Leveraged fundraising

26 August 2010

Tom Hall demonstrates how an innovative way of sourcing funding from high net worth individuals has provided new disabled living accommodation

Anniversaries are usually a day for celebrations and my first year anniversary at Scope was no exception. Up at 05:45 am, I listened to BBC Radio 5 Live discussing a new leveraged fundraising scheme we had launched to fund the development of an independent living service for disabled people in Essex.

The launch couldn’t have gone any better and my celebrations continued when I saw all the City people reading about the project on the front page of the Financial Times on their way into work.

To explain what the FT called the ‘first leveraged fundraising scheme in the UK’1 and how Scope plans to use this to revolutionise its service development it is necessary to start from the beginning.

Philanthropic giving at Scope

When I started at Scope in June 2009, I was tasked with growing income from high-net-worth individuals (HNWIs). Like many large charities, Scope’s voluntary income predominantly comes from legacies and committed giving. At that time, we had just a handful of donors giving more than £1,000.

The charity had not yet engaged with and unlocked the potential of the ‘new philanthropists’2 who choose to ‘invest’ in charities based on an understanding of the impact their investment will have, rather than from a traditional sense of giving. I had seen first hand the impact these new philanthropists can have on a charity. In three years, the MicroLoan Foundation had grown from an annual income of £150,000 to £1.5m (£3.2min total), enabling the charity to expand its operations into four different countries. Two-thirds of this growth was previously driven by HNWIs.

I was keen for Scope to actively start engaging with HNWIs that could be prospective donors. In order to do so, we needed a prop-osition that was not only strategically important to Scope, but sustainable in the long term and scalable. Scalability is crucial because if your proposition is not scalable, it won’t achieve a high impact, something HNWIs are increasingly looking to see from their giving.3

Independent living for disabled people

Finding a suitable proposition was not difficult. Scope supports disabled people and their families at each stage of their lives. One of the biggest concerns we hear from parents is their worry about where their child will live when they have finished school and reach adulthood.

For parents of children with the most complex needs, the only option often available to them is a nursing home designed for the elderly. In this environment, the disabled young person is isolated from their peers and lives out the rest of their future in an un-stimulating environment that stifles development and creates greater dependency.

The demand for appropriate independent living opportunities that continue to provide ongoing social and personal development for young disabled adults is extremely high and one that Scope has identified as a key priority.

The challenge with independent living facilities

Whilst a new independent living service would be paid for by local authorities through the care packages for individual disabled people, one of the key challenges Scope faces is generating the capital required initially in order to build these new facilities.

In 2009 Scope received the largest ever Social Investment Business (SIB) loan of £5.1m. The loan was given to develop a range of independent living options based on a model of borrowing around £1m to build an adapted house for up to five disabled adults to live in. The loan would then be repaid back to SIB from the revenue generated from local authorities who would buy the service for residents over a 15-year period.

Opportunities for philanthropic investment

The use of loans immediately struck me as a philanthropic opportunity that could work especially well to engage with those we refer to as ‘new philanthropists’.

There were additional advantages for Scope. No matter how it is presented, £1m is a lot of money to ask even a motivated donor to give to support five individuals, regardless of the impact it has on their lives. As a loan, it would also be repaid to the donor, tapping into the psyche of a new philanthropist who could choose to reinvest the capital into another project or towards a different cause and therefore increase the overall impact of their gift.

I tested the idea of donors lending to charity by talking to Scope’s business development board (BDB), a group of influential business people who offer their strategic advice and high level support to the charity. The initial feedback was positive and the recommendations were for the loans to be interest free and for short term lending, to prevent the capital from long term erosion by inflation.

This ruled out repayment through the revenue stream that we had used for the SIB investment, which takes 15 years to pay back, so we explored different sources of repayment. Scope has an ageing portfolio of residential services, which are often sited on large pieces of land. The properties could benefit from modernisation but the charity was not in a position to sell them as they are in use. Developing new independent living facilities would also require more capital than could be realised from the sale of these assets and only a limited proportion of this could be funded through commercial debt.

Fundraising for the additional capital needed was also not an option we could rely upon due to our limited existing networks and the high costs per beneficiary ratio.

Leveraged fundraising

By combining the use of loans together with Scope’s existing property portfolio, the concept of leveraged philanthropy came together.

We could secure an affordable proportion of commercial debt if it were topped up with a combination of philanthropic lending and donations. This would provide sufficient capital to build new independent living facilities and enable us to sell existing assets within a short time period to repay the philanthropic loan.

The Grangewood Venture Philanthropy Project (GVPP)

Scope has a service in Essex called Grangewood that could benefit from modernisation. It accommodates 15 disabled adults and is located on a site large enough to accommodate the building of 15 new independent living flats and a central building for residents and the wider community. The total cost for the redevelopment is £1.8m excluding the cost of land.


The GVPP funding model that combined commercial debt, philanthropic loans and donations was therefore developed – see figure 2.

The commercial loan would be repaid from the fees from local authorities and we were already in advanced discussions with a number of commercial lenders who had expressed interest in providing the financing for this. The philanthropic loan would be repaid after three years once the existing property, valued at between £850,000 to £1,000,000, had been sold.

Whilst donations could come from charitable trusts and fundraising through special events. We also wanted to use this opportunity to try and grow our portfolio of HNWIs as well test the viability of a combined donation and interest free loan package.

For an interest free loan, the ratio of loan to donation needed to be 2:1 to reach our target. When we took tax relief of donations into account, the loan to net donation ratio increased to 4:1. The key concept information on Gift Aid is set out in figure 3. As the commercial loan would not be available to Scope without the philanthropic lending and donation (philanthropic unit), it was legitimate to add the commercial loan to the unit to show an ultimate leverage of 10:1. This meant the net cost to the donor would enable a leverage of 10 times its original value.

GVPP funding model breakdown

We knew that the cost of one of the 15 new flats at Grangewood would cost £126,000, but using the combination funding model, would only cost a donor £12,250. The mathematics are set out in figure 4.

This mechanism would require an upfront contribution of £68,600 (£19,600 gross donation plus £49,000 loan). However, due to Scope’s small pool of HNWIs we divided the total cost into 100 philanthropic units which would require an upfront commitment of only £9,800 and therefore had a lower point of entry cost in order to attract new donors. We would encourage HNWIs to buy multiple units, with seven units being sufficient to fund the cost of one flat. See figure 5.

Financial Services Authority and money laundering regulations

Prior to launch there were legal and regulatory barriers that needed to be addressed.

As an unregulated body, Scope cannot legally make a ‘financial promotion’ without first receiving a signed declaration from an individual stating that they are either a HNWI (£150,000 per annum income) or a sophisticated investor/ investment professional.

It would have been impractical, to ascertain interest in the project if, in order to even speak to people, we needed them to sign a declaration. Two legal firms on the business development board supported us to finalise wording we could use to legally give information about the scheme without it constituting a ‘financial promotion’ in the eyes of the Financial Services Authority.

As we would be taking loans we also needed to comply with money laundering regulations. The BDB were also able to advise that we would need to meet each ‘investor’ in person in order to witness photocopies of original documents, providing identification and proof of address. Whilst this would be a time consuming process, a face to face meeting also meant that we could begin to build long term relationships with prospective donors.

After 11 months of planning and preparation, we were able to launch the scheme with a focused media push supported by a BDB member that works for a city PR firm. The expertise and contacts within financial services publications meant the media launch was a great success resulting in several radio interviews and mentions in almost every national newspaper, including the front page of the FT.

Take up, scalability and lessons for the future

Whilst the press coverage for the leveraged philanthropy scheme has been excellent and enhanced its credibility, the intention has always been to sell the units through our existing networks and contacts.

To date we have sold 17 units to 14 donors – none of whom had given to Scope previously. Almost half have indicated that they would consider rolling the loan proportion of their unit to future projects at Scope. We have also received donations of £25,000 from other donors as straightforward gifts as they felt lending to charity was too complicated.

In addition, four of the largest charitable trusts in the country are putting the scheme to their trustee boards. Two are considering a donation and loan combination; one is looking at the donation element only and another the loan element only, although they will require a small return (2 per cent) as they are lending from their endowment.

Ultimately, we are hoping to reach our target through a combination of straight loans, straight donations and combined units from both individuals and trusts.

A new funding model?

Starting from such a small base of donors generating significant income was always going to be a challenge, so the success and scalability of this type of approach should not be fully assessed with Scope as a test case.

However, early signs are encouraging, particularly the interest shown by charitable trusts, which have the asset bases to make any fundraiser or social investment professional salivate.

In addition, the support Scope has received from the BDB has been invaluable, from testing the initial model, to the legal and financial PR support they have provided us. Their input has enabled us to shape a product that we could confidently take to market and which a recent New Philanthropy Capital report (NPC) analysing this model4 believes could scalable for the sector as a whole if donors can be encourage to give in this way.

Whatever the long-term outcome for this model, it has been a very interesting journey so far and if my second anniversary at Scope is as exciting as my first, I believe I will have very much been in the right place at the right time during a period of significant funding challenges.

1. ‘Charity finds way to raise finance from donations’ by Matthew Arnold in the Financial Times, 31 May 2010

2. Charles Handy, The New Philanthropists, 2004

3. The Business of Philanthropy, New Philanthropy Capital, 2010

4. New Facilities, New Funding, New Philanthropy Capital, 2010.

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Tom Hall

Tom Hall joined Scope as head of philanthropy & social investment in June 2009.

He is member of the Institute of Chartered Marketing and has qualifications in financial planning and fundraising management.

Tom has worked in the voluntary sector since 2004.

Having secured the Daily Telegraph charity appeal for the MicroLoan Foundation in 2006, he went on to grow its annual turnover from £150,000 to £1.5m per annum in a three-year period.

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