How Do Nonprofits Grow a Successful Endowment Fund?
TIPS TO BUILD AND GROW YOUR NONPROFIT ENDOWMENT FUND
By Chris Garner, Communications Specialist
To ensure your organization has a lasting legacy, it's important to invest in its longevity. Establishing a nonprofit endowment fund allows you to do just that.
Starting a nonprofit endowment fund can be a great way to enhance your organization’s financial stability, create an ongoing source of income and provide an avenue for future gifts.
You likely have questions about what an endowment is, what it takes to set up a fund, and what resources your development staff and board will need to raise funds and continue to grow your endowment.
This post will walk you through what you need to get started:
- What is an endowment?
- Advice from nonprofit leaders, including what to know before starting your endowment, how to set up an endowment fund and tips on growing your fund
- How the Foundation can help you grow your fund
- Resources to continue learning, including a comprehensive endowment toolkit
What Is an Endowment?
Nonprofit endowment funds can allow your organization to establish a stable stream of income, building annual revenue and alleviating the pressures of inconsistent annual funding. They are also a great way for donors to contribute to the health and vitality of your organization.
With a nonprofit endowment, your organization can channel gifts into the fund to build over time. Endowment funds for nonprofits are designed so that the initial investment made by your organization fuels annual disbursements. As you grow your endowment, the annual revenue can grow as well.
“For example, if you start with a fund with $100,000, that fund, over 50 years, can grow to over $260,000*, and distribute over $420,000 back to your organization,” says Director of Gift Planning Mariah Brook.
*Disclosure: Numbers are for illustrative purposes only. Past performance is no guarantee of future results.
Endowment Advice from Nonprofit Fundraisers
Our experienced staff offers endowment fund support to more than 200 organizations, managing nearly 400 different endowment funds.
We recently asked a few of our nonprofit endowment fundholders for their insights into starting a nonprofit endowment fund. Here are some of their best tips for establishing an endowment.
What advice do you wish your organization had before you started an endowment fund?
Jennifer Downham, chief development officer, Minneapolis Parks Foundation:
"My first question or suggestion would be to take a realistic assessment of your organization and mission... Is it something that is perceived as a smart long-term investment?
Does a significant percentage of your donor base have a long-term relationship with your cause?
I believe that relationship is critical to the decision to make an endowment gift. Also, ask your donors if your organization is already included in their estate plans... If you hear of a few future donations, that is a helpful indicator that the idea is promising."
Eric Nesheim, executive director, Literacy Minnesota (formerly known as Minnesota Literacy Council):
"I think establishing an endowment fund is a good idea for a nonprofit, and it can be a great option for donors.
In our case, when a large donor wanted to donate roughly $500,000 on short notice, the endowment was the perfect place to put it. Large, unexpected amounts can be problematic to use in the course of a fiscal year budget, especially for smaller nonprofits. Endowments can be an answer that minimizes that challenge and maximizes a donor’s impact over time."
Our endowment toolkit walks you through what an endowment is, how your organization can benefit from this type of fund and how to prepare your organization to start an endowment fund.
“ My advice to other organizations would be to find leaders within your organization who share a passion for the difference an endowment fund will make and leverage them in helping reach the goal.”
Mary Margret Brown, director of development, PROP (People Reaching Out to People)
When establishing your endowment fund, what advice do you wish you had? What advice would you offer someone else who’s fundraising?
Tara Anderson, director of engagement, Crescent Cove:
"Having a variety of funding sources can really help your bottom line from the broader perspective. We always have our annual Gala. We also have a different fundraising event called 'The Cove Competition.' The endowment fund is just one of the tools in our fundraising strategy to help support our mission over time."
Jennifer Downham, chief development officer, Minneapolis Parks Foundation:
"My advice would be to budget appropriately, and ask your donors what their plans are; ask for their advice."
Anna Zaros, donor engagement manager, Center for Victims of Torture:
"Since we’ve started the fund, we’ve had some great success in fundraising. We’ve recently experimented with offering more targeted asks to donors – asking donors to give to a particular program or project that we know they are really passionate about. We’ve found this to be very successful.
At times, when those asks include planned gifts such as charitable gift annuities or donor advised funds, we reached out to the Foundation to help inform us of what to offer our donors."
The Foundation staff are experts in these more complex giving vehicles and it has helped our fundraising team to be able to lean on them to ensure the information we are providing donors is correct and easy to understand."
For more on accepting charitable gift annuities or other planned gifts as a way to build your endowment fund, view our planned giving video series.
How did having the Saint Paul & Minnesota Foundation as a partner help you establish and grow your fund?
Anna Zaros, donor engagement manager, Center for Victims of Torture:
"What we really appreciate about working with the Saint Paul & Minnesota Foundation is the personal care and the depth of services they provide.
What really worked well, when setting up our endowment fund, was having open communication between our development staff, finance staff and the Foundation’s staff. These open lines of communication made it easy to get everyone on the same page, as well as created clear steps to take to establish the fund."
Mary Margaret Brown, director of development, PROP (People Reaching Out to People):
"None of this would have happened without the leadership and support of the Foundation. Elizabeth McCray [former nonprofit strategies manager] met with our endowment committee twice to explain the entire process and answer any questions members had as they learned more. She is always available by email or phone if we need help.
Due to the size of our nonprofit and our small staff, we did not have the capacity to manage our own endowment fund."
Eric Nesheim, executive director, Literacy Minnesota:
"We have an excellent finance and audit committee, but appreciate not having to manage the investment side of an endowment. Our fundraising team has a great rapport with the Foundation staff, especially our gift planner, Mariah Brook.
Because of this relationship, we have successfully recruited a board member with estate planning expertise and launched a planned giving program."
More Endowment Resources
These are just a few of the insights our nonprofit partners shared about the benefits of planning and partnership when establishing and fundraising for an endowment.
Now that you know more about the benefits of starting an endowment, request our free endowment toolkit for more in-depth coverage on topics like:
- How to know if your organization is ready to establish an endowment
- How to engage your board in advocacy and endowment fundraising
- Tips for promoting your endowment with donors
- What you need in your gift acceptance policy
Get Expert Advice on How to Start an Endowment
With the right partner, an endowment fund can be a powerful way to provide your nonprofit with an ongoing source of income.
When you work with a community foundation, like the Saint Paul & Minnesota Foundation, you are partnering with an organization that is not only invested in you, but in your community and its growth.
We are always happy to have conversations about endowments. To learn more about starting a nonprofit endowment fund, contact our team.
Mariah Brook
Learn More
Tod Herskovitz
Learn MoreThis article was originally published on Feb. 3, 2020, and updated on Aug. 23, 2024.
The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.
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