The decision to establish an endowment may be prompted by the acceptance of a particular gift, a desire to establish a perpetual fund in honor of the organization’s founder, or the need to ensure the organization’s financial sustainability. The principal of an endowment fund – the original gift or gifts that comprise such fund – may never be expended; rather, a portion of the earnings on such invested principal is spent. WHAT the earnings may be spent on (e.g., general operations, a specific program or project) is determined by the endowment’s donor(s); HOW MUCH of the earnings may be spent is typically determined by the organization’s board of directors.
Successful endowment campaigns have consistent, compelling, and compliant messaging.
- Consistent: Consistently communicating, to internal and external audiences, the priorities and giving guidelines of the endowment campaign is essential.
- What are the campaign’s goals – to establish a named fund in honor of a retiring professor, to support a new initiative, to scale an existing program, or to cover general operating expenses?
- Will the campaign last for a certain time period or continue until it reaches a fundraising goal?
- Will a specific gift size be required to establish a named endowment fund?
- Has the organization adopted a gift acceptance policy governing what types of gifts will be accepted? For instance, will it accept non-cash gifts such as real estate, non-marketable securities, and cryptocurrency?
- Will the organization accept gifts which require that it secure a corresponding matched gift?
- What giving vehicles will the organization offer – e.g., charitable gift annuities, charitable remainder trusts, or retained life estates for donors contributing their residences who want to continue living there until their deaths?
- Will the organization approach foundations and corporations for endowment gifts in additional to individual donors?
- Compelling: Endowment fundraisers are storytellers who invite donors to see themselves as essential to the campaign’s narrative. To step in and ensure a happy ending. An organization’s story is told in multiple ways – through service numbers, program scaling and expansion plans, and financial data. It’s often most impactfully told by those the organization has helped. This can be done by incorporating first-hand accounts into fundraising materials, having the organization’s service recipients meet one-on-one with major donors, and ensuring that at larger events people who has benefited from the organization’s charitable activities are present. At a recent veterans’ fundraising dinner, donors at each table were paired with a service recipient who shared their unique journey. This interaction not only provided the donors with invaluable insight into the organization but allowed the veterans, as ambassadors, to be a vital part of the endowment campaign.
- Compliant: It’s imperative that communications with donors, whether verbal or through a website, by email, text, letter, or telephone (i) be consistent with the organization’s fundraising policies; (ii) clearly convey the intended use of solicited funds; and (iii) be compliant with state and federal law.
- How contributed gifts are restricted and how they must be managed is determined by how they are solicited. For this reason, it’s important to work with counsel to review all fundraising materials to ensure clarity regarding how endowed funds will be used (e.g., to fund general operations, a scholarship, or a program).
- If the organization will contract with individuals or companies to work on a fundraising campaign, bear in mind that the majority of states require prior registration and periodic reporting by these contractors. Some states also require that contracts with professional fundraisers include specific provisions or that such fundraisers post a surety bond.
- The majority of states also require that the organization register and report fundraising efforts targeting residents of their states and many require that specific disclosures be included in fundraising materials.
- Gifts from non-U.S. sources must be carefully vetted and accepting gifts from certain entities may not align with the organization’s mission and values.
- Fundraising through third parties, in-person events, online auctions, and raffles may require additional registration and reporting. Be aware, also, that filming or photographing events may require that the organization secure releases, both from attendees and the hosting venue.
Endowment campaigns are organization-wide efforts. The board of directors define the vision, goals, and milestones for the campaign, while senior leadership operationalizes these plans and prioritizes the use of institutional resources. Development staff craft content that is both data-driven and emotive to pipeline existing donors and cultivate new sources of support. Communications staff ensure cohesive messaging and brand integrity, while finance staff and auditors monitor cash flow and ensure funds are properly stewarded. Successful endowment campaigns leverage the talents of all these stakeholders while also fostering a culture of compliance. For this reason, it’s essential to consult with legal counsel both before the organization is “in campaign” and during the fundraising season.
In this blog post, we addressed how best to ensure compliance while you stand up an endowment campaign. We’ll explore how best to manage endowed funds in a follow-up blog post.