Donors v. Investors: 5 Differences You Need to Know

10 Jul 2018

Arts and Culture

Over 20 years ago, the idea of discussing 'investors' and 'return on investment' in relation to nonprofit organizations seemed preposterous. Today, however, it is not uncommon to hear both terms used widely throughout the sector. So what is the difference between a nonprofit donor and a nonprofit investor? Is there really a difference or is the use of the term investor just the latest fad? The following content is excerpted from the book, Asking Rights: How Some Nonprofits Get Funded (and some don't), by Tom Ralser, and explores five differences between these two very real and uniquely different group of funders.

The view from the other side of the desk, that of the nonprofit funder, is often very different than the perspective of the nonprofit itself. The broad category of funder can include donors, grantors, sponsors and members, to name a few. Donors, in particular, are typically defined as those giving at the lower financial levels, although that level is subject to interpretation. No matter what label is put on a nonprofit funder, the reasons they financially support nonprofits vary widely and can encompass many motivations, demographics, and financial situations.

Nonprofit investors, on the other hand, have much more narrowly focused efforts than those of funders in general. They seem to share a set of similar characteristics, tend to be rational thinkers, and respond to funding requests in a very different way than the broader population of funders as a whole. I define an investor as a certain type of nonprofit funder. They are typically willing to make larger financial commitments and possess a knack for long-range vision. This doesnât mean that a person who can only afford to donate time cannot adopt an investors mindset or isn't an investor in the broader definition of the word.

A nonprofit investor, like any investor, is concerned

with a return on that investment.

The more that return is demonstrated in a credible way, the more money flows to the nonprofit. Exactly how the return on that investment is defined is a deeper discussion. At this point, let it suffice to say that one size does not fit all, but the closer we can get to putting a dollar sign, a percentage sign, or somehow quantify this return, the more successful the funding effort. Even if 'what's in it for me' is only that warm glow someone receives from the act of investing in a nonprofit, it needs to be spelled out and communicated.

Donor is still the prevalent term. It certainly is a softer, more generic term that can describe anything from a few cents in the Salvation Army's holiday bucket to a multi-million dollar campaign pledge. The term donor is more focused on the act of giving than the mindset or motivation of the giver. When I started working in the nonprofit industry in the early 1990s, the term investor was not only unpopular, it was publicly ridiculed. While investor is still very much underutilized, it is getting more traction and gaining some speed for good reason.

How these two groups think differently in certain important areas is illustrated by the following:

Need for Funding

A Donor Will Ask

Have you demonstrated the need for your services?

An Investor Will Ask

How will funding your organization improve the situation?

Approach to the Problem

A Donor Will Ask

Does your approach to addressing the problem fit within our giving guidelines? Is the problem you are trying to solve familiar to us?

An Investor Will Ask

Does your approach to addressing the problem make sense?

Funding Level

A Donor Will Ask

Have we sufficiently spread our available funding across those organizations addressing the problem?

An Investor Will Ask

Is this the right amount of money for your organization to bring about real change?

Measuring Success

A Donor Will Ask

Have you completed your report according to our guidelines?

An Investor Will Ask

How will you communicate your impact to me?

Delivering Results

A Donor Will Ask

What activities did you undertake to address the need?

An Investor Will Ask

What results (outcomes) did you deliver, and how do they improve the lives (alleviate the problems) of your primary customers?

About The Author

Tom Ralser, CFA

Principal & Director of Asking Rights

Department: Team

“Why should I give your organization money?”

When I began in this business in 1995, this is the question I was first asked to answer. Not only was this asked in my first feasibility study by a prospective donor, but from a company perspective, it became the driving question that would allow us to become leaders in the industry.

Since then, I have strived to not only address this question but improve and refine the answer. In the early days of economic development projects, it was relatively easy to answer. Since then, I have applied my approach to answering this question to virtually every type of nonprofit. The narrower term “ROI” has given way to the broader “OVP” (Organizational Value Proposition®) which is more appropriate for social missions and my focus on outcomes delivered has led to a revolution in addressing the motivations of givers, transforming them from nominal donors to major investors.

My work is not yet done. As investors in nonprofits become more sophisticated and demanding, the bar is continually being raised. Stay tuned.

Tom has worked with organizations of all kinds, from Chambers of Commerce to religious organizations, national museums to rural health networks, and local youth organizations to international research institutes. He pioneered the concept of applying return on investment (ROI) principles to nonprofit fundraising, and fundraisers have described his work as the “silver bullet” that justifies larger investments in nonprofit organizations.

Hundreds of organizations have utilized Tom’s sustainability planning techniques to ensure they can thrive in a tight money environment. He holds the Chartered Financial Analyst (CFA) designation, which provides the framework for his Investment-Driven Model™ of fundraising, and led to the development of the Organizational Value Proposition®, which is widely used by corporations, foundations, and individuals as confirmation that the nonprofits in which they invest are truly delivering outcomes with values. His specialty of utilizing for-profit concepts and methods in the nonprofit world has helped nonprofits raise over an estimated $1.6 billion in the 22 years he has worked with them.

Tom is a frequent and highly acclaimed speaker, addressing topics about attracting new funders, outcome-based sustainability planning, and delivering value to investors.

Summary of Experience

Personally involved in over 600 nonprofit funding projects in all 50 states.
Author of the books ROI for Nonprofits: The New Key to Sustainability, Asking Rights: Why Some Nonprofits Get Funded (and some don’t), and the companion workbook, Developing Your Asking Rights.
Holds the Chartered Financial Analyst (CFA) designation, ranged by Economist as the “gold standard” for investment analysis.
Session leader and/or keynote speaker at dozens of conferences throughout the nonprofit sector and country. A sampling includes:
- Planet Philanthropy (2016) Keynote Speaker.
- National School Foundation Association Annual Conference (2016, 2017) Presenter.
- Association of Healthcare Philanthropy Big Ideas Conference (2017) Presenter.
- Council for Advancement & Support of Education’s Conference for Community College Advancement (2017) Presenter.
Founding Director of Western Colorado Bureau of Economic and Business Research at Colorado Mesa University, where he was a tenured professor.
MS in Finance from the University of Utah and BS in Marketing from Illinois State University.