Investment vs. Donation
Is an investment a donation? Is a donation to a nonprofit organization an investment?
I’m hearing these words used interchangeably as if they mean the same thing, but do they?
According to Merriam-Webster Dictionary
- An investment is the outlay of money usually for income or profit
- A donation is the making of a gift especially to a charity or public institution
By definition these two words are very different, but they are being used by donors and nonprofit professionals as if they were synonyms. Why is this?
Motivation
One factor may be motivation. A person who makes a substantial monetary gift to a nonprofit may consider their gift an investment because they want to make a greater impact, they may want to see long-term results, or maybe their “return on investment” (ROI) is tax benefits.
People who see themselves as donors are philanthropists rather than investors. Their motivation is altruistic. They care about the cause, believe in the mission, and want to help their fellow human beings. These donors oftentimes become advocates for the cause. These philanthropists have no expectation for an ROI.
Risk tolerance
Altruistic donors do not usually consider a donation to be risky. Investors are more risk-averse and will take a harder look at the financial stability of the organization, the expertise and experience of the senior leadership team, and the organization’s capacity and ability to meet its goals.
Control
Donors are usually not interested in having control over how their funds are used. They believe in the mission and trust the leadership to use their funds wisely and provide the best services possible.
The expectations of investors are different. They may feel that they can and should be involved in decision making and want regular updates on the progress of their investment. They may have more restrictions on their financial contribution, especially if they feel that the organization is not keeping its commitment to them.
All of this is to say that how we use words is important. What one person assumes is an altruistic donation is another person’s investment with ROI expectations. It is incumbent on the fundraiser and on the nonprofit leadership to clearly communicate with their donors, whether they are philanthropists or investors, the importance of the cause, the mission, and the people served.
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