Cultural Donor Advice: a possible UK model

Colin Hickscolin@colin-hicks.com

07768 718968

CONTEXT: Financing UK culture

A mixed economy• In their publication “Private Sector Policy for the Arts” (2010) Arts

and Business called for cultural organisations to aim for a ‘golden triangle’ of income generation:– a third coming from the state– a third from earned income and – a third raised from the private sector

• Whilst many are still some considerable way off this tripod economy, the current fundraising landscape raises some key issues to inform any strategy for a future funding mix.

• Caveat - As societies have become more complex, some arts organisations remain unattractive for philanthropic giving. This scheme does not seek to replace state funding of the arts but to contribute to balancing the golden triangle mixed economy where appropriate.

State of the Golden Triangle

• State support 51.5%– DCMS 18%– Local authority and other public subsidy 13%– Arts Council 12%– Other government departments 7%– Lottery funding 1.5%

• Earned income (tickets/trading etc) 36.5%• Private investment 12% (business, individuals,

T&F)

The Arts Council’s Budget• Grant-in-aid from DCMS will go from £388m in 2011/12 to £350 m

in 2014/15.• However, funding from the National Lottery is likely to increase

over the next few years as the government seeks to increase the shares of this funding going to arts, sport and heritage.

• For example lottery funding distributed by ACE will be worth £155m in 2011/12 and increase to £222 million by 2014/15, offsetting about two-thirds of the decrease in grant-in-aid from DCMS.

• ACE estimates its overall budget therefore will decrease by around 12% between 2011/12. To replace this from philanthropic giving would imply doubling the contribution from this sector.

Types of individual giving

£ 08/09 £ 09/10 £ 10/11

Total 363,095,998 359,300,000 382,173,000

Individual Donations

120,148,466 97,298,440 73,207,726

Legacies 65,175,732 83,968,410 81,440,868

Friends/Membership

174,867,033 177,637,920 226,599,288

Shares 2,904,768 251,510 909,053

Payroll Giving 11,619 93,418 16,066

Interpretation• The fall in individual donations (ie larger grants with limited or no

benefits in return) has been severe over the last three or four years and, for the first time, is now exceeded by Legacies.

• Although legacy income fell slightly in 2010/11 it has shown remarkable growth in recent years; external factors such as the Legacy 10 campaign may be too early to factor in but this looks set to be a growing income stream in the future.

• Both the gift of shares (whether kept or sold by the recipient arts organisation) and payroll-giving have played a negligible role in terms of individual giving:

• Shares still amount to no more than 0.24% of total individual giving to the arts; payroll-giving just 0.004%.

• Whatever the reasons (not surveyed) the figures are consistent and unwavering as neither income source has made any real impact over the last 10 years.

Compared to 2007-8• Individual giving to culture has barely changed, rising

marginally from £382.1m five years ago to £382.2m last year (having fallen in the intervening recession-hit years to £363m).

• Business support has fallen significantly from £163.4m to £133.2m over the same five-year period. This fall has been offset by a considerable rise from trusts and foundations, which have increased their level of support from £141.1m to £170.3m.

• Given that T&F expenditure is often closely linked to the returns they receive from their endowments, it will be interesting to see if such an increase in support is sustainable – as with individual giving there have been dips in giving levels during the intervening years.

2010/11: significant shifts in private investment

• Private sector investment in the arts rose to £686.6m, around 4% higher than in 2009/10.

• Increase partly due to individual philanthropy rising slightly 6% (to £382.2m) and by T&F growing 10% to £170.3m.

• These growth areas off-set business investment in the arts in 2010/11 (sponsorship) which fell to £133.2m (was £144m 2009/10). This represents a decrease of 7%.

• It is also the fourth straight annual decline from a peak in 2006/7 of £171.5m.

Coalition Government incentives1. From April 2013, people who donate 10 per cent of their legacy

will be eligible for a 10 per cent reduction in inheritance tax bills – a move which could result in more than £350 million worth of additional legacies in the first four years of the scheme.

2. Creation of an £80 million match funding scheme, with the potential to raise more than £160 million through a series of grants. This will provide a range of support for smaller organisations, those outside London, and larger bodies, including those who want to develop endowments. This is the Catalyst Endowment fund.

3. Easier for charities to claim gift aid under proposals to introduce an online filing system to reduce the paperwork required to make a claim and giving each charity a £5,000 allowance that they can claim without the need to have declarations from donors. The limit that organisations can spend thanking donors will be increased from a maximum of £500 to £2,500.

Coalition Government incentives4. More visible public recognition for philanthropy, thanking

donors, demonstrating the value of philanthropy and encouraging others to give. This could include greater recognition through the honours system.

5. Developing fundraising skills and capacity across the culture sector – to increase and share skills and capacity, promote best practice, professionalise fundraising and develop a culture of ‘asking’ as well as ‘giving’.

6. Promoting and increasing planned giving, including legacy giving - with an ambition for the UK to become the first country in the world in which it becomes the norm to leave 10 per cent or more of one’s legacy to charity.

Coalition Government incentives7. Harnessing digital technology to boost philanthropy,

building on the innovative work already done by many bodies.

8. Increasing giving from international donors, just as we encourage other forms of inward investment.

9. Encouraging more investment by the business sector - which already invests £150 million a year in the cultural sector. This will include a series of events and initiatives.

10. Strengthening links between culture and other sectors which are supported through philanthropy, such as charities, community groups or social enterprises.

Nurturing the regional emphasis• A further area of potential is highlighted in the Coutts Million Pound

Report, which suggests that £1 million donations are regularly being made in areas across the country, and though the concentration is bigger in London, donations are far from confined to being made there.

• The report points to a potential pool of regional donors and the impact they can have in a geographic region that is meaningful to them, such as where they were born, brought up, or where their working life is based.

• This points to action that can be taken in particular to support regional organisations to reach this potential pool.

• This relates to philanthropy to the extent in which potential donors will look to the tax system for ways to lessen the burden of this transfer and is therefore an opportunity.

The current transfer of wealth• The UK population is ageing. The proportion of the

population aged 85 or over will more than double by 2034. Almost a quarter of the population will be aged 65 and over compared to just a sixth at present.

• Those over 65 account for at least 50 per cent of high net worth individuals, although there has been a substantial growth in the absolute number of wealthy individuals between 18 and 45. This grew by a third between 2000 and 2005.

• The current intergenerational transfer of wealth, which has been underway for the past decade and is said to be the largest in history, as years of accumulated wealth in both Europe and the US changes hands with the dying-off of the baby boomer generation.

The new generation• A new generation of wealthy people, some of whom are keener

than the previous generation to take a ‘hands-on’ role in organisations they invest in, investing skills and time as well as funding. This correlates with a trend in the US, which has also reached England to a lesser degree, of ‘venture philanthropy’.

• There are now more than 500,000 paper millionaires in the UK, a figure which has grown steadily over the past two decades, although estimates fell slightly during the recession. Much of their wealth is self-generated, while in previous decades a much greater proportion came from inheritance.

• New trends such as giving circles and crowd-funding.• The increasingly interconnected and network-based nature to

philanthropic giving.

What is the motive to give?

The corporate motive?• Marketing and product placement– Access to the target demographic

• The Social Compact– Associative: values and positioning– Notoriety: in the “proving” of the product– Engagement: authentic value for both partners in the

current national situation• Linking creative ideas to the brand image– Partnership: event, experience, engagement– Indicators: notoriety, (social) media earned/bought, 20/80

conversion and coverage– The creative idea has to be developable

The individual motive?In order of merit: 1.Religious beliefs2.To further the legacy of the parents3.Wealthy people have a responsibility to share their wealth4.Desire to establish a worthy activity in which the family can participate5.Business interests6.To set an example to young people7.Political/philosophical beliefs8.To give back to the community9.Social beliefs10.Personal fulfilment

Why not culture?• Arts and culture are not seen as charitable causes• Arts organisations are “away with the fairies” and not sufficiently

responsible bodies to take a risk with• Reasons to give are not communicated well by arts organisations,

leading to insufficient information on worthy cultural causes• Arts and culture organisations fail to project their social value• Fail to develop an attractive donor benefit package• Fail to present their work in a way that is accessible or appealing to

wider audiences• There is poor consistency outside the sector in name recognition –

cultural SMEs are mostly in the Long Tail• Private philanthropy does not often see itself as requiring

professional expertise when making its choices anyway

What would motivate a donor to give to culture?

• A personal passion for a particular artform or activity – I love music, gardening, art?

• A family connection?• Because I am a collector?• The regional agenda – back to where I am from?• The social agenda of the arts – health, children,

education, citizenship?• Any more?

Why is the cultural sector so bad at asking?

Membership Schemes are a safer bet

• Friends and membership schemes remain the most important way that cultural organisations raise money from individuals.

• Research on cultural philanthropy underlines the importance of the relationship between the individual and the arts organisation; friends schemes are ideally based to strengthen relationships to sustain income streams and develop potential growth.

• E.g. Tate's membership scheme: – Now has over 100,000 members, making it the largest of all Europe’s

gallery and arts venue schemes. – Fourfold growth since May 2000: when Tate Modern opened there

were 25,000 members. – Retention is good: 86% of members renew each year on average.

Corporate fundraising works• They identify targets for a major gift by:– Looking at the known - wealth screening– Looking at the unknown - people involved in the

organisation, on committees, anyone know this or that wealthy individual?

• They know how to provoke support: the direct approach, making specific efforts to engage donor interest

• The appeal to the social conscience• They seek to increase the value of the private

collections with sponsored exhibitions• (But corporate sponsorship is in decline by £30m)

Money is tainted

• Asking for money is not very British• There are ethical concerns about the origins

and impact of excess wealth• Fitting in with donor motivation will skew the

work• The sheer cost of income collection needs off-

setting• Knowledge of the tax efficiencies and vehicles

for giving is poor

Donors are only interested in the big boys and girls

Most cultural SMEs:•Are too small to be significant•Are not based in London •Operate in art-forms other than music or the visual arts•Are rurally based•Do not have a national remit•Operate to a model which involves regularly touring away from a home base•Do not have a tangible ‘asset’ to offer as part of the exchange of value with donors or sponsors

Helping donors give to culture

The cultural philanthropy link: what is missing?

• Vision – to feed the passion to move from accumulation to redistribution

• The long term view – building a quality relationship• Structure – setting objectives, developing a strategy• Tax advantages – giving, but tax effectively• Feedback – assessing impact• For organisations: privileged access to net worth individuals

who will demonstrate a genuine interest in their outputs• For donors: filtered information about who to donate to,

trusted organisations who will exploit the funds “properly”

Some Existing UK Platforms for giving

• The Big Give• Philanthropy Impact• New Philanthropy Capital• Legacy 10• Kingston Smith• Abbey Solutions

An advice service• Light touch organisation offering a personalised service – the

traditional giving approach is still best for the higher bracket• End objective: Successful donation built through the quality of the

direct personal relation between donor and organisation• B2B Intermediary: Contributing to the wealth manager’s

philanthropic advice portfolio• Monetisation: commission fee payable by the donor on

introduction so that 100% of the ask is safeguarded.• Market: Particular focus on the long tail – ie on cultural SMEs who

find it harder to organise and present• Expansion: Other sectors like social, sport etc could easily follow

since the model is eminently transferable to other sectors once tested

Structuring responsible funds management

• To viewing the donations where reasonable as investment by venture philanthropy

• For cultural startups, particularly in the digital field, for a central foundation to be established that deliberately selects start-ups donors see as very strong and work to pro-actively connect them with potential partners to help them grow. The fund basically makes an equity investment in the businesses and gets its return on the investment of its time and expertise by the growth in value of that investment

• For organisations more in the public subsidy domain, to prefer building an endowment capital reserve in perpetuity with a 2-year reserve fund before capital drawdown and a 10-year endowment fund before capital drawdown; lodged with Regional Community Foundations to reduce in particular SME legal and accountancy costs.

Connecting with the professionals• For cultural organisations, the idea will have the status of

an “untapped sources” project• For donor teams:

– Legacy strand – connecting with law firms dealing with estates– Tax management strand – accountants dealing with Year end

tax, Gift aid, IHT, CGT relief on share transfer– Investment advisor – shares transfer (needs a vehicle to sell or

arts organisation with the capacity to hold or sell)• The donor should be enabled to develop a personal

relationship with the cultural organisation: no access to the donor = no relationship, no longevity, less traction. This approach also stems the loss of a certain percentage of donors and donations.

How it works: for the Ask

• Cultural organisations apply to become part of the scheme.

• They are admitted according to criteria set by donors for best presentation and best chance of success.

• The scheme builds a portfolio of valid cultural organisations from across all sectors of the arts for presentation to donor teams.

• As part of this process the Ask receives training and help for candidate cultural organisations to build a prospectus that has a chance of success.

• No guarantee of success is offered either party.

How it works: for the Donor• Initially, relations with the donor pass exclusively through

his/her lawyer, accountant or investment advisor• Possible recipients may: either be taken from the portfolio;

or specifically researched and candidates suggested via an ideal profile drawn up by the potential donor

• A portfolio of say three opportunities is presented to the donor by and on the advice of his/her team

• On selection the donor pays the introduction fee and contacts the cultural organisation directly to begin building the long-term relationship

• The scheme regularly monitors the quality of the ask in order to continue to offer a high degree of professional ask to donor teams

Helping arts and cultural organisations ask the donor

Improved self-knowledgeKnow everything you can about:•The geographic location and the wealth of the region the organisation exists in•The size of the organisation•The brand and regional, national or international reputation of the organisation•What type of art you produce•Whether you can demonstrate social impacts beyond the art produced (eg through educational work)•The nature of the audience and how easily you can collect information about them

Encourage enthusiasm by being• Passionate about the arts and the activity they undertake.• Willing to try new, creative approaches to raising funds, but

only if there is a coherent reason for doing so and there is a fit to your artistic mission and brand.

• Knowing when the time is right for the organisation.• Willing to accept in-kind support and non-financial

donations because this frees up resources for other purposes.

• Seeing yourself as more than an artistic organisation. Successful organisations see themselves as part of the wider cultural sector, the voluntary or third sector, and the local ecology, with all of the civic responsibilities that that brings.

Offer a genuine partnership

• The success of any regular giving campaign relies upon the balance between acquisition & retention of donors/members.

• Focus on building relationships, and not the ‘carpet-bombing’ approach of targeting as many potential supporters as possible.

• Do not set out a begging bowl. Be convinced that funding the arts is valuable, and focus on articulating the benefits of partnership with the organisation.

• Ensure communication of your brand is consistent.• Put in place excellent donor care processes.

Remain focussed• Develop your skills at packaging your products in different ways to

suit different audiences, so as to be the most likely to attract attention.

• Always ask for an amount equal to or greater than the real value of the activity or goods being provided. You will accept a lower amount, but correspondingly reduce what is provided in return. To do otherwise would devalue the organisation.

• Equally, do not get frustrated if there is not an instant result. Time spent with an individual is never seen as wasted, as it can pay dividends at a future date or provide unexpected opportunities.

• Ensure your staff are up to speed with the rapidly changing public sector landscape.

• Invest in individual fundraiser training and development.

Thank you

Colin Hickscolin@colin-hicks.com

07768 718968