by someone who has given the biggest gift.
Once the very top of the pyramid has been filled in with donors, the organization is ready to move to the second stage.
The Launch
The launch of a capital campaign should be marked with a special event. The press, donors to the organization, volunteers, and foundation and corporate staff should be invited. The press should receive a press release ahead of time with background information on the group and the campaign or they should be given one at the event. As the first impression most prospects will have of your capital campaign, the invitation to the launch should be attractive. The event itself doesn’t need to last very long. Large graphics on display should describe the overall goal of the campaign and show the gift range chart and how much money has been raised. A board member should describe to the gathered crowd how important the campaign is and invite everyone to celebrate the donations that have come in so far. Drinks (including champagne) and hors d’oeuvres may be served.
The Public Phase
Immediately after the launch, the public phase begins. During this time teams of two people are visiting prospects with as much speed as that process will allow. Most prospects are visited at least once during this time. As each gift is received, the total still needed is revised and publicized, at least to staff, board members, and solicitors, so there is a constant sense of movement toward the goal. During this stage, the three most important elements are maintaining accurate information on donors and prospects, keeping track of where the organization is in the solicitation process with each prospect (often called “moves management”), and keeping in touch with volunteer solicitors. Thank-you notes must go out to donors promptly, including notes thanking them after the initial meeting. When people pledge to pay over the course of several years, they must sign a pledge agreement. It can be very simple, as in the example shown here.
Solicitors must be notified of new gifts as they come in; they should be in touch with the office weekly and meet together every month or two to report on their progress. Any problems they run into must be dealt with promptly. One such problem is conditional gifts. Prospects will often offer to make a gift on certain conditions: “I’ll give if three other people match my gift” or “I’ll give if the conference room can be named for my mother” or “I’ll give if I can have a seat on the board.” Conditional gifts, regardless of how benign the condition proposed, must go through an approval process, preferably at the board level. Solicitors can say to such prospects: “That’s a very kind offer. Let me see what we can do about it. I don’t have the authority to make those promises.” Then the organization decides whether it wishes to accept the condition or not. An organization should never take money on conditions that it doesn’t wish to meet. People should not be able to “buy” board seats, for example.
The Wind-Up Phase
When more than four-fifths of the money has been pledged, the organization goes into a wind-up phase. At this point you look for one or two people who can put the goal over the top: “Mr. Jones, we are $50,000 short of our goal—would you finish this campaign with a gift of that amount?” To find people who can close the campaign in this way, go back to your original prospect list for lead gifts and see whether any of the people on that list were not asked because solicitors felt that they would not take a risk on being the lead gift, or see whether any of them said, “Come back to me when you are further along.” The wind-up phase is also a good time to ask for a lot of small gifts, because at this stage gifts of $1,000 are clearly helping to move the organization toward its goal.
The end of the wind-up phase is a large celebratory special event. If you are purchasing or constructing a building, this is often a ribbon-cutting or ceremonial groundbreaking event, if that hasn’t happened already.
POST-CAMPAIGN
Volunteer solicitors should be given their own party, such as dinner at a fancy restaurant, and should be presented with gifts of appreciation. These are often plaques. Although nice, the gifts should not be expensive. Staff should also be rewarded at this party, possibly with a certificate for a weekend away at a bed-and-breakfast or a gift certificate to a store they would like.
Staff and solicitors should review all the donor records for the campaign to make sure they are accurate and complete. A special report should be sent to all donors and funders describing the successful conclusion of the campaign and reiterating what wonderful work the group will be able to do in its new building.
Soon after the end of the capital campaign, you will need to increase the amount of money you are raising annually, since you will not have had an increase in two or three years while the campaign was active. A good capital campaign usually has the effect of helping increase annual income, as donors feel closer to the organization and realize they can afford to give more than they thought. Further, the high visibility of a capital campaign will often attract new annual donors.
As you can see, a capital campaign is a time-consuming project and one that requires keeping track of a lot of details. Only organizations with a strong working board of directors, a loyal donor base, and a well-designed major gifts program should undertake such a campaign.