Weatherproof Your Future by Building an Endowment: Here’s How

It’s been anything but smooth sailing for fundraisers this year. Once-reliable revenue streams are drying up, donor confidence is wavering, and federal funding is frozen.

But even if all organizations are in the same storm, not all are in the same boat. Those that have stashed money for emergencies are better protected.

“I would say this has by far been the most challenging year in terms of uncertainty and things changing literally by the day as to the environment, whether that’s government, philanthropy, executive orders, etc.,” says Terri Sorensen, CEO of Friends of the Children. “Having an endowment and a reserve fund is critical.”

An endowment provides reassurance for the future — but it also generates income that can help you survive today’s turbulence.

“The endowment has created another revenue stream for us,” says Jodi Farrell, vice president of development at the Everglades Foundation, which completed its first endowment campaign in December. “We certainly still have to fundraise every year, but now we have an annual spend rate that’s already helping support our operating budget,” she says, referring to the set portion of the endowment’s value that is distributed each year to the charity. “So [the money] isn’t just sitting there, it’s already activated.”

If you don’t already have a rainy-day fund, read on to hear from three leaders who created or augmented endowments and reserves at charities of all sizes on how to get started.

Use a moment of crisis to build an endowment from scratch.

Until a few years ago, the Everglades Foundation — which leads programs in education, science, and advocacy to protect the wetland ecosystem in Florida — had no endowment. The charity started planning its ForEverglades campaign to change that in 2020, after the pandemic put all its in-person fundraising events on hold.

“That [era’s] uncertainty actually became a theme of why we need to create an endowment, why this campaign is important,” Farrell says.

She says the first step was hiring a consultant to conduct a feasibility study, which included a confidential survey of the organization’s major donors and board to assess their appetite for a multiyear campaign. Those conversations helped the Everglades Foundation arrive at its goal of $75 million over three years.

Next, development staff began laying the groundwork with the biggest givers and trustees in Zoom meetings in 2021, when Covid still loomed large. During the silent phase, she told donors, “You support our organization at this amount every year. We need that to continue, but if you give an endowment gift in addition to that, it will, in perpetuity, produce the same amount to us long after all of us are gone, ensuring the long-term sustainability of this mission.”

Farrell says that messaging resonated with supporters, “especially when they were at home in the most uncertain of places with the pandemic — it really hit people.”

Focusing on major gifts, the campaign raised $59 million during its two-year silent period before it went public in November 2023. “We had about 50 donors supporting us at that point, and we had a roadmap for how to reach our goal, because traditionally you don’t want to announce it unless you think you can cry success in the long run,” Farrell says.

The organization hired a media consultant to launch its next phase, which included statewide and national outreach. During the next 13 months, the campaign raised an additional $17 million from smaller donors and repeat givers, surpassing its original goal. Between fees for the two consultants and printing 250 copies of a photography book as a keepsake for donors who gave more than $50,000, external costs for the campaign came in under $600,000 — just 0.7 percent of the $76 million it raised in total.

Even months after the campaign ended, the endowment has continued to attract donations throughout this year, and finally reached full board participation. Farrell says: “We like to say that we’ll never stop raising money for the endowment.”

Engage loyal donors to jumpstart campaigns and maintain momentum.

Friends of the Children, a national organization that pairs children with professional mentors for the duration of their school years, has a long track record of successful campaigns to put money aside for a rainy day.

While executive director of Friends of the Children’s chapter in Portland, Ore., Sorensen led an endowment campaign in 2008 with a goal of $7.5 million. By asking for one-time endowment gifts from donors who were already giving every year for operations, the chapter hit its target in just 9 months.

She carried this experience with her when she took over as CEO of its national headquarters in 2012. At that time, Friends of the Children’s endowment held only $180,000, and annual operating costs for the national network were $7.5 million.

Sorensen approached a pair of longtime donors — Bob and Dottie King, who had been giving $100,000 per year through their foundation — and swung for the fences. She developed a business plan that detailed how the organization could scale if the national office were properly endowed.

“I asked for $5 million from this funder and sent our business plan,” she recalls. “To my surprise, they wired the money. And we were off and running.”

Today, the national network oversees 43 locations across the United States and its endowment holds $10 million, with a spend rate of 5 percent of its market value every year that covers operational expenses.

As the charity’s profile has grown, so have donations. To close out a $50 million expansion campaign with a smash, the billionaire MacKenzie Scott awarded Friends of the Children an unrestricted gift of $44 million in 2022. Of that total, the headquarters disbursed $29 million to its local affiliates and kept the remaining $15 million. The national office used its portion to bolster national infrastructure and chapter support, and put $5 million into reserves.

Meanwhile, the relationship with the Kings has continued to flourish. To spur giving through donor-advised funds, King Philanthropies will match the first $100,000 in DAF gifts to Friends of the Children National on DAF Day, which is October 9 this year.

Sorensen says campaigns that back long-term sustainability and growth are a great way to get loyal supporters more invested in your cause over time. “Donors want to be first in or last in, and be a part of something bigger than just a one-time gift,” she advises.

Even if you start small, find expert help to grow your assets.

Smaller charities seeking financial stability often lack the in-house expertise to manage an endowment, or an investment committee to guide its growth. In those situations, establishing an agency fund at a community foundation could be a solution.

Josh Kornberg, vice president for advancement at the Hartford Foundation for Public Giving, says these funds function like endowments, providing reliable annual income — set at his Connecticut community foundation at 5 percent of the total assets — without the burden of financial oversight.

A predictable return of 5 percent enables nonprofits to plan for the future, even in uncertain times. “If they have a rainy-day fund or some sort of unrestricted [endowment], they can put those into an agency fund,” he explains. “So if they put $100,000 in, they would get the same $5,000 payout, year over year.”

In exchange for a fee of less than 1 percent of the fund’s assets, the Hartford Foundation assumes administrative responsibility for the investment, Kornberg says: “We take all the risk away from the organization, so you don’t have to worry about: Are you getting your annual spend? Are you reporting properly? Did you complete the right information for the IRS at the right time?”

Another advantage: Nonprofits gain access to the foundation’s gift officers and its network of donors looking to support local charities — making agency funds a powerful way to connect nonprofits with big donors. Donors can contribute directly to these funds, including through complex gifts like property or IRA rollovers.

The drawback is that the charity relinquishes control over how its money is invested, but some organizations decide the trade-off is worth it. Currently, the Hartford Foundation holds $4.5 million in assets in 18 agency funds. In one of the most successful examples, Camp Courant, a nonprofit summer camp in the Hartford area, has accumulated $2 million in its agency fund — including dozens of gifts from other donors, with several significant planned gifts.

Kornberg notes that assets in agency funds are not locked away forever, but are one of many tools available to support charities facing financial hardship today: “If an organization is encountering some sort of storm, how can we utilize the capital that’s in that fund to help them make it through?” He says a key part of the community foundation’s mission is helping charities navigate solutions to thorny challenges. “The reality is: If they can’t weather the storm right now, they’re not going to be around in 10 years to benefit from the endowment.”