With Megagifts Hard to Get, Colleges Chase More Donors

Tough economic times force fund-raising offices to reach out more broadly in billion-dollar campaigns

Karin Higgins, U. of California at Davis

Linda Katehi (left), chancellor of the U. of California at Davis, and Margrit Mondavi, a member of the winemaking family and honorary co-chair of the university's $1-billion campaign, join in a toast.
November 21, 2010

Big gifts make big campaigns. The eight- or nine-figure donations, known in campaignspeak as lead gifts, attract publicity, inspire others to give, and, most important, help colleges make significant progress toward their fund-raising goals.

But while the number of major campaigns keeps growing, the megagifts that fuel them are in decline, victims of popped economic bubbles, depreciated assets, and shaken confidence in the economy. One recent survey found that the wealthiest donors had decreased their giving to colleges and other education-related organizations by 55 percent during the economic downturn.

In response, colleges are adjusting their fund-raising strategies. Acknowledging that they can no longer focus most of their efforts on the top 1 to 2 percent of donors, they are paying more attention to the next tier of supporters.

Reaching out to those who can make gifts from $10,000 to $1-million is a less efficient way to raise money than focusing on the handful who could afford $50-million or more, but experts say it's a strategy that colleges can no longer afford to ignore.

At the same time, some colleges are extending the timelines for campaigns and loosening the rules for what kinds of gifts are counted in the totals. And planned giving is becoming more popular, so colleges will be waiting longer than in the past to see the money pledged during campaigns.

One thing the economy hasn't changed is colleges' fund-raising ambitions. In the past two months, three public institutions—Rutgers and Texas Tech Universities and the University of California at Davis—announced billion-dollar drives, and Indiana University-Purdue University at Indianapolis announced a $1.25-billion effort. The Davis drive is its first comprehensive campaign.

Fund-raising campaigns may be feeling a pinch now, says Donald M. Fellows, a fund-raising consultant, because colleges had previously not paid much attention to the segment of donors who can make significant gifts but not huge ones. His firm, Marts & Lundy, released a report last month showing that colleges preparing for campaigns were most concerned about securing a lead gift and addressing the middle level of donors. During the next five years, the report predicted, colleges will see fewer donations from their top 1 percent of supporters. To compensate, they will need to put more effort into the next 4 to 5 percent.

"We've got to really shift and build a bridge between the $10,000 top annual-fund gift and the million-dollar range," Mr. Fellows says.

If colleges aren't seeing this in their fund raising now, they will, he adds. Some campus leaders are already looking for ways to respond to the changes in the giving landscape, reconfiguring their staffing or bolstering volunteer networks. "The next campaign is going to be harder," Mr. Fellows says.

After the Bubble

Just as real estate had a bubble, so did philanthropy, says Darrow Zeidenstein, vice president for resource development at Rice University. In the middle of the decade, wealthy donors with highly appreciated assets made large gifts, and colleges used that money to help finance capital expansion projects. For donors and colleges, he says, "nothing was too big."

Then the bubble popped. Gifts of $5-million or more have dropped sharply, Mr. Zeidenstein says. Over all, donations to higher education were down almost 12 percent last year, and giving to the country's 400 largest nonprofit organizations, including colleges, was off 11 percent. The biggest campaigns—of $1-billion or more—saw steep drops in donations at the beginning of the recession.

Hard times hit different parts of the country at different times, with Texas following the Northeast and other regions, says Mr. Zeidenstein, who has followed giving trends for more than a year. He predicted last summer that megagifts would go down in the wake of the collapse of the housing and stock markets.

To adjust, some colleges are announcing 10-year fund-raising efforts, including an all-campus drive at Indiana University, which aims to raise $5-billion. High Point University, in North Carolina, has set a decade-long time frame for its $2.1-billion effort.

Some institutions have also started counting gifts that they might not have counted before, such as in-kind and revokable donations, which may not come in until long after a campaign concludes, if at all.

A costlier strategy is to add or redeploy staff members who can focus on what is known as the "middle of the pyramid"—supporters who can make five- or six-figure gifts and wouldn't have received much specialized attention in the past.

Paying such attention requires more money and time and increases the cost per dollar raised, a figure that college leaders and governing boards monitor. But the long-term benefit is that those middle donors who are cultivated now may become leaders in campaigns later.

At Rice, which is running a $1-billion drive and doesn't have a vast alumni base, Mr. Zeidenstein has concentrated his staff's efforts on donors with the ability to give $50,000 to $1-million. "You're not just trophy hunting," he says. "You're hopefully making a big garden that will produce for years."

In its recently completed $1-billion campaign, the University of Missouri at Columbia relied on few megadonors. The largest gift during the eight-year effort was $31-million. The university depended instead, says David P. Housh, vice chancellor for development and alumni relations, on 165 donors who made gifts in the million-dollar range and up.

Missouri is now planning for its next campaign—which will be bigger than the last—and fund raisers are hoping that some of those donors will make bigger gifts. The university has also worked with consultants to identify 4,000 prospective donors who have the ability to make major gifts but were not being courted. The development team is now working to build relationships with them.

If the university is aiming to raise more than $1-billion, Mr. Housh says, "you need some of those big gifts to really push you over."

Different Times

David Onion, senior associate vice president for development at the University of Texas at Austin, has the perspective to see the changes in big campaigns. He was around during the university's first $1-billion campaign, which raised $1.6-billion from 1997 to 2004, and is leading its current $3-billion effort. The first time, 2 percent of donors gave 86 percent of the money raised. This time there are fewer big outright gifts. "We're looking at donors from top to bottom, not just the top," he says.

Fewer people are giving gifts of appreciated stock for capital projects, a popular way to make a megagift in the past. Planned giving now makes up almost a third of major gifts. (Texas is not assigning a dollar value to an increasing number of those planned gifts, however, because some donors aren't comfortable giving a figure when their assets are in flux.) The campaign's largest gift to date, a $55-million donation, is a combination of cash and planned giving.

Texas has 400,000 alumni, 10 times the number at Rice. Cultivating all of them is unrealistic—the university still needs to focus on the wealthiest prospects who feel the greatest connection to the institution—but the university is looking for other ways to make them long-term donors.

"It's important to keep your pipeline full at all times," Mr. Onion says. "Major gifts drive capital campaigns, but you can't lose sight of having a broad participation rate."

The university has raised $1.25-billion since 2006, and the current campaign is scheduled to end in 2014. If it takes longer than four years to raise the additional $1.75-billion, Texas won't hesitate to take the extra time to finish. No purpose is served by stopping short of the full amount or by pressuring donors to give by a certain time to make a deadline.

"We've set out on a task, and we're going to accomplish the mission, no matter how long it takes," Mr. Onion says. "Our financial goal is $3-billion. Our real goal is to elevate the University of Texas to one of the premier research institutions."

Moving Forward

The University of California at Davis has big ambitions, too. Its leaders, aiming to make it one of the top five public research universities, announced a $1-billion campaign last month to help get it there.

"We thought it was a good way to match the bold vision we have for the university," says Linda P.B. Katehi, the chancellor.

That's a lofty goal, but Davis has a number of wealthy alumni who are eager to give back to the institution, Ms. Katehi says, and the university is more than halfway there. She expects to spend much of her time in the next two to three years meeting with donors and fund raising.

One of the campaign's goals is to have 100,000 donors. Davis is hiring additional staff to help with that, but the number of employees won't be as high as before the recession, when state budget cuts prompted the university to lay off staff members.

One area that may get extra resources is planned giving. Like other universities, Davis is seeing a number of its biggest donations—five of the top 10 pledged during the campaign's four-year quiet phase—come in the form of planned gifts. It expects to emphasize that area even more.

For Rutgers, which announced its campaign the same month as Davis, the focus remains on megagifts. The university is seeking lead gifts in the range of $25-million to $50-million, and Richard L. McCormick, the president, thinks some donors who have already made donations may step forward with lead gifts by the time the campaign ends.

Rutgers started serious fund raising later than many colleges did, says Mr. McCormick, a self-described "ambitious guy" who says he settled on the $1-billion goal before the university even hired its fund-raising consultants. Now state budget cuts are increasing the need for private revenue.

"We're literally making up for lost time," Mr. McCormick says.