Where will Endowment Money Come From?

Among other things, building an endowment can easily get in the way of other fundraising... In one instance, a grantmaker recalls, a grantee received a generous contribution to a capital campaign from a donor who always gave regularly to the organization’s annual fund drive. “But the following year, that same donor declined to continue their annual contribution — on the grounds that they had supported the endowment. Suddenly, the grantee found itself minus one major donor — and the earnings from the new endowment would barely be enough to replace the lost contributions! So [the grantee organization] was actually worse off than if it had left this donor out of its endowment campaign.”

• Likely ‘inside’ contributors. Before soliciting outside funds, an organization should begin by examining its internal sources. Donors often ask if an organization’s board members or volunteers have contributed to the endowment drive. These “lead gifts” from insiders are far more meaning-ful than the actual amount of funds they provide, because they demonstrate a strong and personal commitment to the work of the organization by the people who know it best.
• The universe of other major contributors. While more donors are expanding their endowment grantmaking, many others still have not made such grants, and will consider providing only core or project support. As a result, organizations that want to build an endowment may have to reach out beyond the circle of funders who are already familiar to them.
• Donors with special needs or interests. In reaching out across the wide spectrum of potential donors, organizations need to anticipate donors’ special requests. One example: If a donor wants its contribution to be permanently identifiable — for instance, a separately “named” fund, like an endowed chair or scholarship — then it is probably wise to have a policy in advance that sets a minimum level for such special conditions.
• The effect of a challenge grant. A grantmaker who wants to help an organization create or enlarge an endowment may set up the initial contribution as a challenge to the grantee to match the contribution at a specified ratio.