Growing Charitable Foundations
Updated: Nov 9, 2020
John Chapman (1774 –1845) became known as the legendary ‘Johnny Appleseed.’ He planted apple trees from seed across the northeastern USA. A tree planted by Johnny Appleseed in Ashland County village of Savannah, Ohio, is still standing 176 years later. He was a most unusual person, walking barefoot all the time, even in winter. He wore a pot on his head as a hat.
By planting fifty trees, a farmer could stake a claim to acreage. The apple crops in those times were for vinegar and cider. Johnny Appleseed helped the farmers claim property, thereby benefiting himself also by gaining land. John Chapman died without heirs, leaving land holdings over 1200 acres.
In some ways, a charitable foundation is similar to an apple tree.
Apple trees grow apples annually, which farmers harvest for consumption. Like apple trees, charitable foundations grow yearly earnings - their apples- which are donated to charities. Trees and charitable foundations can produce fruit and donations for decades and centuries.
An apple tree grows larger and bears more fruit each year. A foundation becomes larger by receiving financial gifts – especially sizable ones – to add to their invested capital. As foundations grow in capital funding, they can support more annual contributions for charities.
All trees begin from seed. The seedling grows for years before bearing fruit. A foundation starts with a seed fund donation. However, harvesting of contributions from the foundation to give to the charity begins in the first year. For justifiable tax reasons, foundations are not allowed a maturation period for the growth of their capital base. After all, if donors are given immediate tax deductions, the reasoning goes, shouldn’t charities see instant benefits too?
Apple seeds are tiny in size, weighing just one-fiftieth of one ounce. That is minuscule compared to a single apple tree’s typical annual eight hundred and forty-pound harvest. A little seven-pound bag of apple seeds could generate an entire fifty-acre orchard.
The apple tree grows from the size of a seed to a mature tree. Seed money for foundations can also start small, and if they are allowed to mature before harvesting, it can grow to an enormous size. The lower the seed money and the bigger the desired capital fund, the longer the time required to mature for foundations.
Raising new donations for foundations requires a significant effort that could be reduced. Annual contributions to foundations fluctuate widely depending on economic conditions and fundraising efforts.
Johnny Appleseed contributed to the current and future wealth for his society. We could similarly contribute to society by giving to charity now and donating a portion of funds as seed funds for the future.
Letting donated money grow first, before being harvested, is an essential and new opportunity for foundations. This growth permits sustainable increases in their annual yield, without heavy lifting.
Seed money permitted to grow before harvesting invested at five percent net growth in today’s dollars could multiply ten times larger every forty-six years. That means if seed money of one million dollars was invested for about two hundred years, the fund size would grow to over ten billion dollars. From the ten billion dollars, a donation ‘harvest’ of four hundred million would be sustainable every year.
Just as apple trees require a maturation period, foundations should grow their investment base before beginning to harvest. A new mechanism to permit maturation for charitable foundations is required.
So when you enjoy an apple, think of Johnny Appleseed, who started it all from apple seeds. Wouldn’t it be great if charities could grow in the same way?
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