SEGUE stands for Sustainable Enhancement Grant. It is a philanthropic grant-making methodology that makes it possible to use traditional capital campaign techniques to underwrite nonprofit business plans.

Every year, traditional capital campaigns are used to raise billions of dollars for nonprofit endowments and buildings. In large part, their success lies in the clear connection that can be made between the money raised, and the permanent thing it pays for. Endowments essentially last for ever - it is clear that the money has not been squandered. Likewise, a building is a tangible and permanent thing with clear and enduring value.

The SEGUE methodology makes it easier to see how the successful execution of a nonprofit business plan also leads to a permanent thing of clear and enduring value: a strong, dependable mission-driven institution that improves people's lives, year in and year out.

For example, suppose a nonprofit has a high-quality plan to double the number of children it serves per year, and to do so in a way that will be sustained by local philanthropic scholarships. The SEGUE portrays this planned doubling of annual impact as a permanent thing that can be measured and compared to the one-time outlay of SEGUE capital it took to make the doubling happen.

SEGUE makes it possible to answer questions like:

• Did the plan come true? Did they really double the number of children served in a locally sustained way?
• How much did it cost to enact the plan and thus bring about this permanent doubling of impact?
• How much is left (at any given time) of the SEGUE capital that was raised?
• How much progress has been made (at any given time) towards achieving sustainability?
• Specifically, who are the philanthropists that made it possible to enact the business plan?

More technically, a SEGUE is a set of terms, spelled out in a contract, that is shared among a syndicated group of investors and the nonprofit they support. Some of the contract's more important features are:

• a single strategic business plan that serves as a focal point across all of the investors
• a promise to track and report progress towards long-term impact goals as spelled out in the business plan
• a promise to track and report progress towards achieving enterprise sustainability, as defined in the business plan
• a promise to track and report the consumption of SEGUE-raised funds (not just associated with the current campaign, but also with all future enterprise-level campaigns)
• additional information rights for investors, in the form of a balanced scorecard

SEGUE contracts also leave room for aspects that may be unique to specific funders (every funder has different needs). It is designed, however, to meet individual funder needs without losing an overall focus on organization's single strategic plan and reporting format.

Finally, because some funders would rather not bother with the intricacies of a detailed contractual relationship, the SEGUE methodology also allows participation in the form of a simple "Please direct these funds towards the Growth Capital Campaign" form of giving.

We do not at all believe nonprofits should have equity stakeholders who "own" the firm.

The thing to remember, though, is that there is an important role played by equity stakeholders that goes well beyond simply counting up profits. For-profit or otherwise, equity stakeholders also play a vital role in protecting a firm's long-term interests, especially during the firm's fledgling years.

So, we don't want owners, but we do like the idea of creating a new type of nonprofit stakeholder, one with a strong incentive to look after a nonprofit's long-term institutional strength.

A wonderful aspect of our mission-driven sector is a culture that strives to get as much social benefit from our nonprofits as possible. Sometimes, though, our collective efforts to do good in the near term can have the effect of weakening a nonprofit's strength to do good in the long-term.

Indeed, for very positive reasons, a nonprofit firm is something that people tend to exploit relentlessly. Funders seek accountability. (How many tutoring sessions can you deliver with this grant?) Employees seek higher salaries and better benefits. (Can you match my job offer from the nonprofit across the street?) Even the "sales force" (fundraisers/board members) can sometimes act in a way that over-exploits the firm - by wanting to say "yes" to propositions that allow them to hit their fundraising targets, even though the promises they make may be difficult for the nonprofit firm to live up to.

In the for-profit system, equity stakeholders have a strong and clear financial incentive to push back against those who wish to exploit the firm's near-term resources. For example, they may encourage a management team to turn down assignments that are off-strategy, and to draw down on equity instead. The equity helps pay the bills while the firm seeks assignments that are better tuned to the skills they will need in the long run to make their strategy a success.

We believe that the SEGUE system could inspire equity-like stakeholders to play a similar role.

We believe the SEGUE approach could make it significantly more likely that organizations will be successful in enacting their strategic business plans.

• Instead of cobbling together a large number of separate grants, each with its own negotiation, performance requirements, restrictions and reporting regimen, the nonprofit management team is able to bring multiple funders together under a unified strategic agenda.
• The capital campaign approach makes it possible to pre-raise several year's worth of equity-like capital, thereby shifting focus away from constant fundraising and towards developing the skills needed to sustain it in the long-run.
• The rigorous tracking of progress towards sustainability makes funders less concerned about creating dependency relationships, and thus more willing to write large checks.
• The capital campaign syndication approach allows funders to enjoy each other's leverage. (The opposite of what happens when funders "take turns" in supporting a nonprofit enterprise: "Why don't you come back when you need the money?")

We also believe there may be strong positive systemic effects that emerge as a market for SEGUE capital matures.

• The presence of an active SEGUE marketplace encourages nonprofit enterprises to create strong plans
• The presence of an active SEGUE marketplace encourages funders to favor investments that lead to sustainable impact, as opposed to "emergency bailout" grant-making (which may even provide an unintended incentive for emergencies to happen more frequently!)
• The larger size and collective nature of SEGUE investments makes it economically possible for investors to afford the deep due diligence it takes to make well-informed decisions
• Well-capitalized nonprofit firms will more often pursue strategies that use proof of impact as their way to compete for ongoing funding streams
• The clear feedback of SEGUE success vs. failure will bring a greater performance orientation to the allocation of our scarce capital resources. It will also lead to the emergence of funders who become true experts in helping SEGUE-backed plans be successful (with a track record to prove it)

The SEGUE investment vehicle is purely philanthropic in nature and generates no financial return for investors. It does, however, produce strong ongoing social benefits that are clearly documented and often out-perform traditional social ROI results by a factor of 10-to-1.

To date, NFF has not made cash contributions to the campaigns of our SEGUE clients.

Probably not. SEGUEs are designed for capital campaigns of $5 million or more, and our experience tells us that the success of campaigns of this size depends critically on having a pre-existing base of donor relationships to build upon.

No. Our service offering requires that client organizations already have a business plan in hand, along with a strong management team and board committed to executing that plan. Our role is to pressure-test the financial aspects of the plan (particularly in the areas of capital structure and long-term sustainability), and to assist in re-packaging the plan into a compelling case for prospective investors. Often, the process of preparing for a SEGUE results in a sharpening of the plan, and an improved level of strategic clarity throughout the nonprofit organization and board.

Probably not. In principle, the SEGUE structure can fit organizations at any stage of development, including startup. For the time being, however, we have chosen to focus our services on organizations with existing infrastructure, management, board and fundraising support. We believe that this is the most effective way to create noteworthy successes quickly. Unfortunately, this focus requires us to forego opportunities to work with a variety of exciting, early stage organizations. That said, we are committed to an open source approach, and are delighted to provide information about the SEGUE structure and how it can be implemented by others.

No. All of our engagements are paid for on a project basis, either directly by the nonprofit, or by a third party supportive of our mutual work.

Preparing for and executing a SEGUE capital campaign needs to be a highly collaborative, intensive process, with a high level of involvement from various members of the senior team. On the other hand, we believe that SEGUEs can be a very efficient way to raise money, compared to alternatives. By pre-raising several million dollars all at once, a nonprofit management team can relieve itself of day-to-day fundraising burdens long enough to build a more sustainable way of funding the enterprise.

Depending on your starting point, the preparation stage should take between 3 and 6 months. The length of an active campaign varies widely. Generally, we advise CEOs that a SEGUE capital campaign will require them to allocate perhaps 40% of their time to fundraising during a 6 to 9 month period. It is also possible to conduct a campaign in several rounds, if that is more appropriate. Also, unfortunately, some campaigns never reach their goals.

Unlike for-profit equity, the SEGUE does not ascribe ownership. Nor, unless explicitly desired by both the nonprofit and the investor, does it provide investors with governance powers. On the other hand, the SEGUE structure does require highly transparent reporting to the SEGUE investors (not shared elsewhere), particularly with regard to long-term sustainability and growth goals. It is likely that the added transparency will stimulate a higher degree of funder/recipient accountability than is usually present. Our view is that the long-term orientation of SEGUE investors will provide a much needed counterbalance to short-term funder requests that can sometimes distract a nonprofit from progressing towards its long-term strategic goals. This counterbalance, combined with SEGUE funds that make it easier to say "no" to distractions, is a key reason why SEGUEs are an effective way for organizations to reach their sustainable enhancement goals.

There are no fixed rules. In general, we choose to offer supporting services to established organizations with plans calling for $5 million to $50 million in growth capital. One definition we like to use is: "equity pays for cumulative deficits incurred en route to sustainability".

One definition we like to use is: "equity pays for cumulative deficits incurred en route to sustainability".

At first, equity pays for initial start-up expenses like legal fees, desks, chairs and computers. Later, it pays for intangible things like the high employee turnover rate a nonprofit suffers as it struggles to put together an effective and stable staff. Still later, it pays for reputation-building things like the evaluation work that proves once and for all that a program really works. And it pays for the process of trial and error, as the organization learns how to attract long-term sustainable streams of revenue. Equity is also used to create a risk capital reserve - yet another aspect of achieving sustainability.

Eventually, when an enterprise becomes inherently attractive and able to parlay its attractiveness into a reliable stream of sustaining revenues, equity has done its job. Equity is the funding for the organization that allows it to build the capacity to deliver services on a transactional basis.

We'd like to say "yes", but the truth is that not every SEGUE will be successful. Some of the organizations we work with will fail to raise the amount of capital they were seeking. And others will fail to reach the sustainable enhancement goals that were spelled out in their business plan. Like the for-profit venture capital and private equity businesses, the risk of failure of SEGUE investments will vary widely depending on the organizations' stage of development (start-ups being most risky), and the amount of upside associated with a success (higher risk of failure when you swing for the fences... but greater glory if the investment works out favorably).

Overall, however, we believe that the management focus and funder alignment achieved by the SEGUE approach, combined with the benefits of deeper due diligence, will likely improve the odds of success for SEGUE-backed nonprofits, compared to traditional funding methods.

On the other hand - something to keep in mind - the high degree of transparency that is inherent to the SEGUE methodology will also likely make failures more obvious than they otherwise might have been. (Not publicly, since SEGUE investments are essentially private - only official SEGUE investors that are privy to SEGUE quarterly reporting.) As champions for the SEGUE approach, one of our concerns is that the obviousness of SEGUE investment failures not be mistaken as a result of the SEGUE methodology, but rather, as the natural by-product of a well-tracked method of driving field-wide experimentation and innovation.