Helen Brown Group

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Is your nonprofit missing out on a huge crypto-tunity?

Want to know who’s cooler at using technology to raise money than your average well-funded university or nonprofit?

Malala, that’s who.

Also, the United Way.

The Count Basie Center for the Arts, Wake Forest University, Cushing Academy, and 200+ other nonprofits that have signed up with The Giving Block to accept cryptocurrencies.

“Oh, cryptocurrency. Pfft!” you might be thinking. “That’s not going to be a thing.”

If you were working in fundraising in the late 1990s, you might remember that the same thing was said about taking donations online. Using credit cards! Over the internet! Like it was space age tech from Mars. Online giving? No way.

Way

Accepting cryptocurrencies is the same thing, and it’s already old news for some (especially considering the length of the news cycles these days).

Back in December 2017 an anonymous philanthropist called “Pine” set up the Pineapple Fund to give away their 5104 bitcoin that had exploded in value to $55 million. Although cryptocurrency donations weren’t unheard of then, Pine’s announcement that nonprofits could apply to be grantees was a turning point moment. Applying for funding from a foundation-y sort of entity was familiar. Some nonprofits started to see the opportunities in being ready to receive cryptocurrencies.

Like UNICEF. Since the UNICEF Crypto Currency Fund was launched in October of 2019 it has received over $5.5 million. That’s during a pandemic yet.

Accepting crypto is an already large and yet still rapidly growing opportunity for nonprofits. According to Alex Wilson, co-founder at The Giving Block,

Cryptocurrency donations really took off in 2017 after bitcoin hit $20,000 for the first time. In 2017, we estimate that over $100M in crypto was donated to the few organizations who were ready to accept bitcoin. Since then, we’ve continued to see cryptocurrency donations increase and estimate that $200M-$300M per year is being donated in crypto. This year is on track to break those records.”

Wow.

The donor advised funds at Fidelity Charitable is one of the places where all of those bitcoin, bitcoin cash, Ethereum and Litecoins are being warehoused. Paul D’Allesandro, author of The Future of Fundraising: How Philanthropy’s Future is Here with Donors Dictating the Terms, said in a recent podcast with Andrew Olsen that Fidelity’s stack of coins is $100 million tall.

One hundred million is just…a lot.

But it’s not as much as a billion. Which is the amount reported yesterday that Ethereum crypto founder / billionaire / philanthropist Vitalik Buterin donated in one fell swoop in coins to help with Covid relief in India. Depending on if the coin retains its value, of course.

Starting the conversation

If you’re a nonprofit fundraiser, you might be wondering: how do we open up this conversation with donors who have cryptocurrency? (or who we don’t know have crypto?)

In a CASE podcast featuring Jay Goulart, former VP for Institutional Advancement at Gulliver Schools, now founder of the consultancy Big Philanthropy, Goulart describes what happened when his school approached a donor – a commodities trader – who had mentioned owning cryptocurrencies.

 We realized with this guy that we had to speak in terms of coins and not in money. So in other words, he didn’t see things in the same way as, you know, would you do a million, would you do five million, or whatever the number is.

We asked him for what was the equivalent of five million dollars in coins, which was about 500 coins. That’s not what he wanted to end up doing, he did about half of that. But he said I’ll do it over a period of time. Now when we first met him, bitcoin here in the States was just under $10,000 a coin…so…we’re just shy now of what’s left of 8 figures in terms of a gift from this person.

Now, it’s really not the way that most people would venture into this because, you know schools want to liquidate and they don’t want to hold and they don’t want to speculate. [It’s] all very logical and it all makes a ton of practical sense. But sometimes there’s moments when you meet someone and they’ve never really played in our arena, and you’ve got to find a different avenue. And sometimes we have to take a little bit of risk ourselves.”

So part of the answer is being open to trying a new way of receiving donations.

A first step could simply be getting a wallet set up to accept cryptocurrencies and publicizing it on your website’s giving pages so that donors can see that it’s even an option.

Another way is being more purposeful about it.

Marketing your Mission

United Way Vice President of Innovation Edwin Goutier recently published an engaging article on the nonprofit’s blog highlighting how easy it is to donate a variety of cryptocurrencies to the organization. For each currency he directly tied a donation level to its very specific mission impact at United Way. It’s a brilliant, effective piece of marketing.

What does the average cryptocurrency holder look like? Maybe not what you’d think. According to a study by London-based crypto custodian Copper.co, 56 percent of bitcoin holders are investors and 80% of those are long-term holders. So that means, for them, cryptocurrencies aren’t a fluke – they’re a part of their investment portfolio and they take it seriously.

It also means that when a long-term holder divests of some their cryptocurrency, they will likely incur capital gains.

Unless, of course, they donate them.

We know that tax incentives aren’t the main reason why people give to nonprofits, but they’re certainly a consideration. If people donate cryptocurrency under their real names (as opposed to anonymously), they can claim a tax deduction. If they can avoid capital gains tax as well it’s a double win. Being able to help a mission they care about? Win-win-win.

Finding prospects

The question for us in prospect research is, how do we identify cryptocurrency holders? Especially when they go by names like Cryptochristoff, Madgreek, Twobadour, and MetaKovan.

Well, you can start with The Crypto Giving Pledge members – people who have pledged to give 1% of their cryptocurrency annually – and see if you have a match in your database. There aren’t a lot of them yet, but the list is sure to grow.

You can also use a search engine, search in social media, and check out forums to see what you can find. A quick Google search found that MetaKovan is actually Vignesh Sundaresan, CEO of Singapore consulting firm Portkey Technologies. Twobadour is Anand Venkateswaran. On Twitter I found two crypto-enthusiasts who go by the handles Madgreek and Cryptochristoff. Could it be that simple? Maybe.

See if you can match names to social media handles you already have on constituents in your database. And, of course, as you’re researching someone generally it’s a good idea to see if they follow or knowledgeably discuss cryptocurrency on their social channels. This could be a clue that they hold crypto.

Primary source prospect research is key here also. This is a great topic for frontline fundraisers to bring up in face-to-face meetings with donors and board members. “What do you think about our nonprofit accepting cryptocurrencies?” could be a good opener for a discussion.

It’s certainly not a bad thing to ask for advice about. And you know the old fundraising adage about asking for advice, right?

Further resources:

 

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Musings on the digital economy and what it means for prospect research

Rick SnyderThis week we welcome HBG Senior Researcher Rick Snyder to the blog. I always appreciate Rick’s thought process and insight, and this week he shares what he’s been thinking about – about the economy, people who find themselves newly high-net-worth as a result of their investments in digital currencies, and what’s happening with all that money. ~Helen

In my last blog post I mused about my career in prospect research and the enjoyment I continue to find in learning about a broad variety of topics that shed light on how our prospects earn and spend their money.

A year ago, I was looking at the cost of hiring domestic staff.

Fast forward to today and researching the salary of a nanny seems downright quaint compared to what I’ve been reading lately. I’ve been focusing a lot on the economy and some of the changes we’ve seen over the past year. It seems that the pandemic has not only upended many parts of our personal lives, it’s also scrambled and rearranged how people are spending their money. It’s grabbed my interest and I’m trying to make sense of it all. What I’m offering here isn’t an explanation (I don’t have one), but a few observations and thoughts about what’s going on.

A recent cover of New York Magazine captured the spirit of our current times with the title “Can I SPAC My Stonks With NFTs?” The article inside, “There’s Nothing to Do Except Gamble”, referred to the “new money weirdness” and I can’t think of a better way to describe our current economy and our increasingly strange relationship to money. I believe that we are living through a transformation of our economy that is both exciting and a little bit scary, at least to me.

The SPACs and NFTs mentioned in the magazine were covered well by Helen in these pages already, so I won’t travel that road again. Not only did she explain them better than I can, but I have to admit that, try as I might, I still can’t wrap my head around NFTs well enough to offer a cogent explanation of them. I’m also not going to dive into the world of Reddit-driven “stonks,” though that’s also intriguing and entertaining. These are relatively new phenomena and indicative of how fast our economic world (and the language used to describe it) is changing.

My personal and professional interest in today’s economy is two-fold: First, I want to understand how we’ve reached the point where a person can spend $69 million for a piece of digital art (the buyer, a cryptocurrency billionaire who goes by the name MetaKovan, said he was prepared to pay even more and thinks it was a steal since it should be worth $1 billion).

Second, I can’t help but think the indicators are flashing red that we are somewhere near the peak of a bubble economy and wonder when that bubble is going to burst.

The first interest is almost voyeuristic – I can’t tell if we’re watching the prelude to a car crash or a butterfly emerging from its chrysalis – but the second is more serious and existential.

There are scores of brilliant people who understand the economy far better than I ever will and they don’t all agree on what we’re seeing. Some are warning that we’re cruising for a bruising and others are claiming there’s little to be concerned about.

The traditional indicators – things like the U.S. Treasury bond curve or the P/E ratio of stocks – either don’t apply any longer or aren’t as reliable as they once were. Unemployment is decreasing and GDP is rising, but there are still millions of people struggling with the economic effects of the pandemic. And in the midst of all of the good news/bad news, we’re seeing the creation of new ways for people to spend astronomical amounts on things that barely existed just a year or two ago.

The easiest explanation is that the economy is awash in money and it all has to go somewhere. Billions of dollars have been injected into the system over the past year. We are still living under varying forms of COVID restrictions, but that isn’t stopping us from spending what we’ve got.

The New York Times reported that Deutsche Bank analysts have estimated as much as $170 billion from the most recent round of federal stimulus will go into the stock market. Mortgage rates are at historic lows and house prices are rising. Redfin reports that 42% of homes have been selling for more than their list price – 16% higher than the same period last year – while at the same time Google reported that the search “When is the housing market going to crash?” had spiked 2,450% in the past month.

Bitcoin was trading at $6,853 a year ago. As of writing, it is at $53,545 and by the time this posts it could be thousands of dollars higher or lower. I assume that a good bit of what is driving the NFT market is that people are sitting on mounds of crypto that has appreciated wildly since they bought in. As a personal example, a few months ago I realized that I’d forgotten about a crypto wallet I’d left a small amount of money in a number of years ago. When I looked at it, I literally laughed out loud at the value. It wasn’t enough to be life changing, but for people who invested earlier than I did and paid just a few bucks for some Bitcoin, I can easily imagine why they’d have no problem spending some highly appreciated digital currency on a piece of digital art.

I also discovered that people are breeding and selling digital horses on the NFT market – one sold for $125,000 – and they’re participating in digital races. I had to check the date on the article to make sure it wasn’t an April Fools’ joke. If this isn’t a sign that people have more money than they know what to do with, I don’t know what is.

Along with the sea of money sloshing around in the system, we’ve seen over the past year that life is short and it should come as no surprise that people are willing to make riskier financial bets than before. Might as well YOLO your stimmies into some stonk while you can.

What does any of this have to do with our work? I can think of at least several ways.

First, the top tier of earners has done extraordinarily well over this past year, so we need to keep tabs on what they’re doing – that’s what we do every day, so there’s no change there.

Second, the flow of money into SPACs, NFTs, and retail stocks shows that there are a number of new players who are spending freely. How are we finding, researching, and qualifying them? Are you developing new ways of looking at people with names like MetaKovan and Roaring Kitty? We know they have millions to spend, so how can we add them to our prospect pools?

Third – and this is what I was thinking the most about when I began writing – if we are indeed in a bubble economy, that bubble will burst at some time and quite possibly in a very dramatic fashion.  Though we can’t really predict when the economy will take a downturn, it most certainly will.

When it does, it will affect charitable giving* and that affects each of us in our jobs as researchers. When development budgets shrink, prospect researchers may seem to some as an extravagant expense to some managers. It behooves us all to be proactive in researching or at least giving some thought to those in our donor pools who work in sectors that fare better than others in a down economy. Helen wrote about this in blog posts in April and December of last year, as well as in a white paper. They merit re-reading as you ponder economic trends.

* The Lilly School of Philanthropy and Vanguard Charitable wrote a 2019 report, “Changes to the Giving Landscape” [PDF], that shows a decline in charitable giving that began in 2000, but the drop accelerated at the time of the 2008-2009 recession. From 2000 to 2008, roughly 65% of households reported giving to charity. Total giving dropped by 7.2% in 2008, then by another 8% in 2009.

 

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The FEC ruled. (Not really)

A sign, written in stone, saying "Nothing is written in stone"Back in 1971, the US Congress ruled that information published by the Federal Election Commission containing political donations by individuals could not be used “by any person for the purpose of soliciting contributions or for commercial purposes.”

Over the years, many special-case exemptions have been made to allow certain companies to be exempt from that ruling, and it’s always been slightly unclear whether Congress meant for the purpose of soliciting just political contributions or if charitable fundraising was also under that prohibition.

Regardless, over the years every wealth screening company in our sector added political giving into their product, and most of us used it as a lookup service because:

  1. political giving has been a great indicator of someone’s philanthropic propensity
  2. FEC data includes the tantalizing tidbit “Occupation,” which sometimes can be very hard to find
  3. lots of times you can find a home address and
  4. spouse name

FEC data is just gold sometimes. It’s publicly-available, and it’s free.

But using it is prohibited.

In January of this year, a vendor to nonprofit organizations called ALUMinate asked the FEC to re-look at the question, specifically to ask if they could use FEC data in their product to identify donors already in an organization’s database – not for new prospect identification. The donors were already there, they just wanted to use the information to help nonprofits segment people.

This request was backed up by a fascinating support letter (and if this stuff interests you, it’s worth a read) written by Tyler Hagenbush and Shanna M. Reulbach, attorneys at the law firm of Perkins Coie. They argued that lots of companies had already gotten the FEC’s blessing to use the data for far more commercial purposes, and that this use-case was at least consistent – if not even more limited – that those uses.

The FEC’s final response on this request came down on the last day of last month, and it’s done absolutely nothing to shed light on the topic.

FEC Advisory Opinion

The FEC couldn’t come to a conclusion, so we go back to assuming that they mean ALL forms of fundraising but nobody really knows.

Our professional association, Apra, has issued advice (See “List collection – FEC Data) for those of us in prospect development to strictly avoid using FEC data in our work in order to comply. That’s a safe interpretation of the law and one that we follow here at The Helen Brown Group.

And yet

It sits fine with me when we’re talking about using it for prospect research purposes. I get it. Sometimes it takes effort to convince clients why they should ignore an honestly valuable resource in a wealth screening product. But that’s the way we have to roll.

Where it really bothers me is when we talk about due diligence research. Particularly when we’re looking to see if someone is a politically exposed person or if they may have supported candidates with extremist views or have made political donations that go in direct opposition to the mission of the nonprofit we’re helping.

Due diligence is all about protecting a nonprofit from harm, whether it’s avoiding association with unsavory people, avoiding financial harm, or mitigating reputational risk.

By not using key FEC data for due diligence research, which at the end of the day is being used for fundraising purposes, we’re purposefully hindering our ability to protect a nonprofit organization from harm.

I’m not suggesting that we should violate the law to do due diligence. What I’m saying is that vendors asking the FEC for permission to use this data isn’t going to be the solution to the question of whether nonprofits can use it or not.

I don’t know who the correct body is. A professional association? A consortium of nonprofits that do a ton of due diligence?

The bottom line from the recent non-ruling, though, is that we still can’t use FEC data for fundraising purposes. And that includes due diligence.

 

Here’s ALUMinate’s press release on the Advisory Opinion: https://www.aluminateus.com/fec/

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