In the Blackbaud Institute’s report, The Right Mix, Anne Wallestad spoke about the Measuring Fundraising Effectiveness framework that quantifies the risk associated with a lack of diversification in fundraising.
In order to secure the charitable gifts that allows nonprofit organizations to fund their missions and work, they must invest in a smart, strategic, and diversified approach to fundraising to build a strong and resilient program. But is that easier said than done?
We were lucky to have the opportunity to speak with Amy Mills, CEO of Emancipet, a nonprofit with a mission to supply affordable veterinarian care services to all pet owners. She answered a few questions for us about their success with alternative funding and the journey they went on to create a diversified program.
Q: Can you share a high-level overview of Emancipet’s portfolio of funding?
A: Emancipet is a unique nonprofit because 80% of our annual operating expenses are covered through earned revenue (fees for services in our clinics) and 20% is covered by contributions (our annual fund). Our annual fund consists of contributions from foundations, individuals, events and corporate partnerships. Because we are implementing a national expansion strategy to open new clinics in underserved areas, we also have a growth fund, which covers the start-up costs of new clinics that we open. This fund consists almost exclusively of foundation grants and alternative funding sources like PRIs or public/private partnerships.
Q: When did you decide that Emancipet needed to explore additional/alternative funding sources? What were the unique factors of Emancipet’s structure that led to that decision?
A: Early in our growth plan implementation, we realized we needed to look at alternative funding sources to help raise the capital for new clinics, for a couple of reasons:
- Each new clinic required significant capital expenditures, like medical equipment and supplies, and the cost of building out clinic spaces
- We were opening clinics in communities that were new to us, so we did not have established relationships with funders or individual donors, which can sometimes take years to build and cultivate
- At the time, there was not an established commitment to funding nonprofit brick & mortar veterinary clinics inside low income communities among the large national funders, so there were limited options for completely funding the new clinics in that way.
Q: Who did you bring to the table to finalize the best path forward? How did you get the board on board with the idea?
A: Our board and I worked (and still work) together very closely and the board chair and treasurer were intimately familiar with our unique situation and the need to explore alternative strategies. When I first approached a national foundation about the idea of a PRI and brought that to our board, they were very excited about it. I always say that one of the secrets to Emancipet’s success is our board – our board members are very risk tolerant and business savvy, as well as completely dedicated to our growth, so they understand the role of debt financing and alternative funding to help achieve growth goals.
Q: What role does should your development team play in assessing your right funding mix?
A: In our past, our development team was not heavily involved with assessing the funding mix- it was mostly something that my CFO and I worked on, along with the board. However, that has changed quite a bit over the years and now our senior development leaders have a much greater role in this. I think they have an important voice and perspective to be shared in this process, because the work of stewarding donors is the same as the work of stewarding investors. Investors still need progress reports, they need to feel informed and involved, and they need to feel that their investment is making a difference. In my experience, even an investor who gets a financial return is giving to make the community better and to help fulfill a mission, so their emotional needs and connection to the non-profit is not that different than the needs of a traditional donor. I also feel that a savvy development team should understand the appreciate the role of non-traditional funding tools – they should be thinking about the best ways to access funding for the organization, and as traditional fundraising changes, it’s important that your development staff don’t get left behind and stuck in an old way of thinking about how to access capital.
Q: How did you bring along the whole organization for this change in funding streams? Were there any pain points for the team to get on board, particularly for development, finance, and marketing operations? How has it affected the culture of the organization?
A: I think at first we had really natural and normal fears that any non-profit would have when considering bringing in capital in new ways. For some reason, at first it feels like you are committing to a higher level of accountability and risk. So, to get us comfortable, we kept our first PRI small and we negotiated extremely comfortable terms that gave everyone the confidence that this was a pretty safe risk to take. Once we did it and started making payments and proving to ourselves that it was do-able, it felt much better. Of course we have learned a lot along the way about how we like to structure these and what kinds of situations we would prefer to avoid in the future, and there were definitely the kind of pain points that come with learning new things and getting outside our comfort zone, but everyone saw pretty quickly how valuable it was. The biggest thing that people were excited about was the speed – through this model we had cash in hand much sooner than we had ever been able to fundraise for projects through traditional fundraising models.
Q: How are you continuing to monitor the performance of these funding streams and evolve them to continue meeting your needs? How do you know that’s the right mix for your organization?
A: At this point, I don’t think we have arrived at an answer about what is the “right” mix of traditional contributions vs. alternative funding tools, but I can say that we all feel comfortable expanding our use of alternative funding and have a strong desire to push that much further. Our finance team is regularly assessing how we are performing and testing the assumptions we originally set out to test, primarily our assumptions about how new clinics will perform financially over the course of their first 4 years in business.
We only use these alternative funding tools for our growth funding, not to cover annual operating expenses, so we are willing and able to take more risks in that area. Since we first experimented with alternative funding, we’ve opened four additional clinics and a fifth will open this summer. The lessons we have learned and the data we have collected from these clinic openings gives us confidence to expand our use of alternative funding to get new clinics open, and we are actively seeking partners who are interested in this kind of investment. I do think there is an upper limit of the amount we would finance a new clinic from traditional vs. alternative funding, but I can definitely say we haven’t reached it yet.