Will AI’s Financials Harm Your Fundraising Success?
-By Bill Stanczykiewicz, Ed.D.
If attendance in The Fund Raising School’s course on artificial intelligence and fundraising is any indication, then the use of AI is becoming more widespread throughout the nonprofit sector. The course regularly and quickly sells out, causing us to teach the class more often.
Despite this surge in interest, there is a concern about AI that I recently discussed on The Fund Raising School’s “First Day” podcast. Fundraisers and nonprofits need to ensure that they are planning and preparing accordingly.
The Wealth Effect of Giving
When you meet with donors, you learn about their philanthropic values and motivations while cultivating a long-term relationship. This allows you to explore how to align their values and motivations with your nonprofit’s mission and impact. This explains the “why” of their charitable gift.
Meanwhile, the “wealth effect” of giving determines how much someone can donate, and when. This “wealth effect” is highly dependent on the S&P 500 stock market.
Research from the Indiana University Lilly Family School of Philanthropy demonstrates that when the S&P 500 increases in a calendar year, charitable giving almost always goes up the following year. Unfortunately, the same is true in the other direction. An annual stock market decline almost always means less charitable giving the following year.
AI’s current funding model might negatively affect the stock market which, in turn, could have a negative effect on fundraising.
A Fundraising Concern About AI
Extraordinary innovation is fueled by extraordinary investment. Railroads in the mid-19th Century, the automobile and the Internet in 20th Century, and new mortgage tools in the 21st Century are prime examples. With fear of missing out, investors poured exorbitant amounts of money into these highly promising innovations.
However, in each of those four examples, investment (and debt) outpaced the ability of those innovations to generate enough revenue to satisfy investors and pay off debt. In each instance, the economy suffered. Once with a stock market crash, and another time with the Great Recession, with all four causing financial hardship for investors and the economy at large.
Today’s AI companies – not too different from the railroads of the mid-1800s – are receiving and spending staggering amounts of investor cash while not coming close to earning enough revenue to payback those investors. The market eventually will self-correct, and when that happens the economy likely will slow down and just might fall into recession.
When? Maybe soon. Maybe later. Maybe not at all. However, AI’s cash flow (or lack thereof) is at the very least a flashing yellow light of caution for fundraisers to heed.
This is not a prediction. As the stock market commercials like to say, “Past performance does not guarantee future results.” Perhaps AI will not cause the same economic downfall that resulted from over-investment in other new industries in the last 170 years. In fact, maybe AI will figure out how to avoid economic calamity!
Or maybe gravity always wins, and the stock market will suffer when AI’s bills eventually come due.
Preparation, Not Panic
Assessing risk is a responsibility of nonprofit boards. Add this topic to your board meetings. Gather their wisdom. Respond accordingly. Options can include:
- Monitor economic trends: Consult with financial experts on your board and at your bank. What trends are they seeing? How will those trends affect fundraising in the next 6-24 months?
- Scenario planning: Prepare for multiple scenarios when creating your fundraising plan and goals. One option: hold steady based on this year’s success. Another option: plan for growth based on this year’s momentum. A third option: prepare for a decrease in donations if the AI market bubble pops.
- Operating reserves: The best time to fundraise for a recession is before the recession. Which means now. The Fund Raising School teaches a budgeting method that can help you build an operating reserve. You need not be a financial wizard to learn this organization-saving tool.
- Create an endowment: If your annual fund is strong, consider a comprehensive campaign that includes creating and growing an unrestricted endowment.
- Talk to your donors: You already are, so just add this to the list for conversation. Have they heard how AI might derail the economy? Are they adjusting their own financial plans? Can they help fortify yours?
AI is disrupting work, land use, natural resources, and property tax revenue. AI also might negatively disrupt the economy.
We all are encountering these rapid developments in real time. We cannot control the economy, but we can control how we prepare and how we respond.
This is our moment. Let’s lead with wisdom and resilience.
Bill Stanczykiewicz, Ed.D. is Director of The Fund Raising School at the Indiana University Lilly Family School of Philanthropy.