FAQs: Capital Partners
NFF Capital Partners helps nonprofits attract funding to support philanthropic equity campaigns of $5 million or more. We work with clients to create a high quality prospectus that clarifies the organization’s business plan, project rationale and program goals, capitalization needs and projected social return on investment. We also help implement the SEGUE accounting treatment, which allows nonprofits and their funders to track how philanthropic equity funds connect to stated program goals. Click here to learn more about NFF Capital Partners
Philanthropic equity is funding that pays for the deficits incurred en route to sustainability. It allows an organization to build the capacity needed to deliver services in perpetuity. As the organization begins its campaign, philanthropic equity pays for start-up expenses like legal fees, additional equipment, and hiring new staff. Later, it can pay for reputation-building, like evaluation work that proves program effectiveness. It also pays for trial and error, as the organization learns how to attract long-term sustainable revenue, and helps create a risk capital reserve. When an enterprise becomes successful and sustainable – both programmatically and financially, philanthropic equity has done its job. Click here to learn more about philanthropic equity
SEGUE stands for Sustainable Enhancement Grant. It is an approach that uses both nonprofit capital campaign techniques and for-profit venture capital concepts to underwrite nonprofit business plans. NFF’s SEGUE methodology is highly transparent, allowing investors to see exactly how their money is being used to significantly expand the ability of an organization to deliver on its mission in perpetuity. SEGUE makes it possible to answer questions like:
- Did the plan come true?
- How much did it cost to enact the plan?
- How much is left, at any given time, of the equity that was raised?
- Is the impact sustainable?
- How much progress has been made, at any given time, towards achieving sustainability?
- Who are all of the philanthropists that made it possible to enact the business plan?
Investors can thus clearly see and track how their contributions result in something of enduring value: a strong, dependable mission-driven institution that improves people's lives, year in and year out. Click here to learn more about SEGUE.
For nonprofits:
- Pre-raised dollars allow management to step off the treadmill and focus on the long term
- Investors buy into one strategy and one reporting mechanism
- The funders’ fear of creating a dependency relationship is reduced because the business plan focuses on long term sustainability; as a result many funders are likely to contribute more
For funders:
- High quality of prospectus and deal vetting by third party reduces time and cost of due diligence
- SEGUE accounting provides transparent and auditable revenue vs. capital accounting and reporting
- Avoid dependency relationships with organizations by tracking progress toward sustainability
- SEGUE campaign brings together co-investors to provide leverage
The prospectus is a for-profit inspired document that articulates the organization’s plan for achieving a long term increase in its programmatic impact and makes the case for a one-time infusion of philanthropic equity to help the organization reach this goal. The prospectus is then shared among a syndicated group of investors and the nonprofit they support. Click here to view a prospectus.
To date, NFF Capital Partners has had formal engagements to support 16 capital campaigns that fit our definition of philanthropic equity. Those campaigns have raised over $312 million. For engagements in which NFF Capital Partners played an in-depth role, clients’ long term business model revenue has had an average compound annual growth rate of 43%, while program delivery has had an average compound annual growth rate of 49%.
Every year, capital campaigns help nonprofits raise billions of dollars for endowments, new buildings, and more. The success of a nonprofit’s capital campaign, from inception to project completion, often depends on the strength and agility of the plan behind the campaign. Similarly, a strong growth plan is more likely to attract funders to a philanthropic equity campaign that will give rise to lasting, more impactful nonprofits.
No, the investment is strictly philanthropic with no provision for cash returns at any time. The SEGUE is based on the nonprofit concept of Social Return on Investment, or SROI, an interpretation of Return on Investment (ROI), its for-profit counterpart. By using the term “investor,” we seek to change the way that funders, lenders, and donors understand the impact of their contribution.
We do not believe that nonprofit investors are owners in the for-profit sense, but drawing parallels can be useful. There are two sides to ownership in the for-profit world: rights and responsibility. Based on a company’s performance, an equity stakeholder has a right to receive a distribution of the company’s profits. They also have a responsibility to protect a company’s long-term interests, especially if they choose to invest during its fledgling years.
In the nonprofit world, an equity stakeholder—a funder, donor, or nonprofit lender—has the right to know how their contribution is furthering an organization’s mission. Their responsibility is to protect the nonprofit’s mission, long-term interests, and organizational health. In the case of growing nonprofits, it’s vital that stakeholders remain steadfast and supportive in this commitment—and do so with full knowledge and understanding of the risks inherent in any growing enterprise.
By applying the idea of the equity stakeholder to the nonprofit world, we hope to emphasize the responsibility that funders, donors, and lenders should take to support a nonprofit's long-term institutional strength. We believe that the SEGUE system could help make this happen.
The SEGUE approach significantly increases the odds that organizations will be successful in enacting their strategic business plans. Here’s how:
- In typical nonprofit capital campaigns, organizations must cobble together a large number of separate grants, each with its own negotiation, performance requirements, restrictions and reporting regimen. A SEGUE campaign allows the nonprofit management team to bring multiple funders together under a unified strategic agenda.
- In traditional capital campaigns, organizations often fail to raise a large amount of money at a single time and therefore must constantly fundraise. The campaign approach makes it possible to pre-raise several years’ worth of philanthropic equity, thereby shifting focus away from fundraising and towards long-term strategy.
- Traditional campaigns do not adequately build sustainability into the accounting model. SEGUE accounting treatments track progress towards sustainability allowing funders to be less concerned about creating dependency relationships, and thus more willing to write large checks.
- Traditional campaigns do not syndicate funder participation. By creating a strong, accountable platform for syndication, in which a group of investors contribute at once, SEGUE campaigns help organizations receive a larger influx of philanthropic equity.
As more organizations and funders implement the SEGUE model, we believe that we can contribute to positive systemic change in how the social sector does business:
- Nonprofit enterprises will have the tools to create strong business plans
- Funders will more often favor investments that lead to sustainable impact, as opposed to "emergency bailout" grant-making
- Investors will have access to deep due diligence to make well-informed decisions
- Well-capitalized nonprofits will more often pursue strategies that use robust outcomes to compete for ongoing funding streams
- The transparency of success and failure revealed through SEGUE accounting will help funders make better decisions about how to support grantees. Funders will also become experts in helping SEGUE-backed plans achieve success (with a track record to prove it).
NFF does not provide cash contributions to the campaigns of our SEGUE clients. We help nonprofits develop and vet their growth plans and articulate their philanthropic equity requirements to potential investors. We are financial consultants.
Not directly. The prospectus serves as the tool by which nonprofits can confidently approach funders.
The SEGUE does allow for customized tracking based on unique funder needs. It is designed, however, to meet individual needs without losing focus on the organization's single strategic plan and reporting format. Conversely, because some funders may not need to know the intricacies of a detailed contractual relationship, the SEGUE and prospectus also support simpler, traditional funding and donorship towards a philanthropic equity campaign.
No. SEGUE clients already have a business plan, along with a strong management team and board committed to executing that plan. We pressure-test the financial aspects of the plan (particularly capital structure and long-term sustainability), and help package it into a solid prospectus. In our experience, the process of preparing for a SEGUE campaign will always improve the strategic clarity of the plan for the nonprofit, board, and funders.
In theory, the SEGUE can be applied to nonprofits at any stage of development, including startups. For now, however, we are better equipped to focus our services on nonprofits with existing infrastructure, management, boards and fundraising support. This requires us to forego opportunities to work with a variety of exciting, startup organizations. However, we are delighted to share information about our approach, the SEGUE structure, and how it can be implemented by others. Please contact us!
No, we do not get paid for our services from the proceeds of the fundraising. All of our engagements are paid for on a project basis, either directly by the nonprofit, or by a third party supportive of our mutual work.
No. Preparing for and executing a SEGUE philanthropic equity campaign is a collaborative, and intensive process. It requires deep involvement from the nonprofit’s senior team. While, NFF will not do the fundraising for you, experience has shown us that the SEGUE approach enables nonprofits to raise money more efficiently than other alternatives. Similarly, pre-raising several million dollars at once frees nonprofit management of day-to-day fundraising burdens, allowing them to focus on identifying more sustainable funding for the enterprise.
Depending on a nonprofit’s starting point, the preparation stage should take 3 to 6 months. The length of an active campaign varies widely. We advise CEOs to allocate about 40% of their time to fundraising during a 6 to 9 month period. It is also possible to conduct a campaign in several rounds, when appropriate.
There are no fixed rules. Typically, we offer services to established organizations (track records of 3-5 years) with plans calling for $5 million to $50 million in philanthropic equity.
Unfortunately, there is no guarantee. Some organizations may fail to raise the amount of equity they sought. And others may not reach the sustainable enhancement goals that were identified in their business plan. Like for-profit venture capital and private equity businesses, the risk of failure varies widely. It depends on the organizations' stage of development (start-ups being the most risky) and the level of ambition in the plan. However, we believe that the due diligence built into the SEGUE improves the odds of success, compared to traditional funding methods.
It’s important to remember that the high degree of transparency inherent to the SEGUE reveals failures as much as successes. (Only official SEGUE investors would be privy to this information). But these possible investment failures are not a reflection of the SEGUE method; they’re a part of the inherent risk of any program enhancement.
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