I received a brochure in the mail recently about a company offering alternative investments. I get a lot of these, probably because my Chartered Financial Analyst designation puts me on the mailing list of many investment houses, hedge funds, asset managers, etc. This one caught my eye because of its direct approach:
“What’s the path towards financial independence? A reliance on only the traditional options of stocks, ETFs, and mutual funds risks overexposure to devastating stock market downturns. Instead, I wanted access to the same investment products used by hedge funds and institutions, but I and many others didn’t have it. We built Yieldstreet to change that.”
Milind Mehere, Founder & CEO
Their point is absolutely true. Even though one may be diversified within the market, if that market heads south even the best of diversified portfolios will tank (termed systematic risk in the financial industry). This particular company offers alternative investments such as fine art, venture capital, real estate, structured notes, and multi-asset class funds. These vehicles typically carry more risk but are often not necessarily correlated with the stock and/or bond markets, providing a hedge against market performance.
Why am I talking about alternative investments? Because their pitch mirrors what we have been saying for years about funding for nonprofits. To prove my point, let me take their paragraph above and insert the language we use in our approach to nonprofit funding:
“What’s the path towards financial sustainability? A reliance on only the traditional methods of galas, golf tournaments, giveaways, fun runs, and trendy challenges risks overexposure to changing times, fickle trends, and economic downturns. Instead, I wanted nonprofits to be funded by the outcomes they deliver, funded by those who value those outcomes. We built Convergent to do that.”
In other words, we provide the alternative investment to events, emotional appeals, and shotgun approaches fundraising. And if one needs a recent concrete example of why this is important, I can point you to many nonprofits that were devastated by the fact that galas and events could simply not be held during the worst of the pandemic. Their overreliance on one source of revenue, mostly with smaller transactional donation amounts, put them in a serious financial corner when the demand for many of their services was higher than ever.
We position our client organizations as community assets, worthy of investment. In fact, we even call our process the Investment-Driven ModelTM, or IDM, which is based on why and how people really give to nonprofits. Think about it, you give your money to a nonprofit because you want to see a disease cured, a child educated, a pet given a home. In other words, you want to see a certain outcome delivered. And if that nonprofit delivers, you are likely to invest in it again, just like you do in your personal financial portfolio. And that is what makes this process sustainable. People will invest in your nonprofit over and over again, as long as you deliver!
A big part of this process is building Investable OutcomesTM, because not all outcomes are the same. Some are more appealing to a nonprofit investor, and some are more highly valued, meaning you can raise more money with them. Once your outcomes make sense and are communicated correctly, then the challenge becomes finding those investors who value them. This process may sound daunting, but it is well worth it, because it raises more money, moves beyond transactional amounts, and cultivates long-term investors. It’s successful in large urban areas, small rural areas, and everything in between. It works for the entire spectrum of organizations, from helping the disadvantaged to education to economic development to arts and culture.
A word of caution in all of this: it takes more than simply changing your vernacular from donation to investment, from donor to investor. It takes a paradigm shift to thinking like an investor, providing outcomes that are valued, and delivering like an investable organization.
Wall Street is a culture of performance, where what works is rewarded and what doesn’t is dispensed of quickly. Diversification is a time-tested concept that is part of their fabric of performance. Trends come and go, but the expectation of valuable results is constant. There is a lesson here for nonprofits.