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Raising Capital for the Social Sector

September 8, 2014

Last week, we started exploring the topic of "access to capital" as a critical need of nonprofit organizations and social entrepreneurs.

While there are hundreds - if not thousands - of articles and books on the subject of fundraising, one of the most concise "to do" lists comes from Alice Korngold, consultant and frequent contributor to Fast Company.

Here are Korngold's Ten Things You Need to Know to Raise Capital for Your Nonprofit:

  • Make sure your organization has a generous and strategic board chair and a high functioning board - in addition to an outstanding CEO - in order to maximize the potential in raising "venture capital" and building a longer term sustainable financial model.
  • Conduct a thorough needs assessment of the community you seek to serve including studying existing organizations, to determine how your enterprise will provide unique and compelling value and achieve high impact results.
  • Establish a clear mission (the compelling value your nonprofit will provide), the vision (your organization's greater potential), and the strategy - otherwise known as a business plan (including the revenue model) to achieve success.
  • Recruit board members from diverse backgrounds and perspectives, including people with experience and expertise in the organization's field of work.
  • Establish metrics to measure and track your progress and impact from Day One; use the information for iterative planning in addition to engaging your board in ongoing planning and financial support.
  • Ensure excellence at all levels in the organization; strive for every client and constituent to have a positive and fruitful experience with the people on your team.
  • Begin building a cash reserve from the very first year, accumulating it to at least six months of annual operating expenses within a few years.
  • Develop in-kind contributions (such as donated space, equipment and furniture) and pro-bono service (in areas of expertise such as pricing strategy, legal, audit, IT, web design, public relations, and social media).
  • Remember that your organization's mission is meaningful to various funders (individuals and institutions) for very different reasons.
  • Build a culture and spirit of generosity and appreciation in the boardroom; this is where board leaders can have a great deal of influence and where board composition is a key factor.

In its 2014 State of the Sector Survey, the Nonprofit Finance Fund reported that 80 percent of nonprofit respondents saw an increase in demand for services in 2013, but only 55 percent were able to meet the demand. At the same time, more than half of the respondents (55 percent), have three months or less cash-on-hand, and 28 percent ended their fiscal year with a deficit. Only 9 percent reported having an open dialogue with funders about developing reserves for operating needs, and only 6 percent about developing reserves for long-term facility needs.

In the coming weeks, we'll continue to explore this topic, with special attention to what corporations and foundations can do to help, and what American Express is doing to build the capacity of nonprofit organizations and social entrepreneurs to cope with the need for access to capital and a strategy for capitalization.

If you have a comment or question, please follow me on Twitter at @timmcclimon and let's start a conversation there.

Next week: Financing the Social Sector


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