Funding Your Nonprofit Startup

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Countless entrepreneurs have shared the emotional ups and downs that are inherent in the early life of a startup. But while business people generally recognize a sense of shared struggle with other for-profit entrepreneurs, they rarely appreciate that entrepreneurs running nonprofit startups face many of the same challenges that they do. Like many young businesses, new nonprofits need money to operate and thrive; without income, they fail.

Unfortunately, many new nonprofits tend to give short shrift to funding plans. In fact, when it comes to financing, they could learn a few lessons from their for-profit counterparts. By applying some of the same strategies that for-profits use, nonprofits can help make sure they secure the funding they need to build organizations capable of having a sustained impact.

The Friends & Family Round

In the for-profit world, it’s common for entrepreneurs to start their new ventures by seeking seed funding from family members and friends. Nonprofit entrepreneurs should approach this critical startup phase the same way.

Friends and family are the people who are most likely to believe in the organization’s vision before it has an established track record. That’s because they’re betting on the organization’s founders more than anything else. When trying to raise seed money, nonprofit founders should reach out to family and friends with a written personal appeal that clearly explains three things:

  • Why they started the organization and its vision
  • How the money is going to help the organization take its first step towards realizing that vision
  • How family and friends can contribute (often with information directing them to a donation page)

 

While seed money is often used to help pay for initial startup expenses, such as a small salary, the primary purpose of the initial funding should be to establish proof of concept. For a nonprofit entrepreneur, this means demonstrating through a pilot program that the organization’s programs can have the desired impact. This proof will be important for raising additional funding.

Understanding Potential Investors

After a young business validates its basic business idea, it will generally look to bring in outside investors—beyond friends and family—to help it refine that concept and grow. As a new nonprofit establishes its own proof of concept, it too should begin focusing on raising money from outside investors, otherwise known as donors.

It’s important for nonprofits to realize that while they won’t be selling any stock to their investors, they will still be providing them with something of real value. Nonprofits give donors the opportunity to identify with something larger than themselves. They give them the chance to feel good about making a difference and helping others. These intangible benefits can be thought of as the return the organization offers to potential investors.

Nonprofit entrepreneurs should begin sketching out a profile of likely investors by brainstorming the types of people that might identify with their organizations. Who cares about the cause the organization seeks to advance? Who might relate to the organization’s approach and branding? Who will derive a valuable return from helping the organization achieve its mission? Once an initial vision of the investor has been developed, the nonprofit should be ready to create a fundraising effort geared towards its target audience.

Listen, Learn, Improve

As an entrepreneur starts presenting to investors, he quickly comes to realize that the process of raising money is one of constant refinement. With each new bit of feedback, the pitch gets tweaked and strengthened. Over time, the sell becomes increasingly dialed in to what investors are looking for. Nonprofits looking to acquire their own investors should embrace this same approach as they launch their first fundraisers.

Amazon 5000, a nonprofit incorporated through LegalZoom in 2011, provides a great example of how a young organization can use supporter feedback and iteration to maximize fundraising success. Created by Mickey Grosman after he was diagnosed with melanoma, Amazon 5000 is dedicated to raising money and awareness for cancer research. Ever the adventurer, Mickey decided he would trek 5,000 miles through the South American jungle to draw attention to his cause. As Mickey prepared for his journey, Amazon 5000 came to StayClassy to launch its first-ever online fundraising campaign.

As the organization’s campaign manager Rachel Perez recounts, the early days of Amazon 5000’s inaugural campaign were met with limited success: “Once the campaign kicked off we saw donations coming in, but it was slow.” Fortunately, the staff at Amazon 5000 had the good sense to listen to the feedback they were receiving and make some adjustments.

Perez continues, “We noticed a lot of people were leaving comments on our [Facebook] page along the lines of ‘wish I could join you!’ It was then we realized well, why not? We created a campaign for fans to apply to join Mickey for a ‘leg’ of the Amazon 5000 Expedition. Applicants from all around the world responded!”

Realizing that its investors were attracted to the adventure of Mickey’s journey, Amazon 5000 quickly adjusted their fundraising strategy to provide supporters with the opportunity to get involved directly. This initial change led to a series of other changes. To help all supporters share in the journey, Amazon 5000 soon began conducting live broadcasts with Mickey from the field. Then they launched a special fundraising initiative to help purchase iPads® for hospitalized children so they would also be able to follow Mickey on his journey.

By listening to the feedback it was receiving from potential investors Amazon 5000 was able to adapt its approach to provide what those investors wanted. This willingness to learn and change ultimately turned a flagging fundraising effort into a successful one.

Becoming Sustainable

In the business world, entrepreneurs deliver regular reports to their investors to keep them apprised of their companies’ progress. If investors are happy with what they see, they often decide to invest more. As a nonprofit moves beyond its initial fundraising drive, it will need to provide its own investors with feedback on how their support has enabled the organization to make an impact. This information helps donors realize the intangible return they were looking for when they first decided to support the organization. When donors feel that their contributions have made a real difference, they become much more likely to increase their support. By proactively communicating with these existing donors and launching additional fundraising efforts to attract new supporters, a nonprofit can develop a broad base of individual supporters over time. This is the type of widespread grassroots support is the key to long-term financial sustainability.

Final Thoughts

Whether it’s a nonprofit or a for-profit, funding is a key component to the success of any business. And while both nonprofit and for-profit structures are distinctly different in their goals, one major aspect they have in common is the need for funding in both the short and long term. As a nonprofit entrepreneur, getting familiarized with the challenges that for-profits face can provide you with valuable knowledge on what to expect and make the road to sustainability much smoother.

StayClassy is an industry-leading nonprofit fundraising solution that helps nonprofits turn supporters into fundraisers. To learn more about StayClassy, click here.