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« How a Liberal Arts School Drew In a Big Environmental Gift | Main | Up Next for Silicon Valley's Top Ed Funding Group: Tools That Make Math Fun »
Thursday
Feb252016

The Meltdown Manual: What To Do When Your Donors Get Killed in the Stock Market 

In 2009, I got a call from a member of the board of a New York City-based nonprofit: "We're in trouble."

He explained to me that back in 2007, the organization had been approached by a prospective donor. This philanthropistwhose portfolio had ballooned during the financial boomwas looking to make an impact on the mission—a transformational impact. A year after this donor made a verbal pledge of $21 million, the organization had designed, mapped out and begun implementing an accelerated strategic plan, hiring staff, procuring office space and equipment, and rolling out intensive blueprints for a new mission. 

Then came the economic crash of 2008. The philanthropist, who had all of his holdings in Merrill Lynch (the financial services firm that lost $19.2 billion in the crash), was retracting his gift.

"All of it?" I asked.

"All of it. He won't even be sending in $50," he replied.

This story is a nonprofit cautionary tale. Perhaps not as severe as movies like Boys Beware and Reefer Madness, but noteworthy and indicative of a challenge many nonprofits face: the unrealized gift, whether a pledge withdrawn, a predicted gift cut in half, an investment in the cultivation stage suddenly off the table.

I've experienced each of these scenarios, primarily because I've misjudged, misstepped, and miscalculated. While I had an actual budget and a dream budget, what I didn't have was a roadmap for success. How do you prevent cash flow crises? And what about circumstances beyond your control? These can involve a donor who experienced a loss, a loyal supporter whose business had a difficult year, or in the case of the $21 million pledge, the near meltdown of the global financial system.

With the stock market gyrating wildly right now, and some philanthropistsand foundationstaking huge hits, these are not idle questions. The hedge fund of one of the top donors that Inside Philanthropy tracks suffered a 20 percent loss in 2015. This year is shaping up to be far more turbulent. In times like these, how do we navigate uncertainty and the unexpected? How do you make sure that if your top donors go down, you don't go down with them? Here are a few thoughts. 

1. Don't spend a check before it's mailed. This may seem logical but it's not easy. Suddenly, after years of struggling, dreams could come true. This kind of momentum is seductive. Organizational enthusiasm and optimism abound. In lieu of spending this giftin actuality, mentally or emotionallyhow can you funnel this energy?

2Channel organizational energy into securing more support. Think of big pledges less as money in the bank than as an occasion to strengthen and diversify your funding sources. Call your top 10 supporters. Share with them that what they've helped build is gaining new momentum that they made possible. Craft a plan for leveraging new gifts around this pledge. For example, I asked a donor who made a $1 million pledge if I could share this gift intention with others. She said yes. Here's what resulted: The donor saw that we weren't going to rest on our laurels with her gift, and other donors asked what kind of impact this $1 million would have on mission. When they learned about the gift, their enthusiasm and commitment grew. I told them this was the beginning and explained what we could do with $3 million or $5 million. I went back to the original donor and shared with her the domino effect of her pledge. She laughed and said, "I best make good on this pledge!" My goal wasn't to ensure the pledge, though this was an excellent outcome, but to be a high-performance fundraiser. The moment of the pledge is not the time to cross your fingers and hope it's realized; it is a time to channel the momentum toward mission fulfillment.


3. Really talk to your donors. If your organization sees donors simply as the people who write checks, an ineffective culture of fundraising will rear its head. Donors are partners, just as investors are partners to start-ups or second-life businesses. Share your challenges. Once, as a leader of the board, I learned that a donor had a terrible tragedy in her family; it was unlikely that she would think to make a gift to a nonprofit. As an early-stage nonprofit, we knew that we'd need to make up for this cash flow crisis. I called two donors and asked if they could each make half of their gifts immediately and the remainder at their previously agreed times. When they learned why, they were happy to oblige. One donor said she'd like to help establish a reserve fund so that the organization didn't face this situation again. She helped us create a policy and a plan, and was the first to make a gift into this new fund. Don't run to your donors in a panic and don't shield them from realities. They know that running a mission-based venture is no small undertaking. All organizations meet roadblocks. Invite donor thinking and the hurdles will decrease in height. 

4. Take Reserve Funds Seriously. Stashing away money for a rainy day is nobody's idea of an inspiring budget item. But given that the stock market has tanked twice in the past 16 years, and is getting clobbered again right now, it's past time that we all learned our lesson: Reserve funds can save you, and not having them is like skimping on essential insurance. When you're feasting, you need to prepare for the famine, and there's no better time to build a reserve than when you're flush. What's more, if you do have such a fund, donors will be impressed. It will show them that your organization is prudent. And one day, if that meltdowm moment does come, you'll be that much more likely to survive. 

Kathy LeMay is Co-President and CEO at Raising ChangeKathy has raised $175 million from individual philanthropists for global social change.

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