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December 5, 2022 Focus: Philanthropy

As traditional fundraising model weakens, nonprofits pursue for-profit ventures to diversify revenues

PHOTO | JOSEPH ABAD Healthy produce displayed and ready for purchase at the North End Senior Center in Hartford from Gotta’s Farm, one of several Hartford Food System farms participating in the Hartford Harvest Farm Share.

Like many Connecticut nonprofits, Channel 3 Kids Camp has long relied on donations from individuals and a wide array of community organizations to fulfill its mission of providing recreational opportunities for kids in need.

Fundraising for most nonprofits has always been an uphill battle, but this past year the Andover-based camp faced particular difficulties and recently announced the need to seek buyers or new partners to remain open, citing the unsustainability of its traditional fundraising model.

Meher Shulman

The charity isn’t alone in facing a financial cliff. The ongoing pandemic, massive inflation and a looming recession have combined to form a perfect storm that seriously threatens the economic health of nonprofits around the country.

“There’s a lot going on out there that’s making fundraising even more challenging,” said Meher Shulman, associate director of the nonprofit support program at the Hartford Foundation for Public Giving.

Total charitable giving, for example, remained flat in 2021, at $485 billion, with two-thirds of the total coming from individuals, followed by foundations, bequests and corporations, according to Giving USA. While there are signs that giving remains strong this year, it may not keep pace with inflation, according to a report by Fundraising Effectiveness.

Charities around the state are feeling the pinch. Almost one in five (17%) of the state’s nonprofits is struggling financially, according to a 2022 report by the CT Nonprofit Alliance.

Ed Spinella

As a result, nonprofits are pursuing an array of strategies to sustain their vitality and counter funding woes, said Edward Spinella, a partner at Hartford-based Murtha Cullina, who chairs the law firm’s tax-exempt organizations group.

That includes embracing entrepreneurial gusto and forming new revenue-generating ventures to sell goods and services, often aligned with their missions and to deepen their impact.

“At the end of the day, there’s only so many philanthropic dollars out there, so many tax-exempt organizations are looking at what things they can do to supplement their revenues,” Spinella said.

‘Business-minded practices’

It’s not a new tactic. The Girl Scouts have been selling cookies for over 100 years. Unlike their for-profit peers, traditional 501(c)(3) nonprofit organizations have different regulations and rules to tread when it comes to making money, which has kept many from pursuing for-profit ventures or revenue-generating opportunities.

But the law does allow room to create earned income streams, Spinella said.

“None of this is taboo but organizations need to know how to responsibly embrace new revenue-generating activities and business-minded practices,” he said.

Hartford Food System Inc., for example, has just completed a pilot of the Hartford Harvest Farm Share as a new revenue-generating venture.

Hartford Food launched the initiative as one of six local nonprofits selected to participate in the Hartford Foundation’s second Social Enterprise Accelerator Program, which helps organizations develop alternative revenue streams away from grants and donors to deliver stable and reliable income.

“We’ve learned to think not as a nonprofit but more like a business,” said Billie Scruse, executive director of the Hartford Food System.

Billie Scruse

The Hartford Harvest Farm Share has made healthy, fresh produce affordable and accessible to residents by forming a collective with local farmers of color who run small- to mid-sized farms.

Hartford Food acted as the middleman by forming agreements with the growers and selling shares for $30 a week for either nine- or 18-week periods ending late October.

Over 50 families signed up and picked up bags of fresh fruits and vegetables weekly at two prearranged distribution points. Multiple payment methods were made available, including SNAP, and the share price was built around the cost of the produce, Hartford Food’s staffing and overhead expenses and a profit margin that helps support the nonprofit’s other programs.

So far, the venture has been a “win-win,” Scruse said for the 45-year-old nonprofit, which reported $580,889 in revenue in 2020, and aligns with its mission to fight hunger and identify long-term solutions to food insecurity.

“We’re tweaking the model as we go,” said Scruse.

A pitch for good and growth

In 2019, the Social Enterprise Accelerator Program was launched with the first round of participants, 10 local nonprofits, in a 30-month curriculum that included intensive workshops around developing and implementing a business plan, a fast-pitch event modeled after ABC’s “Shark Tank” TV show to attract startup capital, and coaching and support from national consulting firm No Margin, No Mission.

To date, the social enterprise projects formed by the original 10 organizations have generated more than $2.5 million in revenue, according to the Hartford Foundation.

Last year, six nonprofits, including Hartford Food, were chosen to participate in the accelerator program’s second cohort.

In March, they presented their business plans in a virtual fast-pitch session to donors interested in providing startup capital. They collectively raised about $234,000 prior to a June deadline, making them eligible for more than $115,000 in matching grants from the Hartford Foundation, Shulman said.

One program participant, the YWCA Hartford Region, just opened its venture called Persimmon Petals Boutique, an online flower and gift shop that it’s running out of its Broad Street headquarters in Hartford.

The organization raised $130,000 in startup capital from donors and the matching grant to build the business from scratch, including hiring two experienced employees, developing an online portal, renovating floor space and other costs, said Adrienne Cochrane, CEO of the YWCA Hartford Region.

Adrienne Cochrane

Entering the online floral business makes sense for the nonprofit in several ways, she said.

Research indicated that online floral shops are a growing market and within the immediate Hartford area, Persimmon Petals doesn’t face a lot of competition. There is also evidence that businesses and individual consumers want to use their purchasing power for social impact and community reinvestment, Cochrane said.

“We can uniquely brand this,” she said.

And the larger goal is not only to create a new revenue stream that can be both reinvested in the business and also allocated to the YWCA, but also to provide on-site training to women interested in learning new business and entrepreneurial skills.

Kirstin Havelevitch is the manager of Persimmon Petals, a new revenue-generating venture formed by the YWCA Hartford Region.

The YWCA reported $6.6 million in revenue in fiscal 2021, according to its annual report.

Four other nonprofits participating in the foundation’s second, three-year accelerator program include the CT Data Collaborative, Health Equity Solutions, Noah Webster House & West Hartford Historical Society, and End Hunger CT!

Michael Oxman, co-founder and managing partner of No Margin, No Mission, said “there’s a lot of creativity in terms of the way that nonprofits in the Hartford region think about earned income and social enterprise for their organizations that we don’t always see in other parts of the country.”

He noted that the smaller number of nonprofits selected for the accelerator’s second round isn’t due to a lack of local enthusiasm but reflects ongoing economic uncertainty that prevents participation.

“A lot of nonprofits are still trying to figure out how to manage and survive due to issues stemming from the pandemic,” Oxman said.

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