Donovan's Donor Diary

If you are trying to raise money for your favorite charity/cause, Donovan's Donor Diary provides you with facts, tips and best practices on how to raise millions of dollars for people, pets and the planet.

Sunday, July 02, 2006

Buffet's Billions vs. The $1,000 Donor

$1.5 billion annually (and spent annually) was the amount Warren Buffet announced to the world recently that he intends to give to the Bill and Melinda Gates Foundation. Buffet has stipulated that the billions may not be added to the Gate's Foundation asset base. In other words, Warren Buffet is making the world's largest annual gift to charity for the next several years. Plus, he's leveraging his gift by requiring, by the year 2009, giving by the Gates Foundation be at least equal to the value of his previous year's gift plus 5 percent of the Gates Foundation net assets, according to recent news reports.

So, you ask yourself, "How can a paltry $1,000 annual gift to your nonprofit organization possibly have an impact compared to Buffet's largesse? " Well it can, if your organization has a cadre of donors who collectively pool their annual gifts.

Here's how it works. Let's say your organization's annual budget needs $100,000 annually in no strings attached, unrestricted dollars that your CEO can apply to areas of greatest unanticipated or unplanned need. You have two options. First, spend a year seeking dozens of major gifts to fund a $2 million endowment and wait another year for the endowment to earn a minimum of 10% or $200,000. A prudent Board would apply only one-half, $100,000, of this amount toward the organization's budget and the other $100,000 would stay in the endowment to maintain its earnings power in subsequent years.

The question for the nonprofit CEO and Board of Directors is, "How feasible is it for our organization to raise $2 million for an endowment? " Do we have a sufficient number of major gift prospects? Do we have 200 past, present and future prospects (including current donors) that can make gifts of $10,000 or more that total $2 million?

Since most nonprofits organizations do not have this luxury, there is a second alternative that can equal the impact of donors like Warren Buffet, the Living Endowment. It consists of a group of people who during their lifetime give $1,000 annually (year after year) along with 99 others and collectively their giving, 100 donors x $1,000= $100,000, the same amount the $2 million permanent endowment would generate.

There are two key aspects to achieving the objective of establishing a Living Endowment.

1. Make prospective donors feel that collectively their $1,000 is the equivalent of a $2 million permanent endowment.

2. Make it a requirement of membership in your donor club or society that only unrestricted gifts qualify for membership. Imagine having $100,000 year after year in such flexible dollars.

How do you sustain the Living Endowment in future years? By making sure the members of the club or society are recognized for their giving the first time. Also, by providing opportunities to meet as a group quarterly, perhaps to get updates on your programs and services, or topics of interest to them, such as how-to grow your small business, moving up the career ladder or improving one's communication skills.

Does this work? Definitely! Client case in point -- in 2002 Donovan Management assisted the Seminole Community College Foundation in launching its Presidents' Club. Today there are 150 members at three levels of membership: $1,000; $2,500; and $5,000. Collectively, last year these members contributed over $180,000 in unrestricted dollars to the Foundation.

These dollars were distributed by the Foundation's Board and the President of the College. One-half of the total went for purposes the Board evaluated as important (and for which no other funds were available), like upgrading the Honors Program. The other half was used by the President of the College as a special fund during the year for hardship cases. For example, a single mom with two kids who had to decide between paying the rent or buying $500 in required text books to complete the semester.

All of us in philanthropy certainly applaud the historic and generous level of giving by Mr. Buffet and his friends, Bill and Melinda Gates. Equally significant I believe are the relatively small collective gifts that properly pooled have the same impact as asset driven giving. Don't make the mistake of chasing the elusive big gift at the expense of building a solid base of repeat leadership donors who can provide you those platinum unrestricted dollars.

For more information, email us at Please put Living Endowment in the Subject line. And of course, please write me with your comments as well.

Jim Donovan