How can a nonprofit organization build its fundraising strategy?

Marie Melikov - Senior Program Manager of Degroof Petercam Foundation

Money is the sinews of war. Nonprofits know this, as they spend nearly 20% of their time looking for funds to finance their field activities. Setting up a fundraising strategy is therefore essential for nonprofit organizations, as diversifying funding sources reduces financial risk, but also allows them to approach different interlocutors.

What is the cause?

The cause pursued will have an impact on the type of donors (public, private, institutional such as foundations) and consequently on the fundraising strategy to be implemented. Ten fundraising models have been identified in an article in the Stanford Social Innovation Review¹.

For example, associations that have projects which resonate with a large number of people (such as cancer research) are able to raise funds from many individuals of all income levels. For organizations of this type, investments in communication and marketing for the general public, particularly for organizing large public events, are excellent levers of financing. In Luxembourg, the Relay for Life, a 24-hour team race, raised nearly 800.000 euros in one weekend.

An organization that offers a personal service to a beneficiary with a significant direct impact can activate the feeling of recognition and rely instead on a fundraising strategy with beneficiaries of the "alumni" type. In this case, the organization will invest in a personalized follow-up, a sense of belonging through exclusive events, communicating the successes of its beneficiaries, and maintaining the network. This is the funding model often chosen by large universities.

A nonprofit organization that has developed a new method for dealing with social issues that are complementary to public action (employment support, for example) will have a different fundraising strategy. The target of the funders will mainly be the public authorities to which they will be able to respond on certain tenders or even private funders through financial tools such as social contracts. In this case, investing in advocacy and public relations is a strategic choice.

Identifying upfront what type of fundraising model an organization is positioned on allows for a consistent strategy with the right investments.

What tools to use?

Depending on the type of activity carried out by the nonprofit organization, different tools are available to raise funds. To understand which ones to use, each organization could, as much as possible, classify its different activities according to these 3 categories:

Business activities that can generate income

Assets (tangible or intangible) that can be sponsored

Other programs

1. Category 1 – Commercial activities

When an organization manages to generate regular business revenue, it can claim debt instruments such as:

The working capital loan: this type of credit works like a recurring line of credit and allows to compensate for a cash flow gap between the moment of sale and payment.

The Bridge loan: this short-term loan provides immediate cash flow while waiting for specific sources of financing. Unlike the previous loan, it is a loan used for more specific occasions (for example, a major commitment from a public partner that will be paid later in the year).

The Impact loan: the purpose of this instrument is to reward organizations for borrowing to achieve impact goals. Since it is a contractual commitment, the parties are free to set the impact goals they want and the associated conditions. For example, one could have a loan where the interest rate is lowered based on the social or environmental goals achieved.

The Recoverable Grant: this is an instrument that can work well to finance research and development projects. Indeed, the grant is reimbursed only if the predefined objectives are reached, in particular with the creation of revenues allowing to reimburse the grant.

The financiers of this type of debt instruments can be foundations, impact funds and individuals, but also banks with specialized offers on this sector.

2. Category 2 - Sponsoring

Every nonprofit organization has tangible or intangible assets that can be sponsored by a commercial enterprise or a foundation. A company may have a positioning interest in supporting an association with which it shares values, expertise or target alignment.

This sponsorship can take several forms:

Sponsoring beneficiaries: the setting up of grants for identified beneficiaries is a good example. Thus, Degroof Petercam Foundation supports the VOCATIO foundation which grants each year a 10.000 euro scholarship to 20 young people between 18 and 30 years old to enable them to make their vocation or passion their profession.

Asset sponsorship: this involves identifying the asset (physical asset or intellectual property) that requires the most funding and that could be sponsored by a company. Read International, an association that has created libraries in public schools in Tanzania, had British Airlines finance the transportation of the books collected. This is a win-win sponsorship that has helped to finance the biggest cost of this association, i.e. the transportation of second-hand books.

Community sponsoring: many associations have a large number of supporters around them. It is a question here of converting a moral support into a human, financial or material commitment. Réseau Entreprendre creates a community of business leaders who, on the basis of an annual membership fee, can coach a young project leader. In addition to sharing his experience and passing on his knowledge, the entrepreneur joins a community of other committed entrepreneurs. The "club" effect is sought here.

3. Category 3 – Other programmes

These other programs are financed by donations that can sometimes take different forms such as "crowdgiving", the implementation of more sophisticated tools such as social bonds (or social impact contracts) that we will detail in a future article or the organization of public events or targeted donation campaigns. All these tools will obviously vary depending on the fundraising model identified above.

As part of its extra-financial support to its laureates, the Degroof Petercam Foundation organizes "Masterclasses" on various subjects related to the management of a philanthropic project. As social finance is a constantly evolving subject, the Foundation has recently brought together its partners to pass on this expertise, notably through the intervention of experts such as the Social Innovation Circle.