Many Questions on Challenge Grants!

Last week I posted an article on challenge grants and got more calls and emails on that than on any other topic. This week, I'm answering the questions that have been raised.

I happen to think that challenge grants can be the solution to many situations that present problems. Challenge grants are not limited to those opportunities that present themselves, but can be used very strategically in a campaign or in day-to-day initiatives in a development office.

Mark told me about his situation. Last year one corporation with whom he was working had challenged another and they both gave a gift of $100,000 to a particular initiative. He asked if he could actually ask each for another gift the following year and, if so, could he use each of those as a challenge grant?

It was a great question and a great strategy. In year one, Mark was able to convince one corporation to give $100,000. When they agreed, he asked them to challenge one of their competitors to also give $100,000. The second corporation gave $100,000, so the challenge grant idea was successful. Throughout the past year Mark used the $200,000 to fund a marketing campaign that produced remarkable success for the City of Pittsburgh—it produced success for the non-profit, saved hospitals a great deal of money and provided a wonderful benefit to the people of this community. It was also great publicity for the donors.

This year, Mark will ask each of those corporations for another contribution and simultaneously request their approval to use their gifts as challenge grants to other, smaller corporations and businesses in the city. If they agree, this is a wonderful opportunity to open additional new doors for the non-profit. Not only will the two original donors' opinions about this effort put their seals of approval on the project, but their corporate names within a challenge-grant situation will add further fuel to the request—what organization wouldn't like to double their contribution and the impact it will make? And gain wonderful publicity in the process.

Janice asked me if it is always necessary to make the match a 1:1 match. The answer is no, the match can be made at any ratio that is helpful to the situation.

In one situation a donor gave a $1,000,000 gift, and we matched it with gifts totaling $1,500,000. The gift could have been specified to match at 1:2 or another ratio that made sense for the situation. Even 1:.5 can be logical in certain situations.

One very important issue came to light after publishing last week's blog: the executive director of a local organization is working hard to finish a campaign. He asked: What role does the challenge grant have within a campaign?

I loved this question, because I just hadn't thought about it for a while. Because challenge grants add such excitement and a sense of urgency (and they are like their own campaign in a way), they can play a special role in launching a campaign, building excitement during the campaign, or finalizing a campaign. Whether it is a corporation challenging other corporations, a foundation challenging other foundations, or a major donor challenging the entire constituency, it can play a special role in unlocking new contributions, elevating the interest of a particular group of donors, or unleashing the interest of the board of directors. There are many ways to launch a challenge grant as long as it takes the campaign towards the finish line.

One donor asked me if the challenge grant he wanted to give also could have other parameters attached to it, that is, not only would it be contingent on matching the funding, but also might have certain goals associated with the number of donors, members in a particular society, new vs. established donors, etc.

The answer to that is yes, as well. In this case, the board member who was asking was particularly interested in giving a gift and stimulating more action with the other board members. He wanted to ensure that they were involved in the fundraising and were asking new people to contribute at levels that would ensure they were members in a particular society—in this case the organization had recognition levels of $1,000, $2,500, $5,000 and $10,000. This was his way of working to ensure organizational success in fundraising.

We talked about the fact that in the case of the growing organization in which he was involved, it also was possible to tie the challenge grant to the number of growing "constituents" in the tri-state area, accreditation approvals, attendance at board meetings by a certain percentage of board members, etc. While few people will ask about this one, it certainly reminded me of the Kresge Foundation grant in which I was involved years ago (mentioned in the last posting).

The key to a gift like this one is to ensure that it is being discussed within the organization—with leadership and the development office—before any announcement is made. Everyone has to be comfortable with the approach and be committed to the outcomes.

Jennifer also asked me about timing issues. What if the donor asks that the challenge be met in a year and then the organization is not able to meet the challenge in that time?

This is a problem, but just like anything else, my first thought would be to meet with the donor and explain what held the organization back. Staff departures? Lost a gift that staff was counting on for this purpose? Donors slow to respond? Whatever it is, package the issues in the most positive way and meet with the donor at the first sign that things might not be going as well as expected. Ask a more senior leader to go with you and provide a full report, noting how much more time it is going to take and the approaches that you are going to use to meet the deadline. Thereafter, regularly and frequently report to the donor because that individual will be very anxious to hear from you, so you must rise to the occasion. Honesty in a timely way is the best policy.

My colleague, Roz Markovitz, also reminded me that certain challenges don't have any funding levels associated with them.

And she should know this one! She recalled a small campaign in which she was involved for cause marketing. The first potential organization she approached said that they would become involved with a great marketing campaign to benefit the non-profit, but had to be assured that Roz had a great recognition program in place and at least four other corporations involved. It was a great challenge and, of course, Roz met it. The following year many more corporations became involved because of the success from the pilot campaign.

My sister asked me if I ever had issued a challenge myself, and the question reminded me of an early example when I worked at Children's Hospital.

A man had given $1,000,000 unexpectedly to Children's Hospital. At the same time, we were working hard to find a way to establish an endowed chair in a particular area. The original donor did not care to have his name on the chair; he always wanted his gifts to be anonymous. We asked if he would issue this as a challenge grant to one particular person in the community, someone whose name everyone would recognize, and he agreed. The person who answered the challenge was actually flattered, and he established a genuine legacy with his own gift of $1,000,000 and his name was placed on the endowed chair. That chair, valued at $2,000,000, still stands as a beacon of hope for many families and reflects this gentleman's interest in the area itself. A great gift from two terrific people. You also should note that both gentlemen have since made additional remarkable gifts to the hospital.

Finally, Marjorie asked me: When can you count the challenge grant on your revenue books?

Well, I immediately count this challenge grant on my lists of good news! I always celebrate good news immediately and then many times thereafter! In my unofficial books, I count it as "in." But it cannot be officially booked until the contingencies of the gift are removed and until all challenge-related issues are met. That is, the final amount has been raised and the donor is satisfied, etc.

Other questions? Please ask me by calling or writing in through the blog.

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