Venture Capital and Stock Trading for Non-Profits

by

Slate Magazine is running a series this week on non-profit philanthropy and they are presenting some interesting ideas about how non-profits can benefit from common activities of the for-profit world.

One article talks about how Venture Philanthropists are using the venture capitalist model to help non-profits by providing support and guidance for increasing organizational capacity rather than operating funding.

The involvement of venture philanthropists seems rather recent. Venture Philanthrophy Partners, which the article identifies as a leader in the field, was founded in June 2000. They are apparently still in the process of figuring out how the whole VP-Non-Profit relationship should work.

From their website:

We originally applied a venture capital model for investing in nonprofits, and have refined this approach by blending it with time-proven lessons from foundations and nonprofits. We invest to build institutional strength, providing large amounts of scarce growth capital.

VPP is strategic, highly engaged, and works to become a trusted advisor to the nonprofits in which we invest-it’s much more than writing a check.

Some may balk at the idea of being responsible to both a VP group and a board of directors for their performance. However, unlike a board of directors, a VP group will research a non-profit’s industry and business environment extensively before proffering advice and guidance.

Another article from Slate proposed an idea for a stock market for non-profits called Dynamic Deductions. You have to read the whole article to figure out exactly how it would work. But simply, a person would buy X amount worth of shares but doesn’t take a deduction until he sells the shares. If the share value goes up, you take a bigger deduction than you would have had you donated directly. If not, you take a smaller deduction.

The big way this would differ from the stock market is that under this proposal, a non-profit would get money everytime the stock changed hands rather than the one time infusion a for-profit gets at its initial public offering. (Excluding the times they purchase and resell their stock, of course.)

This option doesn’t exist as yet because there are no laws creating or governing such transactions. I also don’t claim to be a master of finance, but the concept as laid out here seems generally sound. Large businesses would probably be interested in participating in the markets because they could potentially increase the value of their tax deduction by buying low and selling high.

The one hitch that will probably emerge for most arts organizations is that they are so small that buying their dynamic deduction shares may not be attractive to most people due to the small volume traded and thus the small appreciation in deduction value.

A solution might be that all the arts organizations in a region or city might offer shares as the Minneapolis Arts Collective, for example and then split the proceeds. Such a relationship could be beneficial for all members of the regional collective since it would behoove each member to promote and collaborate with the others as a way of driving up the share price. The region or municipality benefits by gaining the reputation of being a cultural hot spot hopefully leading to the attraction of new businesses and residents (but hopefully not leading to gentrification and skyrocketing rents.)

A couple pitfalls though that I can see immediately. First, such a relationship might also serve to create pressure among the members to program for the least common denominator in order to keep the share price high. The large Broadway touring house that has always programmed to wide appeal and gotten large donations might fret now that they are financially grouped with the small experimental theatre or art museum whose offensive show is making national headlines weakening confidence in the collective and its share price.

If dynamic deductions or something similar emerges as the way to fund arts organizations and displaces donations by individuals, corporations and foundations, there is a danger that divergent voices may never be heard. People wanting to do edgy stuff in a small space would have to self-fund if direct donations fell out of practice.

Some might say there is a danger that such a scheme would cause non-profits to act like their for-profit kin and hide bad news even more than they do so now for fear of undermining share price and overstate number of people served (vs overstating earnings). The former is a distinct possibility. The latter not as much given many arts organizations are doing so on their final grant reports now.

The other pitfall that occurred to me is that Little Arts Organization reluctantly agrees that Big Art House will get a bigger cut of the share proceeds based on the argument that their prominence in the community will be the main driver of trading in their shares. Ten years down the road, having benefitted from the infusion of cash, Little Arts Organization has grown in prestige while Big Art House has waned a little. Little Arts demands a larger cut now that their reputation is a factor in the share price too. Bitter in-fighting wracks the collective causing members to withdraw and dissolve the relationship.

On the other hand, a real large organization might feel there is nothing to be gained by joining with smaller ones in this manner. The arts collectives may initially be comprised of equals sharing as such. If one grows larger than the others and demands a larger share, it is at least easier to argue they deserve it based on merit since they all started from the same general point. (Or who knows, the market these shares trade on on may classify non-profits like the NCAA sports teams and the burgeoning org might get moved up to Class II-B trading by analysts.)

Despite these potential problems, exploring alternative options like venture philanthropic support and dynamic deductions is absolutely worth doing. The funding environment isn’t getting any better and arts organizations already operate with a slight antagonism and suspicion toward each other. It is too early to tell if these options are even the right ones. Of the two I have mentioned here, one doesn’t exist and the other is still in the refining stages.

The need to discover a way to implement a constructive shift in the support mechanism for arts organization seems imminent. The idea of venture philanthropists excites me because it shows that very smart, very experienced people want to get involved and effect change. I like the general concept of the dynamic deductions more because it promises a degree of independence and pride you don’t get when you have to annually ask people for money.

E-Newsletters–Looks Easy Enough, Right?

by

I have had some of those “easy for you to say” moments the last few months and I thought I would relate my experience in the interest of the “Practical Solutions…” subheading of this blog. (And in the hope that someone out there has a better, practical solution!)

Over the summer I worked on putting together a way to send out an email newsletter to interested patrons on a monthly basis. Thus far we have sent out a sneak peek at the season email and three focused on the month ahead. I have been pleased at the response we have gotten reflected by the number of people who cite that as their source of information when buying tickets and by how much earlier we are selling tickets for upcoming events.

I have encouraged people to do this sort of thing in past entries and I do so again.

But, as I noted, it was easier to say than accomplish.

To make up my newsletter, I used Microsoft Word placing a photo in one cell of a table and the text in another. Word has an option to send to a mail recipient as HTML which moves everything to my email client ready to go. With the correct settings the text flows around the pictures nicely as the window of your email is re-sized and the font size will automatically be enlarged by anyone who has sight problems and has set their email program to do so.

The problem is, it looked good when I emailed to myself at work (where I use Microsoft Entourage), but what was sent to my home address looked strange. The font size would change from line to line and strange spaces appeared. People with Yahoo email accounts got entirely blank emails.

In an attempt to remedy this problem, I have tried to use Dreamweaver web publishing software and InDesign desktop publishing software to find a solution, but they don’t export information directly in the body of an email. (At least that I have discovered.)

One option is creating a PDF of the document with Adobe Acrobat. You can place the a PDF directly in the body of an email. The problem is while it looks great, it is static. Resizing the email window cuts off the text and the text doesn’t automatically enlarge in accordance with your settings. Also, the inserted PDF doesn’t always appear well or at all in some email clients.

What I settled on this past month was sending out the newsletter as an Acrobat attachment. Using the free Acrobat Reader, people could look at it more dependably and enlarge it as they needed. The problem with this approach is that there is no impact upon opening the email because of the lack of pictures. All they see is a note saying the newsletter is attached. I am counting on people to be interested enough to open the attachment and to download Acrobat Reader if they don’t have it already.

If anyone knows of a fairly cheap, quality solution, I would love to know about it. I did explore options with the university alumni association about how they send out their monthly e-newsletter. It turns out, they send out an email with story synopses and hyperlinks to a web page with the full story with big lovely pictures on it.

For me this has the same problem as the PDF attachment. Without persuasive visuals you are totally dependent on curiosity to get people to take action to explore further.

One last element of the “easier said” kind. Constantly updating an email list with additions and subtractions is a pain in the butt and offers many opportunities for mistakes. You can go the route of creating an address group in your email client which is honestly a pain to maintain, but there are other options.

One option that I blessedly have available to me is a Listserv. I send my newsletter to one listserv address and all the people subscribed to the list receive the email. You can set it up so people can join or leave by themselves and you can add or subtract them yourself either individually or en masse.

The software is readily available and pretty easy to install if you are a semi-tech geek and have an in-house mail server. If someone else hosts your mail server, they can probably set a listserv up for you. Even though they have a web interface for altering the settings it can take a little trial and error getting things set the way you like it. (Actually, the interface is easy enough to use, it is the manual/help files and the commands you have to enter that are about 10 years behind the times.) The license for the limited or standard software runs between $450 and $9000. If you figure out how much you would spend mailing out postcards every month, you will probably find it is worth it. (I am betting running a handful of lists will cost toward the lower end of the spectrum.)

Another option is to use an email marketing service like Constant Contact (I have never used them, but someone who has suggested them as a possible solution to my e-newsletter problem.) Essentially with services like this one you open an account and enter all your email addresses on their servers. They provide tools to categorize your addresses (subscribers, experimental series, donors who subscribe, etc) and even offer templates with which to create snazzy emails. Among the features they offer (and I haven’t read them all) is the ability to see how many emails were opened and how many people clicked on the links contained in them. Pricing seems pretty reasonable–$30 a month for 500-2500 addresses with unlimited emails a month.

One last thing to be aware of if you decide to explore the e-newsletter route is the CAN-SPAM law governing commercial emailing. Essentially it says you have to accurately identify who you are, why you are sending the email and offer an opportunity to opt-out in the future. For most arts organizations, an angry response and wholesale boycott of your programs will indicate you are not in compliance with the law long before you show up on the FTC’s radar.

Can It Happen Everywhere?

by

As I was perusing Artsjournal.com on Tuesday, I came across a link to an OpinionJournal.com article covering the Knight Foundation’s final report on their Magic of Music Initiative.

I have read earlier installations of this initiative and did an entry on Penelope McPhee’s remarks at an initiative retreat in 2002. What got me to read the final report sooner than later was a section of the news article that said that the final report concluded:

Free events drew crowds, but attendees did not later shell out money for tickets. Nor did the bountiful numbers who attended off-site concerts later patronize the box office. Outreach programs to new audiences also failed to get people to buy tickets.

What I wanted to know was is it the free events, off-site programs and outreach programs that don’t work or is it that people weren’t interested in buying tickets to the symphony but might do so for theatre or dance.

Long story short, the report doesn’t really say because none of those surveyed were asked questions which might reveal if different attitudes toward dance and theatre might exist. I suspect, however, that it might be that people don’t like the symphony. The study reports that large numbers of people regularly listened to classical music, but “did not consider the concert hall the preferred place to listen to it. The automobile was the single most frequently used venue for classical music, followed by the home.”

Absent a similar study for theatre and dance, it is difficult to say that it is the concert hall environment and not the prospect of having to pay that is the barrier to attendance.

One thing I did see as encouraging was the finding that “…only 6 percent of those interested in classical music considered themselves very knowledgeable about it, while more than half described themselves as “not very knowledgeable.” Still, it gave them enjoyment.”

I don’t quite know how to constructively exploit this attitude yet, but I find it heartening that people aren’t reluctant to experience something they don’t completely understand. They may not feel confident or even interested in going to see a performance at a concert hall, but people are actively choosing to listen in their cars and homes despite a perceived unknowable quality.

The road to converting people to paying attendees might run through paid performances in a different setting or context preceded by marketing with a message to visit our website or come talk to our trained volunteer staff who will help make you feel competent in a low intimidation environment. And I say this in connection with all arts disciplines, not just classical music.

There is huge amount of interesting stuff in this report. I am not going to go in depth with a discussion because Drew McManus has mentioned he was going to talk about it and I daresay he will do a better job of it than I would. I am sure he will touch upon how the near impossibility of getting the musical directors involved essentially hobbled the initiative right from the start. (But if he doesn’t, now you know a little about it and should read the final report.)

In the interests of getting people to take a look at the final report, I will say that the process the Knight Foundation went through to initially solicit proposals and the mistakes they realized they made in the timing and format of their RFP is fascinating. I also have only touched upon about 1/10th of their findings and mentioned nearly nothing about the successful and interesting things some orchestras did.

Yeah, the report is about 50 pages long (with lots of large pictures) but there is much to ponder. You may not feel you have time, but commit to reading 5 pages of text a day and you will be done in a week or so.

He Who Sells My Good Name

by

About a month ago I was at a meeting of arts people hovering on the edge of a conversation discussing the creation of a consolidated database of arts attendees or some sort of limited sharing of lists.

My first thought wasn’t about jealously guarding my list from their greedy grasping hands. There are quite a few people with whom I wouldn’t feel threatened sharing my list.

My initial concern was that have I gone to great pains to assure my ticket buyers that we will not sell, trade, etc., their information. There is such a concern about spam, phone calls and identity theft, that audiences need a high degree of assurances about the use of their information before they provide it to you.

In fact, we often have people who have signed up on our mailing list sheet in the lobby at intermission upset that it is still out at the end of the performance. Considering there is no information that can’t be acquired from the phonebook, their fear is a little irrational. It is difficult to steal someone’s identity with their address and the added information that they attended a show at the theatre. People usually feel a little silly when I point out the reality of this.

Which is not to say that we don’t handle information with which a person could steal someone’s identity. We are very careful about getting proof of ID before handing out credit card receipts at will call. Even if people act a little irrationally about their personal information, it only goes to show how important protecting it is to your relationship with them.

But back to the mailing list issue.

When I am signing up on a website that collects information, there is often a opt in/out box where the company asks permission to share information with their partners in order to offer the widest range of options and the best customer service.

Now I don’t buy for a moment that I will benefit from whatever their partners have to offer. I wonder if a similar approach could be applied to ones patrons though– “As an arts lover we would like to offer you information on the widest range of activities in town. May we share your information with other arts organizations?” I guess as an arts person, I would have a less cynical view of that approach coming from a theatre than I do when my credit card company uses it. I don’t know how the average patron who already gets appeals from a theatre, the United Way and college alumni association around year end might see it.

I was wondering if anyone had dealt with the issue of sharing names in the last year or two. Did you ask your patrons if you could share the info or did you just do it? If you did ask, how did you go about doing it? Did people know in advance that you might share their information?

When you did share your list, did you place stipulations on its use? For example, one brochure mailing and then the list is destroyed so that the only way to capture the information is if the person buys a ticket. I once had a condo association give me a list with the provision that they send it directly to my mail house who had signed a promise to immediately destroy the disk.

If you did share the list with such restrictions, did your partner abide by the rules or did your planted address get appeals and mailing beyond what you had agreed to? (Common trick when sharing lists is to add the names and addresses of employees with a low public profile or friends/family members who have agreed to help you keep an eye on how the list is used.)