Tuesday, November 1, 2011

Raising capital for fundraising investment: A new future?

Good fundraising programs have excellent returns.  Despite the constant nonsense about high cost of fundraising, most charities achieve extraordinary results from little funds.

Investing in direct mail, phone or face to face / direct dialogue can achieve amazing results for charities - an investment of $1m could generate between $500k and $1m net 'profit' every year for five years or more - a great return and better than the stock market.

According to Givewell, the top 100 Australian charities* by investment portfolio have about $6.8bn in reserve.  These reserves will be invested in property and traditional investment markets.

I have argued before that charities should consider fundraising as part of their investment portfolio.  The chart below shows how a decent fundraising program would outperform investments in property or shares, assuming they achieve an average of 8.4% and 10% respectively - both excellent returns in this day and age.

Clearly fundraising can be a better option, but it needs to be good fundraising built on proven techniques to be invest-worthy.

But what if you have no money to invest?  Although these big charities have plenty of money, most charities are simply not rich.  So how do they take advantage of the excellent returns fundraising can offer?

I know of one charity in the UK that borrowed money from a bank to invest in fundraising.  Another decided to use all of it's income to reinvest in fundraising - not doing any charitable work until it had enough capital.

But Scope in the UK has taken this to another level. Their fundraising shops are doing well, and they want to increase the number of shops from 250 to 350.  This will cost more than they have spare, so they are launching a bond.  This is the first I have ever heard of at this scale.

They are asking investors for $30m.  Just like a company would raise capital.  They will repay investors just like a company would.

Brave and Brilliant, and hopefully the start of a new trend of social investment portfolios.

More info here.

* As declared in annual reports 2009/2010.  Some charities in Australia so not produce annual reports, including some very big ones with very large reserves.

PS - thanks Jan Chisholm for the info!

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