What Does It Mean When $100-Million Gifts Are Routine?

Thursday, September 20, at 12 noon, U.S. Eastern time

David H. King, managing partner and president of Alexander Hass Martin & Partners, an Atlanta-based fund-raising consulting firm, is helping the Council for Advancement and Support of Education to analyze the role of the top-10 gifts in successful campaigns over the last 10 years. The results, according to both organizations, provide evidence that such megagifts play a pivotal role in fund-raising success, for colleges seeking to raise $1-million or $1-billion.

A transcript of the chat follows.

Erin Strout (Moderator):
    Welcome to today's Brown Bag discussion on the Era of Mega Gifts. I'm Erin Strout, a staff reporter at The Chronicle, and I'll be moderating today's chat. I cover fund-raising and alumni relations. Our guest today is David H. King, managing partner and president of Alexander Hass Martin & Partners, an Atlanta-based fund-raising consulting firm.

David H. King:
    The genesis for this online chat session was, I believe, two fold. It came to be as the results of two somewhat unrelated things happening in philanthropy. First, is that our firm has been working with CASE to do an analysis of the past 10 years of campaign reports in order to gain a better understanding of the role of the top gifts. The second is what appears to be a flood of gifts of $100,000,000 or more to higher education institutions. So, drawing on what we know from those two sources I hope that I can provide you with some answers, or at least some factually influenced opinions, about the role of large gifts in campaigns, the apparent trend of mega gifts and anything else that pops into your head.

Question from Jon Knorr, YMCA of Delaware:
    Is there a common trigger for these large gifts and what typically moves folks to give at this level? Is it the alumni thing? What can a non academic non-profit organization do to cultivate these types of larger gifts?

David H. King:
    Interestingly, not all of these gifts are from alumni. I think you have touched on one of the keys in your questions - "cultivation." These gifts a typically not the spontaneous and first donation, they are the result of real relationships being built over time. They are also the result of staff and volunteers "listening" to the donors and gaining an understanding of the donor's interests and then sharing compelling needs that match up with those interests. I think the important thing for non-academic organizations is to understand that we all need to be seeking transformational gifts for our organizations, but that all of us don't require $100 million in order to "transform." $10,000,000 might have a greater impact on some of our organizations that these $100,000,000 million gifts have had on the institutions that recieved them.

Question from Erin Strout:
    Do you see any evidence that the volume of gifts may decline, either because of downturns in people's fortunes, or because of unhappiness over the way colleges have used the proceeds of gifts?

David H. King:
    Certainly there have been some recent and relatively high profile disputes between donors and institutions over the use of gifts (or lack of use in some cases). I think when large sums of money are at stake disputes are inevitable. However, I don't think that is detering others from making gifts. A substantial downturn in fortunes could have an impact. However (and this is a gross generalization) often the people who have the wealth to make a 9-figure gift are those who fortunes are so vast and so diversified that they are the least impacted by downturns. Recall that during the great depression the richest 1% of Americans came out of that tragedy much richer than they went in.

Question from Dennis Bidwell, Bidwell Advisors, consulting firm:
    There is growing attention to the role, current and potential, of real estate gifts in campaigns. Some argue that the mega-campaigns of the future, dependent as they will be on returning to some donors who may think they have already made their ultimate gift, will only succeed if other assets, especially real estate, are consciously sought out as gifts in various forms. What are your thoughts on this?

David H. King:
    Certainly, which what has transpired in recent years in real estate, we see that as an increasing % of people's wealth. There are a great many advantages to donors in giving real estate, but there are also challenges for the receipient organizations. Liquidity being foremost among them. We beleive that when we engage donors in a discussion about "gifts of a lifetime" we need to be doing so in a way that looks at the gifts as coming from assets - which includes real estate. In our work we have seen several recent gifts of land in the $25 million - $50 million range, as part of gifts that included cash, pledges, stock, etc. It think those multi-faceted gifts are the trend. The important thing in preparing for this is to have policies in place, in advance, that guide you on the conditions under which you will and will not accept land and what process you must go through to make that determination.

Question from Steve, Fundraising Consultant:
    How often does the $100-Million gift represent an unrestricted gift, aren't they more like the UVA $100 Million gift by Frank Batten, Sr. which is earmarked to create a the Frank Batten School of Leadership and Public Policy, and therefore gives the donor control over the direction of an institution?

David H. King:
    Three-part answer: 1) Very rarely are gifts of this size unrestricted or undesignated. You just don't give someone $100 million and say "here you go, do whatever you want and have fun." 2) Often the "naming opportunity" and the use of the gift are not the same. In the case you site, Batten's money is going to endow that school. But frequently a large gift may go to several different uses that are unrealted to where the naming recognition is placed. 3) The issue of "control over direction" is one that I'm sure would generate some interesting responses from college presidents. Certainly it is the expectation of the institutions, their boards and the government that these gifts do not come with a quid pro quo that gives a donor control over directly. However, it is hard to imagine that their voices are without influence after writing such a check. A good "gift agreement" will address that head on, in case an issue ever arises.

Question from Erin Strout:
    Talk a bit about the work you have been doing with the Council for Advancement and Support of Education. How important are major gifts to the success of fund-raising campaigns?

David H. King:
    Major gifts are critical to the success of campaigns. We drew a number of interesting pieces on information from the campaign research. One piece, which we all know, is that campaigns are getting bigger. In a similar completed in 1986 the largest campaign in the data set was $272 million. In our study, completed 20 years later, the largest campaign was $2 billion. That translates into a 735% increase in the size of our largest campaigns over a 20 year period – or roughly 36% growth per year – more than 10 times the average inflation rate over that same period. So, campaign goals are growing much faster than inflation. A second finding was that the total raised from the 10 largest gifts the largest campaign in the 86 study was 23% and in our study it was 22%. So, in 1986 the ten largest donors to the largest campaigns at the time gave about 23% of 200 million. And, in the 2007 study we found the 10 largest donors give 22% of 2 billion. For those of you not near your calculator, that would mean that the ten largest gifts to today $2 billion campaigns amount nearly double the amount of the largest goals 20 years ago. In short, the giving of big donors has actually kept pace with the 735% growth rate of our campaign goals. Our resarch found that campaigns under $50 million received 50% of there support (a median #) from the ten largest gifts. That % declines slightly when you move to campaigns for $100 million to $999 million - but even in those very large campaigns the top ten gifts account for more than 35% of the total raised. Those are much higher percentages than the old 80/20 rule would have predicted.

Question from Audrey June, reporter, Chronicle of Higher Education:
    Mega-gifts have the potential to really transform a college and everything it does. But I'm wondering how transformational such large gifts really are. If people looked back at institutions 10 years after they have received a $100 million gift, what kind of transformation are they likely to see?

David H. King:
    I think that depends on the nature and use of the gift. For example, a $100 million gift that is designated to endowment and is only generating $5 million a year in income may not have a transformational impact on an institution. However, a $100 million gift to enhance facilities or to establish or enhance a key program could, in fact, transform an institution. It will be interested to see the impact of Boone Pickens 9-figure gift, that is restricted to athletics, has on Oklahoma State. You don't often think of athletic gifts as transformational, but it certainly can raise the profile of an institution among is "customer base" - both alumni customers and potential students.

Question from Jim Mello, University of Hartford:
    I would like to know what percentage of time development professionals spend chasing large gifts as opposed to cultivating numerous smaller gifts. How does an institution know if it is using its time wisely? Also, are there ethical considerations at play here that you would like to discuss. How can advancement avoid the same examination as financial aid, study abroad, etc.?

David H. King:
    That is hard to know, as the institutions are telling us how long they worked the gift in the press releases. One thing we all need to be aware of is that "large gifts" is a sliding scale. For some institutions that means $1 million and somewhere else it is $100 million. In our experience, only the most senior member of the advancement team is involved, in any way, with these large gifts - and much of that involvement is behind the scenes strategy work. Most of the hands-on work is being done by the President, Board members and other "peers". To assess the effectiveness of time utilization, every organization needs to look at each development officer and establish a set of objectives that can be tracked and measured. It may be that the school of "consumer sciences" establishes that a "major gift" is $1,000,000 and expects their development officer to secure one such gift a year - along with a set number of gifts a other, lower levels. The college of business, at the same university, may set a major gift at $10,000,000 and expect to see multiple gifts at that level and above annually, as well as see many other 7-figure gifts. It is a sliding scale that is different at every institution and within the brances of institutions. But, if we don't set goals, measure our progress toward them and give some honest assessment of why we met or failed to meet our objectives we will never be able to answer your question accurately.

Question from Brian Gardner, Wheaton College (IL):
    David, How do you see these gifts affecting development office staffing?

David H. King:
    We've not seen any impact on staffing. The vast majority of these gifts are coming about as a result of long standing relationships that are being "cultivated" by the President and high level volunteers. I've not seen any development office make a decsion to cut its staff and focus a smaller group on hunting 9-figure gifts. In fact - to do so would move one out of "development" work and into "fund raising" - a subtle distinction, I know. But I view what we all do as helping individuals develop real and lasting relationship with institutions they care about. To do that successfully means staffing such that you begin those relationship early - often before the capacity for that 9-figure gift exists and maintin it for a lifetime. So, if we want to see more 9 and 10-figure gifts in the coming decades we need to add more development staff now.

Erin Strout (Moderator):
    We have a little less than 30 minutes left in our discussion, so if you have a question, now is a great time to ask it. David will do his best to get to all of them.

Question from Nancy Peterman, Georgia State University:
    In your experience, have the majority of these mega gifts truly been worked--cultivated and solicited--or are they more "accidental?"

David H. King:
    Most of these gifts are the result of years of dialog that "comes to a head" over an opportunity or a challenge. Certainly not "accidental" but also rarely solicited in precicely the manner that they end up. What we have really seen is that donors make these gifts in response to a "vision" for the institution that has not previously been presented and they have a desire to "make it happen" sooner than later. In most cases, donors are coming up with "the number" themselves that they think will make it happen. We have recently been involved with a couple of "mega gifts" that were directly related to a campaign and the donors coming to understand that in order for the institution to join the "billion dollar club" (his words not mine) he was going to have go give a much bigger gift than he thought. We were able to help him along with the research we did for CASE, which shows that the median top gift for campaigns that success in raising $1 billion or more is $86 million.

Question from Michelle, Boston nonprofit:
    Are any of these large gifts part of a challenge? Would you recommend institutions appeal for gifts of this nature?

David H. King:
    Most of the 9-figure gifts have not been structured as challenge gifts. Most of them have been the result of the donor wanting to see something happen now and they want to put the money in and get going on the project. That said, I think challege gifts, when appropriately structure, can be very effective in moving people in the middle of the pyramid upward in their thinking. But, in our experience, the contributions of the largest donors are not generally persuaded by challenge gifts. Thought they may be persuaded to make a large gift if they can be convinced that structuring that as a challenge will put pressure on others to give more.

Question from Steve, Fundraising Consultant:
    With your research showing that Mega-gifts are keeping up with campaigns, would you advise institutions to "raise the bar" on their campaign amounts in order to encourage more Mega-Gifts?

David H. King:
    I would advise institutions to develop a thorough and thoughtful strategic plan and to attach the best costs numbers that they can to that. Then, with the advice of counsel, establish what appears to be a stretch goal - based on history - and conduct a good feasbility study testing that stretch goal. This will gauge what donors think is a "mega gift" for that insitution and rather or not the are inspired by the plan. While donors may want to transform institutions - they don't want to overwhelm them. Also, there is a danger is setting a unrealistically high goal in an effort to attract a mega gift. What if nobody takes the bait? You can spend all day fishing for marlan, but end up eating tuna out of a can. You've got to have the donors to justify the goal in the first place.

Question from Martha, research organization:
    In your opinion, what are the essential resources needed to solicit these megagifts? Would you rank personal relationships among donors as an essential resource?

David H. King:
    1) Donor has to have the money 2) Donor has a history of giving away money 3) Donor has strong history with the institution 4) Personal relationships with the current institutional leadership If you have number 4 without 1, 2, and 3 you are not likely to get much money. Remember too, that leadership (in development as well as administration) seems to be in a constant state of change so the key part of the relationship is that they "love" the institution - they only have to "like" the leadership.

Question from Chris Thompson, CASE:
    David, first let me thank you and your colleagues at AHM for your research contributions with regards to large gifts. There is not nearly enough good research being done in educational advancement to support the data-driven decision-making that is sorely needed at the new scale of campaigns. My question is, you gave an interesting presentation at the recent CASE Summit in Chicago showing that your analysis had cast doubt on the old "80:20 rule", and that "80:10" might be more appropriate. Can you suggest for us what implications that change might have for a campaign director or planner at an instituition when they are devising their fundraising strategy, staffing levels, future projections of donations, etc? Thanks.

David H. King:
    Sure, While we need more research into the next level down (gifts 11 - 50 on the pyramid), one conclusion that we drew from this data is that a larger percentage than the "textbooks" teach is actually coming from the largest gifts. For example, in campaign of $10 million or less, 57% comes from the top 10 gits. I have seen, literally, hundreds of range of gifts table in my career and the majority of them do not indicate nearly 60% coming from that few gifts. I think part of it is that we accept conventional wisdom and don't go back and review or past campaign - we close the books and move on to the next one. I will tell you that we have run into a few clients who have questioned us when we suggested such a high percentage from the top gifts (it is so undemocratic). In each of those cases we asked them for the list of gifts from their last capital campaign and in each and every case we found their top ten gifts were, in fact, more than what we were suggesting should come from the top gifts. That usually quites the protest. I think the implications are that those planning and executing campaigns needed to understand that such a large percentage is coming from the top and that campaign success is depends heavily on the contributions of fewer than 20 people. What this means is that early in a campaign you may not need a huge staff, but you need a great deal of strategy and patience. It may take you a year to secure the fits you need from just those 20 people, but if that results in 60 - 70 or even 80% of the campagin goal - so be it. Activity alone is not an indicator or progress.

Question from John J.:
    Would you recommend that for a donor to even consider making a large gift such as $10 million to a capital campaign, in addition to the cultivation factor, should those donors be "prepped" by being asked to make a series of larger unrestricted (or restricted) annual gifts through let's say a major giving society, if historically they had only been giving $1000 - $5000 annually?

David H. King:
    Be Haas, who founded our firm and raised money from 1950 - 1997 used to say this: "giving away money is like doing an exercise, the more you do it the better and strong you get. If you don't do it, the muscle shrinks away to nothing". That is my "southern" way of saying yes, work with all donors to increase the level of their relationship and support of the instituion as they progress toward their gift of a lifetime.

Erin Strout (Moderator):
    I know that many of you have submitted some great questions. Unfortunately we are almost out of time.

Question from Michael K. Helmer, Comerica Charitable Services Group:
    The Baby Boomers are a major financial resource to many philanthropic organizations. I have worked with Certified Financial Planners & Wealth Advisors in the area of planned/major giving. Do you believe we need Philanthropic Financial Advisors to work with Wealth Advisors for better client discussions?

David H. King:
    Most financial advisors are focused on preserving wealth and minimizing taxes. In my experience, unless the donors bring it up most financial planners do not even mention philanthropy (unless it is a tax strategy). I think it would be hard to get the planners' attention on this, but I think it is the responsibility of insitutions to get the donors' attention of the philanthropic side of financial planning so that they begin to ask the advisors about it.

Question from Amy Evans, community college:
    What about organizations that are struggling to pull in small gifts due to lack of institutional fundraising history? I begain working for a small community college with an even smaller, poor taxing district in June. My strategy has been to go for grants (federal, state and some foundations) first to raise the bar. Then begin trying to raise dollars from individuals after some groundwork has been laid. Do you agree with this approach or would another be better?

David H. King:
    I hate to do instant consulting when I don't have all the facts. But, here goes...You have to seek funds wherever you can get them in order to keep the organization going. However, Giving USA has consistantly shown that more than 85% of all donated money comes from individuals. So, seek funds where you can get them now, but work to build a constitutency of individuals donors for the future.

Question from Erin Strout:
    We've seen a great number of gifts of $100-million or more to higher education this year. What do you think accounts for the influx of generosity?

David H. King:
    To some degree it is just "inflation". After all, $10,000,000 invested in 1987 and generating a 12% annual return would be work more than $86 million now. And, many of the wealthiest people have access to investment opportunities that generate a lot more than 12% annual return. The second factor is the needs of institutions. The world we live in has changed a lot over the past 20 years and our educational institutions are struggling to catch up. As a result, they are able to show real, demonstrated needs that add up to billiions of dollars and warrant 9-figure investments. A third factor, I believe, is that it has become "fashionable" to make a 9-figure gift now. Just 10 years ago it was unheard of, so when you went to a donor to ask for $100 million you had not examples to point to. Now, you have dozens of examples to point to that put the donor in "good company".

Erin Strout (Moderator):
    Well, our hour is up. Thanks to everybody for the lively discussion on this big topic. Thanks also to David for sharing his observations, knowledge, and opinions with everybody today.

David H. King:
    I appreciate everyone participating today. I hope I was able to answer your questions or at least provide food for thought. We are continuing our research into the impact of large gifts and perhaps we will have the opportunity to do this again sometime.