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Tactical Philanthropy Track: Decriminalizing Fundraising

Deyan October 6, 2010

This is a guest post by Adin Miller, owner of Adin Miller Consulting.  Follow him on Twitter: @adincmiller

The opening session of the Tactical Philanthropy track at the 2010 Social Capital Markets Conference (SOCAP10) began with a discussion on changing the nonprofits fundraising landscape. The session featured George Overholser of Nonprofit Finance Fund Capital Partners and Dan Pallotta of Springboard. Both speakers have challenged the tenets applied to nonprofit fundraising with the belief that unchaining the sector will generate much greater societal benefits and impact.

Their presentation provided a solid rationale for why we collectively need to embrace the ideas of ‘decriminalizing fundraising’; if done, this should position philanthropy to provide funding that would scale nonprofits appropriately in order to solve societal programs.

George began the session by noting that nonprofit and for-profit enterprises are very similar and that their formal tax status only truly differentiates them. But that distinction hampers nonprofits in multiple ways. George told a compelling story highlighting Earl Phalen’s efforts to raise support for his tutoring program; the story is detailed extensively here (PDF). In short, Earl consistently struggled to raised significant funds for this nonprofit, while a friend building a similar after-school program decided to change his organization’s tax status and managed to raise $40 million in venture support after six meetings. In order to duplicate that fundraising success, Earl would have had to engage in approximately 20,000 meetings over an eleven year period.

Nowadays, nonprofits only truly engage in large scale fundraising campaigns when they seek capital or endowment support. Those fundraising efforts are easier since they reflect tangible requests, have a known price, and deliver perpetuity. To free up fundraising to generate significant support beyond capital and endowment support, the nonprofit and investment sectors will need to agree on several concepts. Those include an agreement to support nonprofits based on their respective business plan needs instead of funders’ various theories of change and core standards. The sectors will need to continue to experiment and compare social return models, but funding must be freed up for growth to truly occur.

Dan focused on the religious origins of charitable giving and the cultural challenges we face in changing how society values nonprofits. Ironically, we blame capitalism for the huge inequities in our society, but simultaneously we refuse to let the nonprofit sector truly use the tools necessary to rectify these inequities. The dichotomy between how we view nonprofits and for-profit enterprises is evident in five areas:

· Compensation: in short, society does not accept high salaries for people who work for charities. As a result, we fail to look at high salaries as opportunities to attract talent into the nonprofit sector.

· Marketing: we don’t like to see donations spent on marketing efforts, except that those marketing efforts are needed to extend the reach of charities and build demand for their services. Marketing should be used to build the sector; however, the charitable sector has been steadily maintained at 2% of GDP.

· Risk-taking: nonprofit are discouraged from taking risks for new sources of revenue; and yet, such risk-taking is expected of for-profit companies.

· Investment in long term revenue growth: charitable fund raising efforts are tied to twelve-month periods instead of long-term timeframes. As such, nonprofits – outside of capital or endowment campaigns – are hampered in their ability to focus on significant and long-term efforts apply revenue toward organizational growth.

· Profit: the nonprofit sector cannot use profit as an incentive for raising growth capital

In the end, we fundamentally undermine charities’ ability to reach their potential.

In general, the audience seemed to agree with the speakers’ position. There were little to no objections to their key points. The questions from the audience reflected more practical inquiries related to changing perceptions and attitudes toward nonprofits and freeing them up to truly grow the sector.

The core of that change will require a new leadership movement, an abandonment of a dependency on overhead ratios, and a willingness to provide growth capital. And yet, I feel the conversation has just started and that we need a lot more insights into new strategies and tools to make decriminalize fundraising.

This blog post is part of the Tactical Philanthropy track at SOCAP10.

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