Shauna Chabot, MBA, CFRE Associate Managing Director November 9, Donors as Investors

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1 Donors as Investors More and more Americans of every age, income level, race and color are choosing to give to charity. This is no doubt a reflection of our shrinking world and the unparalleled affluence here in the US. Horrific events such as the 9/11, the Asian Tsunami, and Hurricanes Rita and Katrina have moved people to act more than ever before. More than 70% of all households now give to charity. Each year, the total amount of charitable contributions continues to grow. In 2006, total contributions were very close to $300billion. Of this, the wealthiest 1% of families gave about 26% or almost $77 billion. Excluding Warren Buffet, 21 Americans each gave at least $100 million to charities in The top 60 donors gave a median of $60 million each, compared with the $33 million median given the previous year. So, in one year, there s been an almost doubling in the size of these mega-gifts. We think of many of these wealthiest Americans as being the typical donor investor particularly the entrepreneurs, venture capitalists and stock option and Wall Street bonus millionaires because it is their business and investment acumen that has made them wealthy (and often wealthier than they ever thought possible). It is commonly held that all investors in non-profits are donors, but not all donors are investors. That may certainly be true. However, I propose that all donors are investors or rather, all donors have the potential to be investors - whether they give $25 or $25 million. Being a donor investor is really more of a mindset more of statement about how they think, than a statement about the size of their pocketbook. We as fundraisers and non-profit leaders must begin to change our thinking about how we cultivate, solicit and steward these donors who think of themselves as investors in our institutions. And even if they do not yet think of themselves as investors, they will quickly come to appreciate being treated as such. The new charitable investors: Mega-wealthy people who have typically earned their money within the last years. They have not inherited it they have earned it. Their wealth is manifested in statistics like these: In 1982 there were 13 billionaires. In 1999 = 267. In 2007 = 482. In fact, today, you need a minimum of $1.3 billion in assets to make the Forbes 400 list.

2 There is a higher level of new foundation establishment today than was seen in the early 2000s (when all the stock option millionaires were creating foundations). Giving by foundations has increased an average of 4.4 percent annually since The annual increase in the past ten years has averaged 9.3 percent, in spite of the fact that this period includes no growth in 2002 and In 2006, foundations accounted for over 12% of all giving totaling over $36 billion. This represented a 12.5% increase over Inflation adjusted, this is a 228% increase over 1996 just ten years ago. In fact, some are calling this the New Gilded Age because the amount and growth rate of today s mega-wealth is out pacing that of the dot-com era of the late 90s. Many of these people are young. 7 people on the Forbes 400 list are under are in their 40 s. 90 are in their 50 s. Only a very small group (6) inherited their wealth. Entrepreneurs, venture capital investors, stock option billionaires and investment bank/hedge fund bonus billionaires. The real power, drive and momentum in modern philanthropy the real transformational nature of giving today is coming from these people (including those who are just mere millionaires) in their 40s and 50s who generated a great deal of their wealth at an early age and have now decided to leverage that wealth in philanthropy. These people share many characteristics in how they approach their philanthropy although they have different backgrounds and charitable impulses. Most are fiercely competitive. It won t surprise you to know that most are men..still..although women are becoming a very significant force in their own right. And, it s been well documented that women think very differently about philanthropy than men. These investor-types are highly analytical risk takers. They are well educated. They tend to work marathon hours. They work hard, they live hard and they play hard. They think nothing of spending $1 million on a wedding, $150,000 on a birthday party, or $20 million on New York apartment. Even though they live and play hard, some do not have a real sense of their wealth particularly those who realize their wealth through year-end bonuses or have earned this wealth in just the last 2-3 years. They think in terms of their salaries, which while large, are dwarfed by their capital assets. Brakeley Briscoe Inc. Page 2

3 Many of these people did not grow up with wealth. Their middle and working class backgrounds have not prepared them for the large-scale philanthropy that their assets can now support. They have had no real philanthropic role-models. Principally, these new charitable investors have role models in the world that they know the for-profit, business world. want to bring this world, and the language of this world, to their philanthropy. investor language - words and concepts like investor, partner, ROI, accountability, transparency, strategic business plan, prospectus are becoming much more commonplace in the non-profit sector. Investors view money as a tool which is expected to work hard and provide a return on investment. Rather than banking it to earn interest, they would rather spend down a stake in order to grow an enterprise. Instead of an annual 5% draw that preserves capital, they believe in spending down the capital on efforts to assure that an enterprise grows bigger, more stable and more niche dominant. Clearly, traditional endowment funding opportunities are not for them. But expendable endowments may be more interesting for them. Warren Buffet pledged the bulk of his foundation - $36 billion to the Gates Foundation. not to be used to further beef up foundation endowment assets. must be disbursed in the same year it is given. incremental payment spent cannot be used as part of the mandated percentage payout required by law. intent is to spend the money for the greater good today. Investors view money as fuel for innovation and productivity. They manage and control their risk through intense due diligence. Their criteria for due diligence are: strong outstanding leadership, a great idea, and a sound business plan. They believe in tiered funding (first round, second round to use venture capital lingo) which helps them mitigate risk. And they control risk exposure by taking a management position. As some of these millionaires and billionaires have begun to age, gotten married and started families, they have begun to broaden their idea of charitable donations which have focused primarily on the schools, colleges or universities they went to. Alma maters continue to be huge beneficiaries. Sandy Weill graduated from Cornell. To date he and his wife have pledged over $500 million to the institution. Brakeley Briscoe Inc. Page 3

4 Tom Seibel, of Seibel Systems, recently pledged $100 million to his alma mater, the University of Illinois. These stories and examples are nearly endless. Now, these investors are also thinking about the communities they live in, the schools their kids go to, the museums and performing arts centers, the hospitals and other important community issues. They are also thinking about the intractable problems of society acute poverty, hunger, and disease. Like many of the rest of us, their philanthropic priorities are as varied and unique as they are. Donor Investors are highly engaged in their causes, investing not just money, but also time, energy and oversight. They take an active interest in overseeing their philanthropic investments, just as they would, and do, with their business investments. It is estimated that activist philanthropy will contribute between $1.9 - $2.6 trillion over twenty years, or roughly 35% of total giving. But the result-focused nature of this philanthropic capital will make it far more important than the charitable giving seen during the last century. Behind this impressive growth is a wave of philanthropic activity that is not only activist, but also mindful of return on investment. They bring their due diligence habits to the process of major giving particularly now, in light of the scandals in our industry. They look for - with their philanthropic investments Strong board and staff leadership (above all else). A great idea which is manifested in the mission and vision of an organization. (prospectus = case statement) A sound business plan. They will scour through the financials (balance sheet, long range financial plan, as well as quantitative measures of program effectiveness). best of breed organizations. They respond because non-profit institutions meet community and societal needs, not because they have needs. And it is very much because of this investor mindset that there is a new demand for transparency and accountability in our sector. These types of wealthy donor investors are discovering joy and personal fulfillment in their philanthropy. They have the easy ability to make transformative gifts. It should be noted that often their opening gifts are very substantial compared to what we have been used to. Brakeley Briscoe Inc. Page 4

5 Many are focusing on systemic change to cure social ills for example, wiping out hunger rather than continuously feeding the hungry. They see their philanthropy as investments in positive change. These people are not without ego, however, and naming opportunities in educational institutions, hospitals, and arts & culture organizations are important and appealing. Sandy Weill, former chairman of Citigroup, said, My philosophy about philanthropy is that it s not just dollars, but that it s about having a passion about giving something back, about doing something that helps society. He says that giving is regenerative and empowering. In June, Sandy and Joan Weill pledged $250 million to build a variety research centers at the Weill Medical College at Cornell. Previously pledge $200 million in 1998 to name the medical college. This time, they brought friends to the table and raised $400 million with just four gifts. Support various research centers including one on the diseases of aging particularly Alzheimer s which eventually took his mother s life. Women as Donors - One need only review the various Forbes lists and current demographics to see that it is time to pay attention to women as donors in their own right. There are about 35 women on the current Forbes 400 list. Only about 1/3 of these women have inherited their wealth. The others have earned it either on their own or in family businesses. Abigail Johnson, President of Fidelity Investments Family business, started by her grandfather She has, and is earning her wealth Her net worth is larger than her father s who is chairman of the company. Women ultimately control the disposition of the majority of charitable gifts in America. Women outlive men. Women are the beneficiaries of a huge pool of funds. Even though women are more charitably inclined than men, older women live in fear that they will run out of money before they die. Historically you haven t seen enormous gifts from older women while they are alive. Bequests like Joan Kroc s $200 million+ bequest to NPR or Ruth Lilly s $100 million bequest to Poetry Magazine. Brakeley Briscoe Inc. Page 5

6 These women want to be involved in their charitable causes. They ask more questions and are more likely to notice gaps in services. And they will ask either directly or indirectly, how they can help to fill these gaps. From board members to development committee members to donors, women like to see themselves represented in non-profit organizations. Women want to see that you are walking the talk. As Lily Kanter, the 40 year old Microsoft millionaire said, I want to see and feel the results. And they can quickly add that vote of confidence or nod to enable the man to say yes more quickly. In fact, it was Sandy Weill s wife, Joan, who brought him to his you can t it with you attitude by telling him that shrouds don t have pockets. In recent years, as women are realizing that their money has power, they too are bringing the ideas of the business world into their philanthropy. In the past, they have preferred to give anonymously, not wanting others to know of their wealth. This too is changing for a number of reasons, not the least of which is that many are now earning their own significant sums of money rather than inheriting it when their husbands die. These well educated and competitive women want the recognition that their male counterparts have received for years. They have also learned that it is impossible to inspire others to give if your gift has been anonymous. Women believe in the power of many and so, over the past ten years or so we have begun to see women s giving circles pop up across the country. They have discovered the joy of giving and investing in change through the joy of sharing.and the joy of networking! In fact, the Chicago Foundation for Women at one time had a moto Give us your money, we ll make change and today their tag line is Advocacy + Action = Impact As a founding member of the women s giving circle in Anne Arundel County, I can tell you first hand how incredibly rewarding it is on so many levels. In existence for two years, we made our first community grants this past summer. Because many of us are business people, not mega-wealthy, but business people nonetheless, we did our due diligence when trying to figure out our priority funding areas. We did our due diligence in assessing the proposals and choosing the grantees. We made site visits in small groups, we reviewed the proposals in small groups, and we all as the larger group made the decision on the final grantees. And we will continue our hands-on involvement throughout the year to assess the organization s success in moving the needle on the problem they address. From that, we will determine the social return on our investment. We fully expect that some members of the giving circle will continue to fund on their own some of our grantees even if the Women s Giving Circle moves on. This is an important part of the lasting impact we hope to have in our county. Brakeley Briscoe Inc. Page 6

7 Other types of donor investors Corporations and foundations Moving toward being donor investors Doing their due diligence, looking at leadership, mission, and financial stability They too are seeking to support best of breed. Some Common Denominators & Concluding Thoughts There are all different kinds of people and organizations that constitute donor investors. However, they do have some characteristics in common that then dictate how we as fundraisers and non-profit institutions begin to think about engaging them. Unfortunately, too many non-profits and too many inexperienced fundraisers still see donors as nothing more than ATM machines. You figure out the right combination of buttons to push, the right combination of things to say, and out comes the money. That s not how donor investors see things. They are active in the world and they choose to align with an organization because of shared values and needs. Much of the time, they choose you. You don t choose them. Often when they decide to come to the table, you don t have to spend a lot time educating them. They already know the latest data and research. They ve already done their due diligence. And you had better have done yours. We need to approach donor investors with the assumption that their relationship with our institution will be long term and renewable. Hand to mouth fundraising appeals and methodologies don t stimulate investment from these types of donors. (Special events are not the ticket) It takes new strategies to bring potential long term investors into an organization. Engaging these investors takes hard work by board and staff and requires a deep institutional commitment to create and sustain an environment in which investments will flourish. The effort required to involve these donors demands follow-through real cultivation and stewardship strategies. The investment concept is based on an understanding of the difference between development and fundraising. Development is a systematic and ongoing, multi-step process focused on the long term. Fundraising is more of a focused and immediate transaction focused on the short term. Brakeley Briscoe Inc. Page 7

8 As organizations use the development process to move donors toward a gift, they are necessarily creating and building investor relationships, not just a donor base. Donor investors see charity as reactive, but view philanthropy as intentional and long term. The short of it is that investors are in this for the long haul. Relationships, not transactions. Philanthropic needs and interests are unique and important to them. Markets of one Difficult to treat all donors and prospects as unique discrete investors. But, this is what we must strive to do. Cultivation and stewardship activities must stress quality over quantity. Donor investors are unlikely to fit neatly into our typical moves management process. Many make large transformational gifts long before traditional moves management theory says they should. We need to: be flexible; be quick; listen, and clearly articulate the urgency. We need to be donor-centered. They want to change the world for the better. We need to be ready for them. We need to think like them. And then together, we can make our communities, our society a better place. Brakeley Briscoe Inc. Page 8