Can’t Small Nonprofits Raise Capital Too? PART I.

Hi All! I know its been awhile…Anyway, I’ve had several clients who work or serve as Director’s of small nonprofits and the question of how to “compete” for major capital dollars is always the theme of the day. To that end, I have conducted research and found this wonderful article by Nell Edington who interviewed George Overholser, Executive Director, of the Nonprofit Finance Fund, an organization based in New York City that provides loans, financial consulting, and growth capital services to help nonprofits improve their capacity and strengthen their communities. Please gain some insight from this article that could possibly assist you on your journey. Learn.Apply.GiveBack!

By: Nell Edgington

In our two part interview with George Overholser of the Nonprofit Finance Fund, George made an argument that gave me and some of my readers pause. He argued that only the largest nonprofits can really benefit from his “radical” idea of using a capital campaign to build their organization (instead of a building). But with Social Velocity I have seen small and medium-sized nonprofits raise capital to grow their impact or  build a stronger, more sustainable organization, albeit on a smaller scale.

George believes that raising capital for building an organization is currently only feasible for the largest nonprofits, as he argued:

Only a small percentage of nonprofit organizations actually aspire to undergo major growth, or any of the other disruptive transformations that are inextricably linked to a capital investment…Still, what about the small organizations that DO aspire to undergo a big transformation?…I believe that it is absolutely vital that we come up with a way to better capitalize these smaller organizations. Sadly, though, at this stage of capital market evolution, it is still quite expensive to prepare for a successful nonprofit equity campaign. Unless several million is being raised [the costs are] prohibitively high. This constrains us to campaigns of $5 million or more, which, in turn, constrains us to organizations that are already pretty large.

This argument got me and some of my readers thinking. As one reader wrote:

As the ED for a very small nonprofit (<300K) I am greatly disheartened to essentially read “yes, we can cure the large guys, but for the rest of you -80% – well good luck! No answers for you yet.” WOW…Really is education and awareness for buyers to support the whole organization vs. its programs enough? (Although I agree wholeheartedly, a needed step) I believe there has to be a way to “create compelling ‘asks’ for equity capital” that is less expensive. There has to be way to finance a small organization’s desire to meet the needs of the community which could mean doubling their impact. We are asked to relearn, redo, change our practices to support (finance) the organization’s mission to change the world, but is no one considering the relearning, redoing or changing the expensive processes/methods so all nonprofits can benefit?

I agree wholeheartedly, and that need–to strengthen and grow smaller nonprofits–is why I launched Social Velocity. There is a category of capital that smaller nonprofits, who aren’t interested in or able to achieve major growth, can access. It can be capital to grow a successful program to other clients, other cities, other regions. Or it can be capital to strengthen and make more sustainable the organization.  For example, as any small nonprofit will tell you, it is nearly impossible to get a funder to pay for a Development Director, a donor database, marketing collateral, a new website and so on. These are the tools that will allow the “sales team” to raise the income necessary to run programs. What if these smaller nonprofits could hold a mini-capital campaign to raise the capital necessary to increase the enterprise’s ability to raise income. Or to purchase technology to increase operational effectiveness?  Or to grow, not to scale, but significantly?

True, a $5 million equity capital campaign is beyond all but the largest, most sophisticated nonprofits. But there is still the vast majority of organizations that are struggling within the vicious starvation cycle of not having the right elements of their built enterprise necessary to effectively deliver or grow programs. Yet money can be raised to build out that enterprise.

Social Velocity has worked with a number of small to medium sized nonprofits to create a pitch for capital to help the organizations strengthen their revenue function, grow programs, and so on (read about this here,here and here). The idea is the same as George’s, but on a smaller scale. With a good plan and the right pitch, any nonprofit can raise the capital required to achieve more social impact through a strong, sustainable, bigger enterprise. A nonprofit equity campaign is not just for the largest and wealthiest nonprofits. The principle can be applied to even the smallest nonprofit, and in that way, George’s radical idea could become revolutionary.

 

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