The Psychology of Endowments: How to Explain the Vision

From encouraging event attendance to crafting winning donation appeals, donor psychology likely plays a key role in all of your nonprofit’s outreach efforts. The more you understand how and why donors make certain decisions, the more you can encourage long-term involvement. 

This also applies to major fundraising initiatives like nonprofit endowment campaigns. Endowments have the potential to fund your nonprofit’s programs indefinitely, but supporters often hesitate to contribute to these funds. Due to a mix of negative news coverage and common assumptions, endowments often get a bad rap that your nonprofit will have to counter. 

To help your nonprofit earn valuable endowment contributions, we’ll explore how to frame the conversation around endowment giving. 

Countering Negative Narratives

Compared with other types of donations, endowments are notably contentious. While endowments have tremendous potential to fuel missions indefinitely, supporters sometimes get suspicious when they see that a nonprofit has a large amount of money that’s not immediately going towards programming. 

Here are a few narratives supporters might have heard about endowments and how you can counter each one:

• “Nonprofits with endowments don’t actually need the money.” While large institutions like Harvard University and other Ivy League schools do have massive endowments, nonprofit endowments come in all sizes. Infinite Giving points out numerous benefits small and mid-sized nonprofits can earn from endowments: long-term income source, potential to grow assets, and improved ability to attract major donors. Plus, endowment funds are often restricted, which can limit nonprofits’ ability to access funding right away. 

• “Endowments are a waste because the money should just be spent outright.” Rather than viewing untouched endowment principals as a waste, discuss their potential long-term return on investment. Calculate how long an endowment principal could support a given program now, compared to how long it can indefinitely support the program through generated investment revenue. 
• “Endowments don’t actually make an impact.” Some donors may view endowments as piles of cash that nonprofits are just sitting on and not actually using. Counter this argument by presenting all the ways you plan to use endowment revenue and the impact your endowment will have for years to come. 

When approaching donors, don’t bring up any of these narratives to avoid planting negative sentiments in donors’ minds. Instead, be ready with facts and a strategic endowment management plan that contradicts potential negative sentiments if they come up in conversation. 

Pitching Your Endowment: 3 Tips

In your pitches for endowment gifts, help donors see your vision by focusing on all of the positives of this giving method. 

1. Emphasize the potential long-term gains. 

Donors are motivated by urgency, often feeling the need to give to causes where their dollars will make an immediate difference. As endowments slowly generate revenue over time, avoid focusing on short-term gains and instead frame your pitch around the future. 

For example, a university might start an endowment for a scholarship fund. Theoretically, if the university used the requested principal to outright pay tuition for students now, it could support 100 students. However, if the university created an endowment, it could support 20 students every year for the foreseeable future. In five years, it can achieve its prospective immediate impact. In ten years, it can double that and continue to support students far into the future. 

However, keep in mind that the human brain struggles to conceptualize large numbers, and endowments often deal in very large sums of cash over the course of decades. While donors will likely want detailed reports about your potential impact, focus your pitch on the aspirational impact of helping your mission forever with a single gift now. 

2. Focus on potential returns, not upfront costs. 

Picture this: A donor agrees to give $1 million to start an endowment fund. The following year, the endowment generates $10,000 in investment returns. For the donor, that might seem like a poor outcome given how much they gave. 

When discussing endowments, be transparent about how they are a long-term investment, but stay focused on the potential returns. Donors are increasingly concerned about nonprofit financial transparency, so keep conversations about your endowment honest and realistic while still inspiring. 

To find donors who will be receptive to your vision, seek out supporters you already have a long-term relationship with. 360MatchPro’s guide to prospect research suggests specifically targeting individuals who have extensive experience with nonprofits outside of just donating, such as conducting advocacy work or even serving on a nonprofit board. 

These individuals understand how nonprofits function and have seen your nonprofit advance its mission over the course of multiple years. This means they already trust your organization and are more likely to be patient when it comes to seeing an impact from your endowment. 

3. Center donor legacy. 

Endowments are often meant to fund programs indefinitely. As a result, donors who help establish or fund an endowment can create a legacy that also lasts indefinitely. For donors who care about legacy and public recognition, this can be a powerful motivator. 

When approaching these major giving candidates, be sure to: 

• Paint a vision of the future. While you can’t know your endowment’s exact impact until many years down the road, you can discuss what you hope to see. Go into detail about the potential future your endowment can provide thanks to your donors. For example, an animal shelter might paint a vision of how an endowment funding expensive medical procedures will lead to a world where no innocent pet has to be put down unnecessarily and instead gets a new lease on life. 

• Consider naming rights. If naming rights are on the table for the program or initiative the endowment funds, consider offering them. For example, you might name a scholarship, building, or program after the donor whose gift started the endowment. 
• Continue stewardship. When a donor’s gift starts an endowment, they have made a lifelong investment in your organization. As their gift helps steward your nonprofit’s funds, you will need to steward the relationship long-term. For these influential donors, you might invite them to speak at events, join your board, or participate in campaign planning committees. 

When assessing prospective endowment donors, use your donor database to find individuals who you think would be motivated by legacy. Often, these are older donors who are thinking about the state of the world long after their passing or individuals with young family members who are impacted by your mission.