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Updated October, 2011
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Understanding the Arts and Culture Program’sFacility Investments and Building Reserves Grant Opportunity
October 2011
Agenda
• About The Kresge Foundation• Institutional Capitalization Goals• Capitalization• Preliminary Application
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• The Kresge Foundation is a $3.1 billion private, national foundation that seeks to influence the quality of life for future generations through its support of nonprofit organizations
• The Foundation works in seven program areas:
• Arts and Culture• Community Development• Detroit• Education• Environment• Health• Human Services
The Kresge Foundation
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The Arts and Culture Program
• The Kresge Foundation’s Arts and Culture Program seeks to build vibrant communities enlivened by the presence of healthy arts and cultural organizations, creative and well-supported artists, and well-integrated arts and community-building efforts
• The Arts and Culture Program is focused in three areas: • Institutional Capitalization• Artists’ Support Services• Arts and Community Building
• This slide presentation addresses the Facility Investments and Building Reserves grant opportunity within the Institutional Capitalization Focus Area
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Institutional Capitalization Goals
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About Institutional Capitalization
• Through the Institutional Capitalization focus area, Kresge expects to see:
• A shared understanding of basic definitions, principles and practices of capitalization• The adoption of capitalization best practices among organizations• Better capitalized arts and cultural institutions that are stronger and whose
business models are more sustainable, where appropriate• Arts and cultural institutions that are well positioned to produce high quality,
impactful, innovative and relevant artistic product
• This focus area provides support in four areas:• Field-wide efforts to promote and adopt capitalization principles• Facility Investments and Building Reserves• Sector Leaders• Strengthening Arts Facilities Effectively (SAFE)
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About Facility Investments and Building Reserves
Why facility investments and building reserves?
• The Arts and Culture Team’s Institutional Capitalization focus area uses facilities and building reserves as an entree to help organizations examine their level of comprehensive capitalization
• While this grant opportunity places an emphasis on facility investments and building reserves, it is truly about comprehensive organizational capitalization
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Capitalization
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What is Capitalization?
• Capitalization is the accumulation and application of resources (operating and working capital, operating reserve, risk capital, endowment and building reserve) to support achievement of an organization’s mission over time.
Design, test, and refine effective programs
Deliver high quality and
effective programs
Maintain adequate supportive
infrastructure
Risk CapitalOperating and
Working CapitalOperating Reserve
Elements Needed by All
Steward necessary fixed assets and collections
EndowmentBuilding Reserve
Needed by Some
Ensure appropriate longevity of programs
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Source: TDC
• Without adequate capitalization, your mission is at risk.
Why Does Capitalization Matter?
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Inability to innovate or
realize benefits from innovation.
Inability to spend adequate
resources to create quality
programs.
Inability to steward fixed
assets or collections.
Inability to attract talent or
maintain quality partners and
vendors.
Inability to weather risks,
and/or inability to deliver quality product over
time.
UnderlyingRisk
Passing up new program ideas.
Inadequate cash flow to handle
expansion.
Borrowing from advance ticket
sales.
Permanently drained lines of
credit.
Making payroll is an adventure.
Collections calls.
Chronic deficits are covered by endowment and reserve draws with no way to
replenish.
Warning Signs
InadequateRisk Capital
Inadequate Operating and
Working Capital
Inadequate Endowment
Inadequate Building Reserve
Inadequate Operating Reserve
Capital Fund
Roof has been leaking for past
18 months.
Collections are crumbling.
Source: TDC
• Capitalization is embodied in the balance sheet• The balance sheet records an organization’s accumulated
financial performance over time• The Income Statement (the Statement of Activities) shows only one year’s
revenue and expenses
• The balance sheet also demonstrates the strength and availability of an organization’s asset base to support its future
• Finally, the balance sheet shows an organization’s degree of liquidity
How Well Are You Capitalized Now?
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Source: TDC
• What are we looking for in your balance sheet?
Unpacking the Balance Sheet
Balance SheetCash/InvestmentsReceivablesFixed Assets
Total Assets
PayablesDeferred RevenueDebt
Net Assets
Total Liabilities and Net Assets
Income Statement RevenueExpenses
Net Income
Endowment
Operating and Working
Capital
Operating Reserve
Elements of Capitalization
Building Reserve
Risk Capital
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Re
qu
ires
Liq
uid
ity
Source: TDC
What Are We Looking For in a Capitalization Strategy?
• There are no cookie cutter answers• A capitalization strategy looks at four distinct pieces:
• Mission and vision• Business model drivers• Time horizon• Marketplace
• With this in mind, the strategy determines the types of funds required
• It then articulates the necessary size of the funds, the timing of the need, and the method for obtaining the required resources
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Source: TDC
Audience
Audience + facility
Audience + high fixed costs
Audience + facility + high fixed costs
High flexibilityLow capital intensity
Low flexibilityHigh capital intensity
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What Are Your Business Model Drivers?
Fixed costs
Fixed costs
Source: TDC
What is Your Time Horizon?
Immediate(Individual View)
Highly specific artistic expression – often focused on a particular artist
Highly flexible with limited fixed costs
Rented or borrowed facilities
Medium Term (Organizational View)
Artistic expression fulfills established brand identity
Fixed costs must be tightly controlled
Facility ownership may or may not be supportable
Long Term (Institutional View)
Fixed costs extensive and multi-faceted
Obligation to persist as civic anchor or long-term stewardship of collection or art form
Facility ownership often necessary
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• Higher risk tolerance may be appropriate• Requires coverage of basic needs – working
capital, risk capital, and operating reserves.
• Level of obligations call for low risk tolerance• Requires larger scale of basics and, often, plant
reserves and endowment to meet all obligations.
Fixed costs
Fixed costs
Fixed costs
Source: TDC
Importance of the Marketplace
• A thorough understanding of the marketplace tests the mission and vision and predicts the resources available by asking:
• Who is the anticipated audience? Is the product or service needed or wanted in the community? What level of support will they provide?
• With whom might the organization be competing locally for audience and support?
• These questions can only be answered in the context of the local community and are particularly important during projected program or facility expansions
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Source: TDC
Resources
• Analyzing the marketplace also helps determine necessary operating resources for the environment
• With whom is the organization competing for talent and key resources? How does that impact fixed costs?
• What investments are necessary in marketing and development?
• Organizations with facilities must also define long- term systems replacement needs
• These organizations often operate with a systems replacement plan (SRP), which articulates anticipated need, but does not address the funding of those needs.
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Source: TDC
Capitalization strategy articulates size and shape of capital needs grounded in organization’s inherent business model drivers and strategic goals
Mission/Vision• Artistic/cultural production • Theory of change for impact
on audiences and other beneficiaries
Market• Customers• Donors• Competition
Resources• Ongoing resources to
sustain operations and a facility if appropriate
• Human resources• Key investments
Planning process informed by Mission/Vision, Market, and Resources engages board, staff, partners, and supporters, and encourages a holistic understanding of the organization.
What Are We Looking For in a Strategy?
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Integrated StrategyProgrammatic strategy maximizes artistic
quality and impactOrganizational strategy includes adequate
human and other resources for marketing, development and space
Source: TDC
Time Horizon and Business Model Drivers
What Does This Look Like Over Time?
• Once need is defined – prioritize!
Endowment
Operating and Working
Capital
Operating Reserve
Elements of Capitalization
Building Reserve
Risk Capital
• The capitalization strategy identifies the needs and sources, and prioritizes among them
• Generating reserves often implies surpluses. Break-even budgets do not allow organizations to implement a real capitalization strategy
• Preserving the more capital-intensive funds is difficult without adequate operating funds
Net
Ass
ets
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Operating surplus
Surplus or non-operating fundraising
Non-operating fundraising
Source: TDC
300000000000
Preliminary ApplicationFacility Investments and Building Reserves
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Getting Started
• Read the supporting documents on the Kresge Web site: • Capitalization Philosophy and Terms• Guide to Strategic Planning• Guide to Building Reserves• Search the Kresge Foundation online library for additional
reference materials.
• Capitalization is a new topic for many, and we believe that reviewing these materials in their entirety before applying will help applicants
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Eligibility
• Who is eligible?• Organizations with arts and culture as the primary purpose of their mission • US-based organizations• 501(c)3 organizations not classified as a private foundation• Organizations with facilities that are government-owned, but operated by
separate 501(c)3 organizations• Organizations with audited financial statements
• Who is not eligible?• Organizations with an active grant from Kresge• Art-focused subsidiaries of larger parent organizations such as universities
or human services agencies• Start-up organizations (less than two years of operational history)• Government-owned and operated entities• Organizations with compilations or reviews, or financial statements
prepared on a cash or modified cash basis
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What We Support
• Organizations may apply for two types of grants:• Facility Investments and Building Reserves• Building Reserves
• If seeking a facility investment, renovation and repair projects will be prioritized over new construction.
• We do not fund reserves solely for equipment.
• Grant amount will be dependent on the type of project and the size, scope and business model of the organization. However, grants will not exceed $1 million and/or a period of three years.
• Some grants may be awarded on a matching or challenge basis.
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A Highly Competitive Process
• Spring 2010: 141 preliminary applications; 21 invited full proposals; nine Facility Investments and Building Reserves grants
• Fall 2010: 134 preliminary applications; 10 invited full proposals; five Facility Investments and Building Reserves grants
• Spring 2011: 152 preliminary applications; 22 invited full proposals; nine Facility Investments and Building Reserves grants
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Criteria and Review Process
Step 1: Competitive assessment of preliminary applicationsfor alignment with the Arts and Culture Program’s values:
• Create opportunity and enhance access to arts and culture through authentic and relevant programs that exemplify excellence in the field; that involve people of all social and economic backgrounds; and increase participation of new and non-traditional audiences.
• Exhibit a high level of community impact through work that contributes to a vibrant arts and cultural ecosystem and exemplifies excellence in the field; benefits the broad local community and reflects the diversity of the community population; advances community building efforts; and embodies key principles of community planning to enhance quality of life.
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Criteria and Review Process
Values continued:
• Stimulate innovation through work that furthers best practices in the field; uses new and possibly untested approaches; and brings multi-party, interdisciplinary approaches to problems that defy solution by a single sector.
• Support institutional transformation and the capacity to profoundly influence the overall organization and its operations; or create new business models to strengthen financial stability.
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Criteria and Review Process
Step 2: Competitive assessment of the overall quality of the preliminary application and the strength of the comprehensive capitalization strategy including:
• Evidence of planning, including but not limited to external market research and analysis for earned and contributed revenue, benchmarking research, system replacement strategy
• Evidence that the proposed project fits within the larger capitalization strategy and that it is the next appropriate step in that strategy, and that the organization understands how the proposed project will impact the future operating budgets and balance sheet
• Evidence of a realistic fundraising plan, if appropriate to the request• Assessment of the liquid unrestricted net assets available for operations
The determination as to whether to request a full application is assessed on the competitiveness of the overall preliminary application.
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Competitive elements
• Competitive preliminary applications demonstrate the following:
• Values that are addressed in a detailed way and which align with those of the Arts and Culture Program
• A capitalization strategy that aligns with the organization’s mission and strategic plan, and which:
• Accurately diagnoses business model drivers• Defines the needs and plans for each type of fund, and prioritizes
among them• Includes a strategy to build surpluses and reserves over time
• Building reserves strategies based on a realistic plan, accurate data, and policies which address use, withdrawal and replenishment
• Realistic fundraising plans, when appropriate to the request• Evident collaboration among the CEO, CFO and Development staff in
completing the application• Unrestricted Net Asset Tool correctly completed
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How to Apply
All Facility Investments and Building Reserves grant applications must be submitted through our online application system.
Visit the Facility Investments and Building Reserves page on the Kresge website and click on “Apply Online” in the Quick Links section. This will take you to an instruction page and provide access to the online application.
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Current Preliminary Application Deadline
• Deadline for the Fall 2011 call for applications is Thursday, March 1, 2012, at 5p.m. Eastern Standard Time.• This is the final call for applications for this grant
opportunity.
• Within 10 weeks of the part-one submission deadline, we will contact all applicants. At that time, we will invite those with promising requests to complete the second part of the application process.
• Final grant-amount decisions will be made after review of the two-part application and conversations with the potential grantee. In most cases, awards do not exceed $1 million and cover a period of up to three years.
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www.kresge.orgThe Kresge Foundation
3215 W. Big Beaver Road
Troy, Michigan 48084
248.643.9630