Alternative Approaches to Endowment Fundraising

  • Gradual accumulation. It is possible to build an endowment over time by gradually raising money from individual supporters and a close circle of contacts. An initial challenge by a lead grantmaker may get the endowment fund started, or may serve as a challenge to other contributors, but the endowment would not be fully funded and “activated” until a given amount of total contributions has been reached. This approach can be slow, but it is inexpensive, does not require the preparation of extensive campaign materials, and consumes only limited energies from staff and volunteers. One risk of this approach is the possibility of “drift” — meaning that participants might gradually lose focus and energy, and never reach the funding target. Another risk is that, until the target is reached and the endowment activated, the grantmaker’s initial grant and other contributions are sitting idle, producing no benefit for anyone.
  • Working with a community foundation. Community foundations can pool funds from many donors into an endowment account, which the foundation then manages on behalf of the organization the donors wish to support. Organizations that are the ultimate beneficiaries of this arrangement receive distributions from the community foundation, and thus don’t have to develop all the financial and investment capacities normally associated with long-term management of an endowment. They may even realize better returns at lower costs. This arrangement minimizes the risk that the beneficiary organization might someday invade the principal balance of the endowment, thus jeopardizing its long-term stability. It also ensures that whatever happens in the future — even the demise of the organization for which the endowment fund was created — the capital and earnings can be redirected to match the donors’ original intentions. This arrangement may not appeal to some organizations interested in endowments or long-term investment funds, since it means that they would have much less control over the management of the funds. Legally, funds held by a community foundation are the property of that foundation, not of the organization(s) designated to benefit from the earnings.
  • Building an endowment in stages. For organizations that plan to assemble a large endowment, it may be feasible to build and activate a smaller fund first, then increase it in phases thereafter. The difference between this and the gradual-accumulation approach is that each stage can be treated as a separate campaign —with a declaration of success and a pause for regrouping after each stage. Meanwhile, by meeting a modest goal at an early stage, an organization can demonstrate its effectiveness in soliciting endowment support and its prudence in establishing the necessary mechanisms and guidelines for managing the fund wisely. An organization with a successful track record in the first stage or two is then better positioned to solicit funds later from other donors. This option is less practical, however, if the overall endowment goal is too modest to break into smaller stages.

Takeaways are critical, bite-sized resources either excerpted from our guides or written by Candid Learning for Funders using the guide's research data or themes post-publication. Attribution is given if the takeaway is a quotation.

This takeaway was derived from Providing for the Long Term.