Donors v. Investors: 5 Differences You Need to Know

Fundraising

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 doesn’t mean that a person who can only afford to donate time cannot adopt an investor’s 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:

  1. 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?
  1. 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?
  1. 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?
  1. 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?
  1. 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?