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Challenge Grants

The Ultimate Guide to Challenge Grants

Have you ever made a deal with someone that you would do something in the present in return for a future reward upon accomplishment?

Kids and parents have arrangements like this all the time. Clean your room and you can have thirty extra minutes of television time tonight. Watch your sister this weekend and we’ll pay for your concert tickets next month. The agreements typically follow a similar trend. The recipient must first complete a task that is in some way a form of self-improvement (i.e. a neater living situation or quality time with a sibling) and then he or she gains the preset reward that exceeds self-improvement. It is a bettering, incentive driven method of deal making.

What if I told you those agreements have a relative in the philanthropic community? Well, they do. They are called challenge grants.

What are challenge grants?

Challenge grants are usually given by corporations, foundations, trusts, or government agencies. They are mostly granted to nonprofits and higher education institutions.

In many ways, they are as they sound, grants with a challenge built in to the structure.

Challenge grants are funds given by a grant making party to a nonprofit organization or educational institution following the successful fulfillment of a predetermined list of requirements.

Let’s unpack the challenge grant definition.

Grant makers agree to give the selected grantee a set amount of funds upon completion of a preassigned task, known in this case as the challenge. These challenges are not easy feats. They involve considerable effort and work on the part of the nonprofit or educational institution.

The challenge can have one or many components. For example, there could be a set requirement that an organization bring in x number of new members.

The biggest factor is almost always a fiscal one. The challenge grant boils down to how much a nonprofit needs to raise in order to receive a grant of x dollars in funds.

Learn more about the definition of challenge grants.

What are challenge grant ratios and amounts?

Previously in this blog, we’ve discussed ratios for matching gifts. With employee matching gift programs, an employer determines a set ratio for how they will match employee contributions to eligible nonprofits. For instance, if a donor works for a company with a matching gift program that honors a 2:1 match ratio and that donor gives your nonprofit a $100 dollar donation and submits the appropriate paperwork, the employer will give $200 on top of the initial $100.

Challenge grants also have match ratios, but they tend to operate slightly in different ways. With a challenge grant match that is set at 2:1, the grantee puts in the two and the grant maker puts in the one. So, if a challenge grant is for $20,000 at a 2:1 ratio, the grantee has to raise $40,000 in order to receive the $20,000 from the grant maker.

Sample Four Year Challenge Grant
(Grant maker providing $1 for every $2 an organization raises)

Challenge Grants

Challenge grant ratios and amounts vary and it’s common to see challenge grants with ratios such as:

  • 1:2 (Grant maker will provide $2 for every $1 an organization raises)
  • 1:1 (Grant maker will provide $1 for every $1 an organization raises)
  • 3:1 (Grant maker will provide $1 for every $3 an organization raises)

How do challenge grants benefit nonprofits?

From a pragmatic standpoint, donations are donations are donations. All fundraising has its challenges and adversities. With challenge grants those specific circumstances can actually be addressed at the beginning of the process. They remove some of the unpredictability associated with campaigns. The grants especially compliment capital campaigns.

Challenge grants can do a lot for nonprofits and educational institutions. The grants can:

  • infuse campaigns with reinvigorated energy
  • help guide fundraising strategies
  • lead organizations to up their data tracking methods and systems
  • bring in new donors and prospects
  • increase funds raised from current donors
  • fold former supporters back into the donor pool
  • and more

Benefits are going to range from situation to situation and all the potential positive outcomes are too diverse and numerous to list. Those six points, however, should give you a sense of the ways in which seeking and receiving a challenge grant can be a boon for your nonprofit.

When considering challenge grants, it is important to also think through the big picture ramifications and how the relationship between grantee and grant maker can be mutually beneficial.

After the successful granting of funds through a challenge grant, both parties can expect:

  • the grantee to see a boost in awareness from the public endorsement by the grant maker
  • the grantee to find a way to publicly honor the grant maker
  • the grant maker to see a boost in their image from the public charitable contribution

Since grant makers can be corporations, foundations, trusts, or government agencies, the reasoning behind giving this particular type of donation cannot be pinned down in one concise sentence. What can be said is that there are clearly benefits for the grant maker as well as the grantee.

There will always be multiple factors at play for why, for instance, one corporation decides to pursue any type of corporate giving, challenge grants included. Just understand, that if your staff can understand the major factors at play in drawing these grant makers to challenge grants, your staff can better cater their grant proposals to appeal to those in charge in order to increase the likelihood of your proposal’s acceptance.

How can you get started seeking challenge grants?

In order to successfully plan a challenge grant, a nonprofit or educational institution needs to look forward and gauge future organizational actions and needs. Consider what your nonprofit wants to accomplish six months to a year from now. Then backtrack to understand what you will need to get to that point.

During the process, ask:

  • What fundraising events will I want to actively promote my challenge grant efforts in conjunction with? Your answer here needs to take into account the grant maker’s timeline for evaluating and deciding whether or not to go forward with your organization’s application. If the application process is four months and you want to use the challenge grant in three months, your timing will not work out.
  • What is the makeup of my donor pool (and prospects too)? First, it never hurts to get to know your donors better. Second, you’ll want to be strategic in designing the way you seek your challenge grant around what your donors and prospects would be most receptive to.
  • What are my fundraising standbys? Fundraising is a broad field, and most nonprofits take a customized and tailored approach. One nonprofit might favor events. A university or college might prefer phonathons. Flesh out your list of common fundraising methods and consider how challenge grants could accompany those efforts.

With a solid understanding of your answers to those questions, you’re ready to start planning. Your plan will draw from your answers to create the ideal circumstances for acquiring funds for a challenge grant.

Once your challenge grant proposal is approved, you’ll begin the work of reaching your set dollar amount. With the umbrella goal of fundraising to meet the match, you can use that as the incentive to encourage contributions.

Employ a wide range of approaches to meet your financial requirement, like:

  • including information on your challenge grant within your various communications
  • encouraging your board to participate
  • targeting certain donor segments
  • and much more

You’ll be pleased with how well your donors and prospects respond when they know what their contributions can turn into with the help of your challenge grant.

Learn more about seeking challenge grants.

What’s the difference between challenge grants and corporate matching gifts?

Although they can both fall under the larger category of corporate giving and use some of the same structures, once you understand them both, they are easy to differentiate.

Unfortunately, as if to add to any potential confusion, challenge grants can sometimes be referred to as matching grants, not to be mixed up with employee matching gift grants.

On a basic level, matching gifts are mostly in the hands of the donor and challenge grants are mostly in the hands of the nonprofit. Both have a donation match element but the surrounding circumstances are vastly different.

Employee Matching Gifts:
Employee matching gift programs are corporate philanthropy programs where companies match donations made by their employees to nonprofits employees choose to support. There are five basic steps:

  1. A supporter makes a donation
  2. A supporter realizes his company has an employee matching gift program
  3. A supporter submits a matching gift request
  4. The company confirms the details with the nonprofit
  5. The company submits a donation according to whatever their program guidelines allocate

Learn more about matching gift programs.

Challenge Grants:
In the instance of a challenge grant, a nonprofit makes an arrangement with some funding entity (which may or may not be a corporation) to receive a certain set dollar amount upon completion of a preset challenge, like raising x amount of dollars.

A direct comparison of the two processes alleviates confusion.

The general confusion stems from their seeming similarities. Both rely on a nonprofit, a donor to that nonprofit, and a third party entity to work together in order to be successful. Both function off of preset match ratios. And both can essentially provide bonus funds for the nonprofits the donations are going towards.

The great thing about the two is that a nonprofit can pursue both and doubly benefit.

With the two matching avenues at play, an organization can acquire a donation due to the added impetus of their challenge grant, receive a matching gift from that donor’s employer, fulfill the match challenge requirements thanks in part to those funds, and earn the agreed upon grant.

Fundraising is an all hands on deck endeavor that truly thrives when nonprofits approach it from a creative and multi-step approach.

challenge grants definition

What Are Challenge Grants

Challenge grants can massively boost a recipient nonprofit campaign’s final fundraising numbers. Challenge grants are less about reaching a fundraising goal and more about surpassing one. They are largely beneficial for nonprofits and educational institutions.

If you’re a regular reader of this blog, you know much of our content is focused on the matching gift and volunteer grants side of corporate giving. Challenge grants can fall within corporate giving as well, although they aren’t exclusively part of corporate giving.

Due to the cross-over with corporate giving, we’ve decided to focus some attention on these valuable grants, and there’s no better place to start than with a definition.

Challenge Grants Definition

Challenge grants are funds given by a grant making party to a nonprofit organization or educational institution following the successful fulfillment of a predetermined list of requirements.

That’s the basic definition, but to better explain the meaning behind it and the grants as a whole, the definition can be divided into three subcategories, or, more accurately, sub-questions:

  1. How do they work?
  2. What organizations serve to benefit from challenge grants?
  3. Why pursue a challenge grant?

Let’s begin with “how they work” to deepen your understanding of the fundraising opportunity.

How Do They Work?

Essentially, a nonprofit enters into an agreement. Per this agreement, the nonprofit works to raise a set number of funds. Once the fundraising campaign crosses that dollar amount threshold, the second party to the agreement grants the nonprofit funds of a previously specified amount.

Think about the process in terms of a volcano. The agreement is the volcano and the funds raised are the lava. Prior to an eruption, the lava builds inside the volcano. That process, pushing just to the edge of eruption, is all the work a nonprofit does to get to that funding threshold. Once the lava reaches a certain level, or the funds hit that set number, the volcano erupts. The volcanic eruption is equivalent to the point at which the grant maker grants the promised funds. From there the lava flows freely and over time (a long time) an island forms — a high revenue fundraising campaign turned quarter turned year.

Challenge grants are typically given out by foundations, trusts, corporations, or government agencies.

The preassigned funding threshold is not a lowball number, but rather a lofty goal that nonprofits have to reach in order to secure the grant.

The challenge can have multiple components. As part of the arrangement a grantee may have to increase its membership to a certain number or sell a specified amount of campaign t-shirts. The terms of challenge grants will vary from nonprofit to nonprofit and from grant maker to grant maker according to individual situations.

The grants function according to match ratios, just like employee matching gifts do. For example, with a challenge grant match that is set at 2:1, the grantee is responsible for the 2 and the grant maker is responsible for the 1. Given that, if a challenge grant is for $30,000, the grantee must bring in $60,000 in donations before receiving the grant maker’s $30,000.

Per the grant making organization’s stipulations, different applicants could be eligible for different ratios. For instance, the National Endowment for the Humanities’ most recent challenge grant program stipulations stated that recipients had to honor a 3:1 ratio, with the exception of a select few types of universities and colleges that could follow a 2:1 ratio.

Grants with high dollar amounts can even be set up to be earned and distributed in segments over a set period of time. Consider a $100,000 grant to be achieved over three years. In year one the grantee raises $50,000 and is matched for $25,000. In year two the grantee again raises $50,000 and is matched for $25,000. Finally, in year three the grantee raises $100,000 and is matched for $50,000.

Sample Four Year Challenge Grant
(Grant maker providing $1 for every $2 an organization raises)

Challenge Grants

Challenge grant ratios and amounts vary and it’s common to see challenge grants with ratios such as:

  • 1:2 (Grant maker will provide $2 for every $1 an organization raises)
  • 1:1 (Grant maker will provide $1 for every $1 an organization raises)
  • 3:1 (Grant maker will provide $1 for every $3 an organization raises)

What Organizations Serve to Benefit from Challenge Grants?

Some challenge grants are aimed at a specific subset of the nonprofit sector, while others are more universally open to all nonprofit organizations.

The four main benefactors behind the grants are:

  1. corporations
  2. government agencies
  3. trusts
  4. foundations

A foundation or a government agency might be more likely to limit its grants to a select type of nonprofit, simply based on the nature or the focus of the foundation or agency. A corporation with a broader corporate giving program will most likely be more flexible with its eligibility parameters.

Similar to matching gift eligibility guidelines, many challenge grant programs will accept applications from a variety of 501(c)(3) organizations and educational institutions, including:

  • arts and cultural organizations
  • community based social services
  • environmental organizations
  • healthcare based organizations
  • K-12 educational institutions
  • higher education institutions

Like with any organization seeking a grant, researching and zeroing on the ones best suited to help your nonprofit or educational institution is the best path to take.

Why Pursue a Challenge Grant?

Challenge grants provide a unique combination of incentive and encouragement to reach new fundraising peaks with the knowledge that an even bigger reward awaits your organization if you can meet those goals.

A nonprofit working towards a challenge grant can use the momentum and the impending additional contributions to:

  • fund new projects and programs
  • reinvigorate and grow their donor base
  • target a specific donor segment
  • and much more

Clearly defined goals are always welcome and recommended with fundraising. A challenge grant is a next level of goal setting. Challenge grants are ultimately cause and effect. Reach this first amazing goal and surpass it with the help of a grant maker. You’re fundraising towards an exact number, which donors will respect and be more inclined to help you reach than not.

Impress upon them that their donations go beyond the amount they physically contribute. A $100 dollar donation to a nonprofit with a challenge grant program is more than a $100 dollar donation.

The stakes are raised, and so too are the donations.

View our Ultimate Guide to Challenge Grants >