FUNDING FUND RAISING REPORT

Recent studies by the United Way of America, INDEPENDENT SECTOR, Yale University and the National Charities Information Bureau have identified a vast, untapped potential for individual giving in this country. Not surprisingly, at the same time, grantmakers, nonprofit organizations and philanthropic leaders have been showing increased interest in the idea that corporations and foundations can make grants that will help nonprofits expand their fund-raising capacity-- tapping the waiting potential to broaden their bases of support and thus having the means to carry out their missions more effectively.

The goal of this research project is to increase the nonprofit field's knowledge of these efforts to improve the fund-raising capacity of charitable organizations.

The project set out to do this by documenting the experiences and ideas of grant makers who had provided substantial funding for fund raising in a wide variety of nonprofits, to supplement these data with the comments of experienced fund raisers, technical advisors and other specialists in the field, and to disseminate the findings as a ready reference for both grantors and grantees.

Baruch College is grateful to the Exxon Fund for Management Assistance which provided funding for this project through the New York Community Trust. Also, to all participants the project staff offer warm thanks for giving so generously of their time, experience and ideas.

After discussions with more than 35 grantmakers, grant seekers, providers of technical assistance to nonprofits, and others, we have the project findings. They include a wide variety of comments. Hence, listing in this report of a project participant does not imply his or her endorsement--or support of any specific conclusions or recommendations included in the report.

Now, whatever your interest in fund raising, we hope you will find this report helpful.

SUMMARY

The study was designed to collect and make widely available significant recent experience in a growing field of philanthropy -- funding fund raising. No single set of rules emerged, and grantmakers as well as technical assistance providers and other leaders in the field often had widely differing points of view. Yet there was general agreement on many matters.

[Note: In this project 'funding fund raising' refers to all investments, including loans and direct services as well as grants by corporations, foundations, and other sources, to enable nonprofit organizations to enhance their fund-raising capacity and broaden their bases of support.]

The 18 participating grantmakers had provided one or more of the following:

* Technical assistance and training to improve organization readiness and capacity to raise funds.
* Challenge grants as catalysts for increasing results and enhancing fund-raising capacity.
* Grants for direct fund-raising costs such as professional staff, consultants, planned-giving programs, market research and feasibility studies, and constituency building through direct-mail campaigns and special events.
* Grants for pilot projects to test new approaches in some of the above.

There was general agreement by both grantmakers and providers of technical assistance that any fund-raising grant must be considered in the light of the potential grantee's overall development. Indeed, many felt that once a nonprofit has a sound, well-functioning structure and management, its board and CEO may well be able to learn to raise funds and proceed to do so without any additional outside help.

Thus, except for challenge grants and grants for planned-giving programs most of the funds for fund raising have gone to smaller (often new) nonprofits in conjunction with grants to develop broad program or management capability. It is noteworthy that community foundations are playing an increasingly important role in helping these developing local organizations -- while some large foundations are providing funds to help establish community foundations.

Project participants further agree that people are the key to fund-raising capacity. Therefore the most frequently-given grants were those for the education and training of board members, other volunteers, CEOs and professional staff.

Highlighting the importance of people are two questions that appear to challenge grantors and grantees alike. These two questions surfaced repeatedly in interviews with grantmakers, technical assistance providers, and others:

1. What can we do to help smaller nonprofits that most need good fund-raising talent but can least afford full-time staff at competitive salaries?

2. How can nonprofits be helped to deal with such other fund-raising "people problems" as recruitment, retention, burnout, replacement, and use of staff?

After general capacity building, challenge grants -- in which the grantee must raise all the funds needed to meet the challenge -- were those most frequently given by participating grantmakers. One reason for this: the grants' success is easy to measure. Many successful challenge grants were reported, especially among nonprofits with strong built-in constituencies.

Both grantors and grantees indicated the challenge-grant concept could be applied more often -- and that grantees might well take the initiative in suggesting such grants if they feel comfortable with them. As with other major grants, grantor and grantee should plan to maintain a close working relationship throughout the grant period.

Grants to help nonprofits establish and conduct planned-giving programs were few, but those that were reported had been extremely successful. Participants suggested that funders of fund raising might well consider expanding support in this area.

Several grantmakers stressed that, while it is important to take risks, there can be a downside to a fund- raising grant that fails. Before many nonprofits are ready to launch a fund-raising effort they need to develop their boards, create strategic plans, train board and staffs in fund raising, and/or complete some other developmental task. Fund-raising grants to organizations that have not done these things are usually destined to failure. Further, the organizations not only may lose any momentum they have, but also may delay getting to an essential next step in their development.

The following pages contain examples of fund raising grants, plus the related comments of project participants, and a brief statement of project methods.

GENERAL CONSIDERATIONS IN FUNDING FUND RAISING

In the past ten years the number of nonprofit organizations in the United States has increased to meet the growing needs of our society. Often, however, these organizations do not have the knowledge or resources to raise the funds to maintain and expand their services. Yet, at the same time, studies have revealed that millions of Americans say they are willing to give more money to charity.

This situation has prompted a growing number of grantmakers to provide funds to strengthen the fund raising of nonprofit organizations. In general, they have made grants for technical assistance and training, for direct fund-raising costs, and to challenge selected nonprofits to raise more money.

[See Table, "Frequency of Fund-Raising Grants by Category." The table presents participating grant-makers' estimates of the relative frequency of various types of grants to fund fund raising. The table indicates that capacity building, including fund raising, varies significantly, depending on the development of the organization. The table shows four levels of development of fund-raising capacity based on managerial staffing and level of contributed income.]

Of the project participants, all 18 grantmakers who were interviewed have, in recent years, funded fund raising from "occasionally" to "several hunred times" in one or more of the following categories:

1. Technical assistance, especially education and training related to fund raising. (All 18)

2. Costs of conducting direct-mail campaigns, special events, annual appeals, feasibility studies, and/or capital campaigns. (10)

3. Salaries and expenses of development staff. (9)

4. Challenge grants. (8)

5. Planned-giving programs. (2)

6. More than 30 loans for fund raising. (1) The foundation making these loans had not lost money on any. Funds for the interest-free loans are borrowed from the foundation's principal cash assets and returned to the principal when repaid. Thus this type of funding fund raising does not appear on the books as a grantmaking activity.

One foundation years ago refused to make grants for fund raising. Today its policies encourage such grants.

Discussions with project participants revealed considerations that seem to apply to all grants to fund raising:

1. The grantmaker should become well acquainted with an organization before making a fund-raising grant.

a. The grantmaker should be willing to take risks, but can improve chances for success by determining that the grantee is really ready. For example, many nonprofits need to develop and train strong, active boards; to create strategic plans; to train board and staff for fund raising; and/or to complete some other organizational task before launching a fund-raising effort. Thus a grant to strengthen the organization's structure, personnel, or program may be needed before, or in conjunction with, any direct aid to fund raising.

b. Grantmakers should recognize that some causes are more appealing than others. Attempts to broaden the constituency of a cause with a stigma or limited appeal may be unrealistic.

c. The cultural backgrounds of some groups make it difficult for them to get funds from the general public. For all groups with such fund-raising limitations, special, rather than the usual broad-based, fund-raising efforts should be considered.

In many of these special circumstances in which trying to build fund-raising capacity (e.g., increasing the number of individual givers) may not get results, seeking on-going support from corporations, foundations and government may be the only answer. However, alternative sources of income, such as sales, could also be explored.

2. Most of the grantmakers had little or no experience in measuring fund-raising performance but felt that evaluation of the outcomes of their fund-raising grants would be very useful. Meanwhile, post-grant evaluation of these grants has been limited.

3. Some grantmakers wonder if funding the fund-raising efforts of one nonprofit will simply cause donors to switch their gifts to that organization, rather than increasing total giving. (According to Giving USA, published by the American Association of Fund-Raising Counsel Trust for Philanthropy, total U.S. giving has increased regularly in recent years. Hence it seems likely that improved fund-raising capacity results in increased overall giving.)

4. Grantmakers involved in funding fund raising have a unique opportunity to help nonprofit board members focus on mission rather than fund raising. Fund raising is a means to be used in accomplishing an organization's mission. The grantmaker can encourage board members not to let their thinking be dominated by the need to raise funds. Direct contact with board leaders and review of materials used in recruiting board members can be helpful in this.

5. When basic capacity building, including fund raising aspects, is done effectively, the resourceful board and CEO may be able to implement a fund-raising plan without special help.

CAPACITY BUILDING

"Capacity building" is the overall grantmaking activity within which most funding of fund raising falls. In this report, capacity building is considered to be essentially the same as technical assistance, management assistance, and organizational development. In practice, however, there can be differences in scope and meaning among these terms.

A Framework for Funding Fund Raising

One grantmaker described the way fund-raising grants fit into a grantmaking program as follows:

Grantmaking programs are divided into two categories: special project grants and organizational development grants.

Special project grants are usually intended to accomplish a specific objective; a grantee with the proven capacity to conduct a project is awarded the grant without regard for other aspects of the grantee's program activities or operations.

Some grantors, however, also have longer-term goals in particular program areas. Thus, they may be especially interested in the development of organizations operating in those areas. These grantors often provide organizational development grants to such organizations. The grants may be for the immediate capital, endowment or operating-fund needs of the grantees. Organizational development grants include capacity-building grants.

Fund-raising capacity building is an integral part of overall capacity building.

Fund-raising issues and activities are woven into such capacity-building activities as:

* Overall organizational assessment
* Board recruitment and development
* Development of a clear mission statement
* Setting goals to achieve mission
* Long-range strategic planning to achieve goals
* Training board, staff and volunteers
* Marketing programs and services
* Accounting and financial

Board recruitment and development, for example, can include such fund-raising considerations as: overall responsibility for fund raising and evaluation of fund raising performance; board participation in giving and asking; board training in fund raising, whether on-site or at schools (with CEO and program staff).

Equally important is the mission statement. Without it no volunteer or staff member can answer the question: What are you raising the money for? Before fund raising takes place every board and staff member should understand and be committed to the mission.

The importance of basic capacity building is widely recognized in the fund-raising field. Fund-raising counsel regularly review and make recommendations regarding all the above areas. However, it is often technical-assistance advisors who show boards and staff how to set up and manage fund-raising activities and otherwise build fund-raising capacity. Such advisors are not involved in the actual management of fund-raising efforts.

The participating grantmakers were generally comfortable with making grants for technical assistance -- often as part of general capacity building. The nature of the help varied; some grantors provided a combination of direct and outside capacity-building services, while others used only outside management assistance.

A number of grantmakers and management-assistance providers who were interviewed have comprehensive capacity-building checklists and/or services to guide nonprofits through various stages of development. These checklists and services include but are not limited to fund raising.

To present a model capacity-building checklist is beyond the scope of this project, but such a list, if developed in the future, might be useful to many grantmakers and management-assistance providers.

All participating grantmakers and assistance providers agreed that the time to fund an expanded fund-raising effort is when an organizational assessment has made clear that basic capacity exists or is being built. Sometimes, however, an organization's survival is at risk, and sufficient emergency funding is not available. A grantmaker may be able to provide a modest grant for an immediate infusion of fund raising capacity that, in turn, can produce the needed emergency funds.

For example, outside fund-raising counsel may be able to respond quickly and advise the board and staff on where and how to raise the needed money. This approach can also help build the organization's fund raising capacity for the future. Overall organizational development assistance may well be needed concurrently.

Comments by Participating Grantmakers

(These comments were made by eight grantmakers. When there are slight differences in similar comments on the same subject, both comments have been retained.)

1. We don't have a program to make grants for fund raising per se. Such grants are part of our broader activity of funding technical assistance.

a. We make fund-raising-related grants only when they are appropriate within the broader technical- assistance program. The type of fund-raising grant is determined by the circumstances uncovered in the course of considering the grantee's overall need for technical assistance.

b. Fund-raising grants are not the basis for the first contacts with recipients, and, fairly consistently, not the first grants. Such grants evolve out of a broader relationship.

2. We do not have a separate management-assistance or organizational development grantmaking program. Each of our program areas -- for example, our arts and culture program -- includes management assistance.

3. We do make fund-raising grants, but almost always as a component of an overall institutional-development, capacity-building interest in the grantee. We consider and make fund-raising grants only when appropriate within the broader capacity-building need.

4. Our capacity-building grants are all different. Each is tailored to one institution's needs.

5. A major part of our program to "strengthen the management of cultural institutions" is grants to enhance their marketing capacities -- and that includes fund raising.

6. Fund-raising grants would be part of our technical-assistance activities in each program area. Technical-assistance grants are made only out of program budgets.

7. Technical-assistance grants are intended to "stabilize the finances of an organization." The priority of technical assistance varies from program to program.

8. We are interested in the well-being of the organizations we support. This can include fund-raising capacity building. However, the fact that we might make such grants is not obvious in our guidelines.

9. We are always involved with making capacity-building grants that frequently include a component related to fund raising.

10. We make grants to help organizations create a climate for fund-raising success.

a. We will give a modest grant for a "development auditor" who will make recommendations for seeking support from sources other than foundation grants, and who will, in some cases, actually "intervene" by, for example, telling the board and staff specifically what their respective fund-raising responsibilities are.

b. We will fund and help select a "trainer for the board on the board's overall responsibilities with emphasis on fund raising."

11. The hardest and most time-consuming aspect of our capacity-building activities is the technical assistance that the foundation staff itself provides to prospective grantees.

a. Sometimes there is no grant request, or we know the grant request will be turned down. We still see our role as advising the organization to the extent we can. This may include explaining why we turned them down, and what changes they would have to make to be considered for a grant in the future.

b. It is important for us to have contact with the organization's leaders to help get them involved and committed.

c. This free advice and counsel to community organizations is the "other half of our foundation's responsibility in the community. It is a dearly-held value."

12. We are always looking at ways to make organizations self-sufficient.

13. We will give both challenge grants and technical-assistance support to help people in a local community help themselves:

(1) to upgrade public relations;
(2) to carry out long-range planning;
(3) to organize local leadership and develop local volunteerism;
(4) to educate local leadership;
(5) to fund grant writing for government funds;
(6) to educate trustees regarding their responsibilities for fund raising;
(7) to fund a process of self-examination.

14. Frequently we will fund a community-development specialist to go into a community "to help the local people get into a partnership to get something done." For example, we have helped organize or upgrade health clinics, cultural and educational institutions, and local United Way organizations.

15. We consider raising the level of volunteerism in the communty a key objective of our technical assistance efforts.

16. A few technical-assistance dollars can go a long way toward advancing an organization to its next level of development. For example, a grant may fund:

(1) strategic planning;

(2) a survey of the organization's audience/clientele;

(3) a board retreat with a facilitator;

(4) fund-raising capacity building.

17. There are different levels of technical assistance and organizational development depending on a nonprofit's size, age, etc.

a. We have found it useful to identify five or six general stages of development. Stanford University would obviously be in stage six while a neighborhood community group run entirely by volunteers and just getting started would be in stage one.

b. The type of technical assistance must be appropriate for the organization's level of development. Therefore it is important to know which types of technical assistance are relevant to each of the six states of development. When we can agree on the stage a prospective technical-assistance grantee has reached, a grant proposal best suited to its needs can be prepared.

c. The size of the grant will generally vary according to the size of the grantee. $50,000 could be appropriate to meet the technical-assistance needs of a large museum. Conversely, $2,500 could be quite adequate for an organization in stage one.

d. The approach to technical assistance for each stage should be flexible. Sometimes it's better to give the nonprofit a planning grant before it embarks on a fund- raising effort. However, a small, relatively new organization with a $15,000 annual budget and a volunteer executive director might need to go right into fund raising. Hence we might give $500 to send one or two volunteers to fund-raising school.

18. Making grants to enhance the fund-raising capacities of the hard-core grassroots groups in the community should be a priority for community foundations in general. Community foundations have a different perspective from corporations and private foundations which frequently don't see maintaining nonprofits long-term as their responsibility.

19. A community foundation should be "capacity-building and organizational development focused, and this must be built in across the board in all its programs."

"PEOPLE ISSUES"

Fund-raising capacity building consists largely of increasing the number, commitment, quality, and talent of the people involved in fund raising -- board members, volunteers, CEOs and professional staff.

Not surprisingly, therefore, the most frequent grants to enhance fund-raising capacity have been grants for education and training of boards of directors and senior staff members.

People issues include the education, training and retention of those involved. They also include giving these people sufficient credit for the extremely important role they play. Without them the nonprofit sector would not have raised more than $100 billion in 1988. Without more of them the nonprofit sector will not acquire the increased financial resources it needs to solve ever-growing human and social problems.

People problems in fund raising, identified by the grantmakers interviewed, include:

a. Small agencies' inability to afford the full-time, competent fund-raising staff they need.

b. Lack of understanding by board members and CEOs of their roles and the role of a professional fundraising manager. Many board members and CEOs do not understand or accept their responsibility to seek funds for their organization. They expect the fund-raising manager not only to plan, research, train and make all other preparations for an effective solicitation -- but also to ask for the money. As a result the board asks: Why hasn't the fund raiser done it? - and the fund raiser asks: Why hasn't the board done it?

c. Failure to make the fund raiser a recognized part of the organization's management team. Often he or she is isolated from board and other staff. This failure also can result in low pay, lack of recognition, and other job stress, leading to high turnover.

d. Lack of qualified fund-raising. The number of qualified fund-raising professionals has not increased as fast as demand. The best are frequently rewarded with jobs as CEOs or consultants and therefore are removed from the day-to-day management of fund raising. Increasing the pool of qualified fund raisers is a high priority for at least one grantmaker who wants to enhance nonprofits' fund-raising capacity.

e. Need for general fund-raising literacy. The smaller the organization, the more the responsibility for all aspects of fund raising will fall to the directors and CEO. In the case of an all-volunteer nonprofit, the board has to do it all. When there is a CEO but no fund-raising manager, the CEO has to be a jack of all trades, especially with regard to fund raising.

Thus the need for fund-raising literacy begins with the small organizations that need good fund-raising management most, but it extends throughout all nonprofits. Just as today's boards and staffs must be computer literate, they should also be fund-raising literate. The manager of a small nonprofit must know something about raising funds and be able to supervise and train any others who raise funds. So should the manager of a large nonprofit.

Some fund-raising grants have addressed these problems. Capacity-building grants often include training in board responsibilities, including responsibilities for fund raising. But there is room for more. Until small nonprofits grow to the point where they can afford full-time fund-raising personnel at competitive salaries, and with adequate working conditions, the interim solution may be to involve and train literally everyone on the board and staff in fund raising. As indicated earlier, this training can be done on-site or in schools, by technical advisors or fund-raising counsel, or even by grantmakers' staffs.

Training boards and CEOs in how to make the best use of a fund-raising manager may be needed even in large nonprofits with full-time fund-raising personnel. Fund-raising counsel can be retained periodically to monitor and enhance fund-raising activities and provide continuity and training when there is staff turnover.

Another form of funding fund raising that is helping nonprofits solve some people problems is the pro bono FRIENDS program of the National Society of Fund Raising Executives (NSFRE). Through FRIENDS local NSFRE chapters provide many kinds of pro bono assistance to new and struggling nonprofits that cannot afford fund-raising counsel.

Many project participants agreed that the most useful fund-raising grants were for quality education and training for boards and staffs. Specific comments follow.

Comments by Participating Grantmakers

Regarding board members and volunteers:

1. There is a problem with the board nominating process of many groups. Prospective board members are not told about their fund-raising responsibility. Further, there should be a minimum contribution level for board members.

2. One problem is getting boards to buy the idea that fund-raising is a board job.

3. We will make a modest grant for a development auditor to make recommendations for seeking support from sources other than foundation grants. In some cases the auditor will tell the board and staff specifically what their respective responsibilities are with regard to fund raising.

4. We will fund and help select a trainer for the board on the board's overall responsibilities with emphasis on fund raising.

5. It is important that the organization first demonstrate careful analysis and planning. The organization as a whole should have been significantly involved in the fund-raising grant request. The board should have a vested interest -- at least in time and effort -- and even better if financially too.

Regarding staff:

1. One problem: good fund-raising people are hard to find.

2. We did fund a development officer position and are very pleased with the results. We made a three-year sliding-scale grant.

3. We funded a grantee's first development officer. How do we measure success? The organization is now being supported at least in part by funds raised. A secondary measurement is that the development officer is still on the payroll. We expect the funds raised to be covering the costs of the development office in 12 to 18 months.

4. At one time we made grants to establish development offices. Then we decided it was difficult to determine if the desired results were achieved. It is possible that such grants simply increased fund-raising costs.

5. The proposal's objective may be that the new development officer will be just bringing in his or her salary by the second year. This is not great performance. The development officer frequently stays for only one year and then goes on to a higher-paying job. The smaller charities pay too little and are bound to lose good fund-raising staff after they are trained.

6. Fund-raising grants would be more attractive if the fund-raising personnel were better equipped for the job and didn't leave.

7. The problems encountered include turnover in personnel after they are trained. For example, good people move on to bigger and better jobs.

8. Sometimes personnel assigned to fund raising either don't or can't learn the necessary skills. Therefore technical assistance or other resources can be wasted.

9. The major problem with funding a development director is that you can't find/keep good development people. Sometimes they luck out and find a bright person, maybe just out of school. This person gets good training, does an excellent job, and gains valuable experience. Then the person is hired by a bigger organization at a salary the smaller organization can't afford. The person frequently does stay in the field, so all is not lost - except for the organization we are trying to help.

10. There also seems to be a "burn-out" factor -- the effective fund-raising manager's performance begins to decline.

11. When we do make grants to cover direct fund- raising expenses, it's usually to help hire fund-raising staff. However, we never pay 100 percent of the cost. We may give the organization a challenge grant for half the costs of a director of development. When the organization finds its half, we match it. Further, they are more likely to get a matching grant from us if they come to us with their half already in hand.

12. Before making a direct fund-raising grant it is important to ascertain whether the organization is ready. Boards often think their only problem is lack of money. If they only had the money, they could accomplish their mission. They quickly send us a proposal: The answer to our prayers is a development officer. A grant on this basis is headed for failure.

13. How does one select qualified counsel? Who and where are they?

CHALLENGE GRANTS

Simple illustration: We'll give your organization $X if you raise $Y.

After capacity building and its concomitant people problems, grantmakers who participated in the project helped most frequently to fund fund raising through challenge grants. Such grants are not complex, and their success is easy to measure: "They raise the money or they don't."

Traditionally, the prime and often the sole purpose of challenge grants is to increase giving: they provide incentives to prospective new donors to become first-time givers, and they provide prior donors with incentives to increase the size of their gifts. They aim to produce more income for the grantee.

A secondary purpose and frequent by-product of challenge grants is enhanced fund-raising capacity. To meet the challenge grantees frequently add staff and other fund- raising resources. With the expanded donor base, grantees can continue to maintain their increased fund-raising capacity.

Challenge grants may also be coupled with and enhance the effectiveness of general capacity-building grants. For example, they can be designed to provide incentives for achieving 100 percent board participation in giving and asking.

Variations in challenge grants are reflected in the terms used to describe them: "leveraging," "matching funds," "incentives," "multiplier." "Matching funds" usually means that the grantee will receive periodic payments based on funds raised to date, while "challenge grant" means that the entire specified amount must be raised before any payment is made.

In some cases only donors are being challenged to increase their gifts. In others the nonprofit may also be challenged to improve the effectiveness of its fund- raising operation.

Although they are popular, challenge grants should not be sought or offered without careful consideration of all aspects of the nonprofit's situation.

Not meeting a challenge grant can have a demoralizing effect on the board and staff of any organization. Other opportunities may be missed because of effort put into a failed challenge grant. Some donors suggest that it may be better for the potential grantee rather than the grantmaker to bring up the idea. In any case, the organization's board and senior staff should share in the development of the challenge and understand the risks involved. If the offer originates with the grantmaker, the nonprofit should have the option to decline.

Project participants noted that grantmaker involvement does not end with approval of the challenge grant. The grantmaker should be prepared to help the grantee meet the challenge. This may be done by extending the time period or providing support to cover costs connected with raising the grantee's portion.

Since the idea is to help the grantee raise more funds, grantmakers should be flexible, ready to consider additional steps if a grantee seems able to meet the challenge eventually.

Broader Use of Challenge Grants

Participants generally agreed that the challenge grant concept can be applied more broadly. Elements of challenge may be included in many of the gifts or grants from corporations, foundations, individuals, government agencies, and other resource providers. For example:

1. Grantors can couple challenge grants with technical assistance grants to newly-formed grassroots organizations. The challenge provides added incentives to a nonprofit's board and staff to take maximium advantage of the technical assistance.

The challenge also gives board leaders a rallying point. They take charge and rally the rest of the board. Then the full board goes on to challenge their other constituencies and the community as a whole.

Asking and giving clarifies and strengthens each volunteer's commitment to the organization's mission. Asking and giving beyond the board builds partnerships between the nonprofit and key individuals and organizations in the community.

2. Whether given to newly-formed organizations or to those that are well established, appropriately structured challenge grants provide strong incentives for board members to increase their own gifts, and gives them leverage when they solicit others. The challenge gives everyone an added incentive to give. The implied endorsement of the grantor can also be helpful in seeking funds from others.

3. Grantmakers should consider making challenge grants to national organizations toward the creation of national challenge-grant funds for use with local affiliates.

a. A corollary of this is action by nationals to create pools of challenge-grant funds. The national organizations can then use the funds to challenge local affiliates to broaden their bases of support and enhance their fund-raising capacity. The funds may come from existing resource providers who would be making grants to the nationals anyway regardless of the element of challenge.

Example: One umbrella group began a challenge-grant fund in 1980. Since then the group has distributed $4.18 million in challenge grants. Voluntary support associated with these incentives now totals nearly $41 million.

4. Many grantees and grantors want to strengthen their partnership. Challenge grants provide the opportunity for closer cooperation. Further, when the challenge is successfully met, the nonprofit's board and staff can take pride in their achievement and the grantmaker can be proud of having helped broaden the nonprofit's base of support. These good feelings can strengthen the grantee-grantor relationship.

The following quotes indicate the popularity of challenge grants.

If challenge grants are included, we have made hundreds of fundraising grants.

We have made a lot of matching-fund grants and will be making many more.

Challenge grants have been the most successful fund-raising grants...if we lined things up right.

A public radio station has enjoyed 13 - 14 years of continuous success using matching funds. It is working well.

We give challenge grants and technical assistance support to help people in a local community help themselves.

Challenge grants can enhance fund-raising effectiveness by keeping the pressure on the fund-raising staff. The staff can gain recognition as well as personal satisfaction by successfully teaming up with the grantor.

Criteria and Ground Rules for Challenge Grants (as edited from comments of participating grantmakers)

Criteria

1. Well-managed organizations that are stable financially. While taking risks is important, we try to reduce risks by providing technical-assistance grants.

2. Top management and board involvement in the general fund-raising activities of the organization.

3. Specific staff and board commitment to meeting the goals and objectives of the matching-funds program.

4. One-hundred-percent board participation in giving and asking.

5. A specific group of supporters or desired supporters to which all or a portion of a challenge-grant effort should be directed, e.g., faculty, board, or segment of alumni.

6. Well-developed leadership and competent staff committed to a solid strategic plan that includes fundraising development. The challenge-grant program should be part of their fund-raising plan.

Ground Rules

1. We apply a precise set of rules to all such grants. The rules should be included in the grant agreement so there can be no misunderstanding. For example:

a. Up to the limit of the grant, we will match every two dollars of "gain" raised by the grantee with one dollar of our grant. "Gain" means the incremental net increase in total results over the prior year from a specified group of donors and prospects.

b. If the goal is to increase individual giving, support from other corporations and foundations is excluded from the match. Bequests, deferred gifts, and large individual gifts of $1,000 or more might also be excluded.

c. We will provide incentives for "lengthening the donor list." In this case the rules are so much for net additions to the membership list with the match based on net number of new donors or members, times average gift size.

2. Specifying the precise guidelines for the match, as part of the grant agreement, is important. If the guidelines are unambiguous, grantees are generally honest in reporting results that qualify for matching funds. If not, they may fudge a little.

3. We typically make a three-year declining challenge grant. When the grantee has raised half the overall grant in the first year through new and increased giving, we make the first lump-sum payment.

4. When we want to evaluate the results of our challenge grants, a requirement for receiving grant payments is reporting fund-raising performance data to us on a confidential basis. We want to know what happens after the challenge. Do they grow or fall back?

Makers of challenge grants avoid:

1. Nonprofits with problems such as recent loss of the CEO, unusual turnover in top staff, or controversy among board members.

2. Nonprofits without any fund-raising program at all.

3. Certain types of organizations that do not have existing constituencies or captive audiences identified with them. A matching-fund project with a united arts council was not successful. Unlike colleges with their alumni, or public TV with viewers and members, the arts council did not have a captive audience. Having such an audience seems to be a key to the success of matching grants.

4. Giving challenge grants to too many nonprofits in one area so donors in that area are not continually receiving challenge-grant appeals funded by the same foundation. There is also a need to coordinate with other grantmakers.

5. Making too many multi-year challenge grants. The best results come the first year. Donors apparently get tired of matching-fund appeals after a few years; performance falls off. We review performance of multi-year challenges every year.

6. "Front-end" challenge grants to capital campaigns. We have found that they are not as effective as "last-dollar" grants -- i.e. we add our grants immediately after the community leaders have given theirs. The "front-end" challenge grant puts our foundation out in front instead of having the non profit develop its leaders and having them out in front and giving first. Therefore we don't make challenge grants to capital campaigns. We help them develop and organize local leadership and make our capital grants after the trustees and other major supporters have made their gifts and pledges.

PLANNED GIVING

As noted earlier in this report, grants for planned giving programs are essentially grants for capacity building, or direct fund-raising costs, or both.

Planned giving is a very specialized field, however, and one in which results from a fund-raising grant may not appear for years. Hence, project participants considered planned-giving grants as a separate category.

The NSFRE Glossary of Fund-Raising Terms defines planned giving as "the integration of sound personal, financial, and estate-planning concepts with the individual donor's plans for lifetime or testamentary giving." It is sometimes referred to as "deferred giving" and includes, but is not limited to, bequests.

A recently-formed National Committee on Planned Giving will certify its members in a program separate from NSFRE's general certification program. This may provide a pool of professionals who can advise on complex matters of taxes and estate planning. In the meantime, however, non-profits are aware that the average fund-raising manager cannot simply attend a planned-giving course and be qualified to implement a planned-giving program. As a result, some nonprofits are experimenting with shared staffing of planned giving.

A planned-giving program can help strengthen a nonprofit's fund-raising capacity because it involves in-depth personal contacts with donors, thereby strengthening the relationship between the donor and the organization. This helps explain why planned-giving programs enhance the effectiveness of other fund-raising efforts. Some project participants believe that in the next decade planned giving could have a major impact on the way charitable fund raising is conducted.

Comments by Project Participants

1. One grant to start a planned-giving (i.e.; deferred gifts and bequest) program was "spectacularly successful."

2. We had a similar success and are now emphasizing grants to tap the vast potential here.

3. Starting about 1974 a Midwest foundation began a large planned-giving project with a group of 30 Midwest colleges and universities. As much as $1 million was invested over several years to hire and train planned-giving staff. The results were extremely good.

4. Planning for the Planned Gift, a pamphlet by Bill Barnes, is available from The Lilly Endowment, Development Department, 2801 North Meridian Street, P. O. 86068, Indianapolis, IN 46208. Key points in the pamphlet include:

a. A $600,000 grant from a major national foundation for planned giving was matched by participating theological seminaries. This $1.2 million investment produced in a four-year period more than $56 million in new recorded deferred-gift decisions. In addition, $17 million in cash and matured gifts were realized for a total of $74 million.

b. When planned-giving programs have been established, they prove to be dynamic catalysts for the other fund-raising programs and relationships of the seminaries.

c. Successful planned-giving programs seldom begin to produce measurable results in less than five years.

d. Trust in the process is a major ingredient in successful planned-giving programs.

5. Any prior individual donor is always a candidate for a planned gift. For planned giving, having a special constituency such as alumni is not a requirement.

6. Although it may take five years or more to break even, in the long run a planned-giving program can't lose. "You have to trust the process."

COMMUNITY FOUNDATIONS

In seeking more information about current and prospective efforts to improve the fund-raising capacity of nonprofit organizations, the project staff found that community foundations play a unique double role: they are both givers and receivers of fund-raising support. For this reason it seemed appropriate to devote a separate section to their activities.

Established community foundations, like other foundations, make capacity-building grants to new and developing nonprofit organizations in their communities.

Community foundations also provide support to intermediaries who, in turn, give free and/or low/cost technical assistance to local nonprofits.

On the other hand, some private foundations have programs to develop community foundations. Thus new and/or small community foundations may be recipients of capacity-building fund-raising grants as well as being makers of such grants.

Further, at least one major community foundation has received a large fund-raising-related research grant from several private foundations.

Two of the 18 private-foundation grantmakers interviewed for this study stated they had given capacity-building grants to community foundations. Their comments follow.

Comments from Private Foundations

1. We encourage networking to enhance fund raising among community foundations.

2. We would include grants to facilitate the establishment and expansion of community foundations in the category of fund-raising capacity building.

3. We have pursued a number of initiatives regarding community foundations. For example, we have a national program to provide technical assistance to small community foundations. We have not evaluated this program in detail, but are convinced it is very successful.

4. A number of national private foundations have given large challenge grants to community foundations that have received technical assistance grants from us and have participated in other aspects of our program. In this way our program complements the community-foundation activities of other private foundations.

5.The first step in providing technical assistance to small community foundations is to assess the community's potential for supporting the foundation, as well as to assess the foundation's board and staff. This helps avoid having the foundation get off to a bad start. Also, it has been our experience that, in order to grow, a community foundation must have full-time, adequately paid staff.

6. We have found that a community foundation's rate of growth begins to rise rapidly when it reaches $5 to $10 million in assets. Our technical assistance program is intended to help reach that threshold.

7. In setting up community foundations around the state, we have given matching-fund grants concurrently with fund-raising grants to enable them to raise the matching funds.

Comments From A Community Foundation Executive

1. I would be surprised if we, as a community foundation, were not making grants to enhance the fund-raising capacity of grassroots groups in our community. This should be a high priority for community foundations in general.

2. Community foundations have a different perspective from corporations and private foundations who frequently don't see that they have any responsibility to maintain nonprofits long term. A community foundation has a responsibility for the on-going capacity building of the local nonprofits.

3. Because a community foundation is "captive" and can have an exclusive in its community, it should keep advancing, rather than merely maintaining. A community foundation should be focused on capacity building and organizational development; this should be built in across the board in all its programs. A community foundation has a fundamental responsibility to be the nutrient of the entire nonprofit community of its region.

4. Obviously, no community foundation has the resources to fulfill this responsibility completely, therefore, "leverage is the name of the game, if we are to be any good at all." We would much prefer to teach them how to fish rather than to buy them fish. Thus we support "organizational development," which includes teaching them how to raise funds.

5. Community foundations should also be interested in fund raising because, unlike corporations and private foundations, community foundations are themselves raising funds.

PROJECT METHOD

The project staff began by contacting 38 foundations identified in the Foundation Center's Grants Index as having made at least four grants of $10,000 or more to improve fund raising.

Eighteen grantmakers on the staffs of the foundations most active in funding fund raising were interviewed in depth. Participating grant-makers identified 75 other persons, including grant-makers, grant seekers, and advisors to nonprofits, who were invited to participate. Of these, more than half provided comments and ideas.

Two invitational workshops were held for participating grantmakers. The workshops provided opportunities for these men and women to meet and brainstorm on the subject. The San Francisco Foundation hosted one workshop and the other was held at Baruch College, New York City. Total workshop attendance was 26, including persons who also participated in other ways.

Sandra A. Adams, CFRE
Vice President/Development & Public Information
The National Council on the Aging Washington, D.C.

Barbara Barclay
Program Officer
The William and Flora Hewlett Foundation
San Francisco, CA

Anne Borland
Vice President, Director of Public Services
The Foundation Center
New York, New York

Kendall Christiansen
Special Projects Officer
The New York Community Trust
New York, New York

Margaret C. Ayers
Executive Director
Robert Sterling Clark Foundation
New York, New York

Bill L. Barnes
Vice President, Development/Special Projects
Christian Church (Disciples of Christ) Indianapolis, IN

Henry R. Brett
Acting Director, Development and Public Affairs
The Asia Foundation San Francisco, CA

Rob Collier
Grants Director
Gannett Foundation, Inc.
Rochester, New York

Carol L. Barbeito, PH.D.
President
C. L. Barbeito, PH.D. and Associates
Littleton, CO

Elizabeth T. Boris
Vice President for Research
Council on Foundations
Washington, D.C.

Harvey Chess
Former Director of Special Projects
California Community Foundation
Los Angeles, CA
Jonathan Cook
National Executive Director
The Support Centers of America
Washington, D.C.

Constance Crosson
Executive Director,
The Support Center of New York
New York, New York

Margaret A. Duronjo
Assistant to the Vice President for University Relations & Development
University of Pittsburgh Pittsburgh, PA

Jane C. Geever
President, J.C. Geever, Inc.
New York, New York

Florence L. Green,
Partner, Green, Scribner & Co.
Los Angeles, CA

Kenneth Cuthbertson
Former President
The James Irvine Foundation
Saratoga, CA

Suzanne L. Feurt
Program Officer
Charles Stewart Mott Foundation
Flint, MI

Malka Gorman
Development Officer
Peninsula Community Foundation
Burlingame, CA

James M. Greenfield
Senior Vice President Development & Community Relations
Hoag Memorial Hospital Presbyterian
Newport Beach, CA

Humphrey Doerman
President
The Bush Foundation
St. Paul, MN

Robert M. Fisher
Director
The San Francisco Foundation
San Francisco, CA

Sandra T. Gray
Vice President
INDEPENDENT SECTOR
Washington, D. C.

Paul R. Jenkins
President
Claude Worthington Benedum Foundation

Pittsburgh, PA

Charles A. Johnson
Vice President, Development
Lilly Endowment, Inc.
Indianapolis, IN

Thomas W. Lambeth
Executive Director
Z. Smith Reynolds Foundation, Inc.
Winston-Salem, NC

Sheila A. Leahy
Senior Program Officer
The Joyce Foundation
Chicago, IL

Ruth Mayless
Program Officer
The Ford Foundation
New York, New York

John Kostishack
Executive Director
Otto Bremer Foundation
St. Paul, MN

Richard F. Larkin, CPA
Senior Manager
Price Waterhouse & Co.
Bethesda, MD

Jeanette R. Mansour
Director of Planning
Charles Stewart Mott Foundation
Flint, MI

William C. McGinly
President
National Association for Hospital Development
Falls Church, VA

John Kreidler
Senior Program Officer
The San Francisco Foundation
San Francisco, CA

Thomas C. Layton
Executive Director
Wallace Alexander Gerbode Foundation
San Francisco, CA

Jan Masaoka
Director of Consulting Services
The Support Center (of California)
San Francisco, CA

Richard A. Mittenthal
Partner-in-charge: Foundations & Cultural Institutions
The Conservation Company
New York, New York

Marshall Monroe
Director, Corporate Planning & Financial Development
YMCA of the USA
Chicago, IL

G. Jeffry Paton Ph.D.
Assistant Professor
Graduate School of Education and Human Development
University of Rochester
Rochester, NY

Alice A. Pinsley, Ph.D., CFP
Planned Giving Consultant
Stamford, CT

Milton J. Murray Director,
Philanthropic Services for Institutions
Adventist World Headquarters
Washington, D.C.

Robert Payton
Director
Indiana University Center on Philanthropy
Indianapolis, IN

Michael Radock
Advisor to the President
Charles Stewart Mott Foundation
Flint, MI

Howard Negrin
Director of the Office of Grants & Contracts
Baruch College/The City University of New York
New York, NY

Nancy Pettis
Coordinator of Nonprofit Studies
The Center for Public Policy of the Union Institute
Washington, DC

Henry A. Rosso
Director
The Fund Raising School
San Rafael, CA

Cinthia Schuman
Executive Director
National Center for Fair and Open Testing (FairTest)
Cambridge, MA

Benjamin R. Shute, Jr.
Secretary
Rockefeller Brothers Fund
New York, NY

Susan Kenny Stevens
Fund Administrator
Minnesota Nonprofits Assistance Fund
St. Paul, MN

Project Participants

Ian T. Sturrock
Vice President - Development & University Relations
Bradley University
Peoria, IL

Henry C. Suhrke
Editor
The Philanthropy Monthly
New Milford, CT

Russy D. Sumariwalla
Vice President and Senior Fellow
United Way Strategic Institute
Alexandria, VA

John D. Taylor
President
First Bank System Foundation
Minneapolis, MN

Luz A. Vega
Director of Grants Programs
The James Irvine Foundation
San Francisco, CA

Jerrold A. Weitzman
Program Officer
Exxon Corporation
New York, NY

Stephen Wertheimer
Vice President for Development
Baruch College/The City University
New York, NY

About the Investigators

Dr. Frederick S. Lane, the project's principal investigator, is Professor of Public Administration, Baruch College, The City University of New York. Dr. Lane teaches graduate and continuing education courses in the management of nonprofit organizations. His 1980 article, "Managing Not-For-Profit Organizations," received the Laverne Burchfield Award as the best book review essay in Public Administration Review.

Wilson C. Levis serves on a part-time basis as Senior Research Associate for this project. He is a consultant on fund-raising productivity and other aspects of non profit management. Until the spring of 1989 he was a vice president of the National Charities Information Bureau. In 1987 he completed an analysis of campaign fund-raising productivity with Russy D. Sumariwalla, Vice President and Senior Fellow, United Way Strategic Institute, United Way of America.

Baruch College is a 16,000 senior college in The City University of New York system. Baruch is located in the Gramercy Park neighborhood of Manhattan. It is named for Bernard M. Baruch, financier, philanthropist, and advisor to presidents, who was instrumental in the College's founding and provided the bulk of its private endowment. Baruch contains the largest School of Business and Public Administration in the United States. Its business degree programs are accredited by the American Assembly of Collegiate Schools of Business (AACSB). Its Master of Public Administration program is accredited by the National Association of Schools of Public Affairs and Administration (NASPAA). Baruch also is a recipient of a grant from the Association of American Colleges to teach about philanthropy as an interdisciplinary subject to its undergraduates.

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