Best Practices for Financial Research Lori Hood Lawson CEO, WorkingPhilanthropy.com October 20, 2014

Access to financial information regarding prospective donors has never been easier - or more challenging. What is applicable to prospect development and what is not will be discussed in this session. Attend this session to be in the know regarding best practices for understanding financial information as it relates to advancing the relationship between your organization's mission and its prospective and current donors. Session Overview

Primary Learning Objectives 1. Participants will learn what financial information is publicly-available regarding prospective donors. 2. Participants will understand why publicly-available financial information regarding prospective donors is important to prospect development. 3. Participants will learn best practices on sharing publicly-available financial information regarding prospective donors as it relates to advancing the relationship between an organization's mission and prospective donors.

This is it! Prioritize prospective donors assigned to a certain fundraiser Predict success for a capital campaign Forecast and pipeline – aids in key performance metrics Identify opportunities Other reasons?

Best Practice Rules 1 through 3 1: The Truth Is Out There (but it may be distorted) Real Estate SEC (compensation and stock) Private Company revenue and ownership Family Foundations FEC – political contributions 2: Reliable Sources (AKA Primary Sources) = Reliable Indicators 2.5: Don’t Rule Out “Newish” Primary Sources (such as angel.co) 3: Understand the Logic Behind the Formulas

Previous Giving Largest gift made to YOUR ORGANIZATION X 10 = estimated gift capacity If no giving to your organization, total consistent annual gifts to other organizations. Look at other publicly-available philanthropy, especially family foundations Look at 990s for family foundations Pay attention to who is the contributor to the foundation itself and how much is contributed each year.

Asset Based Formulas – Real Estate Total Real Estate Value X 4 X 5% (formula used when real estate value is over $500K) Total Real Estate Value = 20% – 30% of One's Total Wealth/Assets $X ÷ 0.2 = $X $X ÷ 0.3 = $X THEN: 10% of Total Wealth if above $50M; 7% if $25M - $50M; 6% if $10M – $25M; 5% if less than $10M

Asset-Based Formulas – Real Estate IRS Wealth Distribution Averages If total assets are $675K or more, divide property value by (30.5%). This calculation includes primary residence. $X÷ = $Y estimated wealth Then, 5% of estimated wealth = Estimated Gift Capacity

Asset-Based Formulas – Real Estate Per Mendelsohn Affluent Survey, personal residence is 28% to 48% of total assets depending upon income level: $200K+ income level: primary residence ÷ 0.28 = estimated wealth Then, 5% of estimated wealth = Estimated Gift Capacity Spectrem Group Research - Wealthier group of people studied. General rule: as wealth increases, real estate represents a smaller portion of total assets (investments tend to be largest asset). Total real estate ÷ 0.17 = estimated wealth Then, 5% of estimated wealth = Estimated Gift Capacity

Income-Based Formulas General Rule of Thumb: Compensation X 10% = Estimated Gift Capacity Variation: Income and Age: Income X (Age – 22) X 0.1 = Estimated Gift Capacity Mendelsohn Affluent Survey Based upon this survey, for affluent households, household income is 18% to 19% of total assets. Annual compensation ÷ 0.19 = estimated wealth Also calculate using 18% Then, 5% of estimated wealth = estimated gift capacity

Stock Holdings Stock Holdings X 1 to 3 = estimated net worth Estimated Gift Capacity = 5% of estimated net worth Calculate using both 1 and 3 times stock holdings.

Stock Holdings – Other Approaches Value of Current Holdings 1 to 4% if $1 to $499K MG Estimate

Stock Holdings – Other Approaches Value of Current Holdings 5 to 9% if $500K to $999K MG Estimate

Stock Holdings – Other Approaches Value of Current Holdings 10% if over $1M MG Estimate

A Word about Stock Options To know the true value of stock options, one must know the exercise price for each award. One must also know the VESTING SCHEDULE for the insider.

Another thing about stock options… It is usually a good idea to keep options as a separate wealth indicator from stock holdings since a prospect does not actually own them until he or she exercises the option. When using stock options, be sure to only use the “net value,” which is the difference between the current market value and the exercise price of the option. (EXAMPLE: $25 Market Value–$5 Exercise Price=$20 Net Value). Also, remember that when a prospect sells they have to pay personal income tax unless they hold incentive stock options, in which case, the shares can be held for a year and a day before being sold, paying only capital gains, or gift the shares and not have to pay any tax. The overwhelming majority of options are non-qualified, which means they have to pay ordinary income tax regardless of whether they keep, sell or gift the shares. (From The Fundraisers’ Guide to Data Sources) It is usually a good idea to keep options as a separate wealth indicator from stock holdings since a prospect does not actually own them until he or she exercises the option. When using stock options, be sure to only use the “net value,” which is the difference between the current market value and the exercise price of the option. (EXAMPLE: $25 Market Value–$5 Exercise Price=$20 Net Value). Also, remember that when a prospect sells they have to pay personal income tax unless they hold incentive stock options, in which case, the shares can be held for a year and a day before being sold, paying only capital gains, or gift the shares and not have to pay any tax. The overwhelming majority of options are non-qualified, which means they have to pay ordinary income tax regardless of whether they keep, sell or gift the shares. (From The Fundraisers’ Guide to Data Sources)

Total Known Assets 5% - 10% of Total Known Assets = Estimated Gift Capacity FOR EXAMPLE: Real Estate Total Value + Income + Stock Holdings = $X $X times 5% = estimated gift capacity

Political Contributions Total Contributions from most recent election cycle X 20 = Estimated Gift Capacity (add fed and state together) By definition, an election cycle is the time period starting the day after the general election for the office or seat the candidate seeks and ends on the day of the next general election. HOWEVER, an election cycle depends on the office being sought. President = 4 years; House of Representatives = 2 years; Senate = 6 years. General rule: tally donations from the previous 2 to 4 years.

Estimated Net Worth Estimated Gift Capacity = 5% of estimated net worth BUT… BEWARE – we cannot ever truly calculate “net worth.” If you have resources which estimate net worth, then you can use that depending on the source itself. Net Worth = total assets minus total liabilities. Can you ever know that?

Communicate Replicate Disseminate Best Practice Number 4: Be Consistent.

Best Practice Number 5: Track Your Ratings (Date and Source). IDEALLY, there is a place in your organization’s database. IF NOT, track anyway!

Putting It All Together Complete all formulas to see the full picture of what the available data suggests. Does it make sense? What does your gut say? Yes, this is the ART part.

Performance & Portfolio Perfect

Don’t Forget the Ethics

Questions? Feel free to contact me directly: On Connect with me on LinkedIn: