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Prospect Research 101

Prospect Research 101. Presented by David Lamb Prospect Research Consultant Blackbaud Analytics. Goals of this session. Develop a rationale for prospect research Researching in the real world Research subjects Public company executives Private company executives

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Prospect Research 101

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  1. Prospect Research 101 Presented by David Lamb Prospect Research Consultant Blackbaud Analytics

  2. Goals of this session • Develop a rationale for prospect research • Researching in the real world • Research subjects • Public company executives • Private company executives • Foundation officers or directors • Professionals • Filling in the details • Turing facts into information • Profiling the prospects

  3. I Spy • NOT! • Limitations of prospect research • Public information sources • Respect for the prospect • Partner in building a relationship • Time management • Setting the ask at the right level • Doing your homework • Maximizing the prospect’s giving potential • Anyone who systematically collects, records, and organizes donor data

  4. What You Need To Know A good prospect has all of these characteristics • Capacity • Preference for appreciated assets • Cash • Inclination to give • Evidence of philanthropic activity • Interest in your mission • Linkage • Alumni • Involvement • Service

  5. How Much Do You Need To Know? Depends on the progress toward solicitation • Identification: just enough information to justify a contact • Cultivation: “spot research” as needed • 0-6 months from solicitation: as much research as you can get

  6. Unequal Potential • The 90-10 rule: 90 percent of your income will come from 10 percent of your prospects • Most of the people on your database are not wealthy • Some of the people on your database don’t care that much about your mission • Start your efforts with the most capable and the most likely people

  7. Interest Ability The Giving Tree

  8. What You Can Usually Find • Indications of wealth • Stockholdings of public company insiders • Salaries of top public company employers • Real estate values • Salary surveys • Affiliations • Doctors • Lawyers

  9. Inheritances Affiliations Nonprofit Corporate Family Donations Biographical Business history Who’s Who Assets other than stock or real estate What You Can Sometimes Find

  10. What You Can Never Find • Cash & bank balances • Non-insider stock holdings • Whatever the prospect wants to keep hidden

  11. Public Company Insiders

  12. Public Company Insiders • Director • Policy making officer – top 4-10 • Major shareholders • 5% holders report on Form SC13 • 10% holders report on Forms 3, 4, 5, & 144 • Indirectly held stock reported for • Spouse • Children • Trusts • Retirement plans • Foundations • Investment companies or partners • Any person or entity with a close relationship to the prospect

  13. Sources for Researching Insiders • Free tools • SEC.gov • Hoovers • MarketWatch • Company web site • Fee based • LexisNexis for Development Professionals • 10K Wizard • EdgarOnline

  14. Forms Filed by Public Companies • DEF 14A – proxy statement – invitation to the annual shareholders meeting • 10K – annual report • Form 3 – initial statement of holdings • Form 144 – intention to trade stock, filed by the insider • Form 4 – record of a trade • Form 5 – annual statement of holdings • S1 – filed prior to an initial public offering

  15. The things to find • Stock holdings of insiders • Compensation of directors • Compensation of top officers • Stock options • Other details (severance & retirement plans & more) • Current value of stock

  16. Interpreting Insider Data • Directly held stock • Appreciated asset • Great way to make a gift • Indirectly held stock – • Appreciated asset • Belongs to someone else – may not be gift-able by your prospect • To find out who owns it, read footnotes in proxy or most recent Form 4 • Compensation • Salary & bonus for top officers • Stipend for directors • Stock options (a potential asset) • Exercised • Exercisable • Unexercisable • Stock grants and restricted stock grants

  17. Private Company Officers and Owners

  18. Finding Private Company Affiliations • The Challenge: • Private companies are not required to disclose financial details • Everything that you can learn comes from three sources • Voluntary disclosure • Government registrations • News • Your prospect’s ownership may not be disclosed in these sources

  19. Finding Private Company Affiliations • Voluntary disclosure sources • The company’s web site • Corporate directories • Dun & Bradstreet • Hoovers • American Business Information • Government registrations • State corporations sites • KnowX • News • Google • Factiva • LexisNexis for Development Professionals

  20. Estimating Private Company Value • When a company incorporates, it issues shares, known as “outstanding stock” • The value of the company is divided evenly among the shares • “Publicly held” stock vs. “closely held” • Finding the value of public company stock is easy • Finding the value of private company stock is difficult and expensive

  21. Valuation in the real world • To find out what a company is worth, sell it • Value is partly (sometimes mostly) subjective • Sometimes D&B provides a net worth figure • Read everything you can about your target company – it’s not just numbers

  22. Comparable companies • Find a similar public company • Downside: a public company is almost always valued higher than an otherwise equivalent private company would be • Find a similar private company that sold recently • Downside: the only commonly available metric is sales, and value is not always clearly tied to sales or even profit

  23. Comparison to public companies • Yahoo Stock Screener (http://screen.yahoo.com/stocks.html) • Parameters that can be used • Industry (SIC or NAICS) • Sales • Enter relevant info for the target company • SEC.gov company search allows SIC search • If you don’t know the SIC, check http://www.osha.gov/pls/imis/sicsearch.html • If your search turns up no companies, try replacing the right-hand numbers with zero’s: 5261 becomes 5200 • Once you know the company name, look it up on your favorite public company site (e.g. finance.yahoo.com)

  24. Comparison considerations • Market Capitalization is one good measure of public company value • Your target company value is probably considerably less, even if otherwise equivalent • Public companies tend to be much larger than their private counterparts • Ratio of annual sales to market cap provides a multiple for the relevant industry • The more examples the better • Read the profile to see if the comparison company is similar in purpose to the target • If the public company has flat or negative earnings, it may still have value

  25. Comparison to other private companies • Business Valuation Resources (www.bvmarketdata.com) • Pratt’s Stats • Database of over 9,500 private company sales from 1990 to present • Deal price ranges from $1 million to $14.4 billion • Updated monthly with about 100 transactions added / month • $595 • Bizcomps • Database of over 9,500 private company sales from 1993 to present • 61% of the companies have gross revenues less than $500K • 18% of the companies have gross revenues over $1 million • $395 • INC. Magazine’s Ultimate Valuation Guide

  26. BizStats Rules of Thumb http://www.bizstats.com/reports/valuation-rule-thumb.asp

  27. Business Classifieds • Bizbuysell.com • GlobalBX.com

  28. Real Estate

  29. Researching Real Estate • The value of every property is public information • Source is individual counties or townships • Information to look for: • Sale price • Sale date • Mortgage amount • Market value • Assessed value • Reources: • Lexis Nexis • NETRonline • The Tax Assessor Page • Zillow

  30. Interpreting Real Estate Data • The researcher’s job is not to appraise real estate • Real estate can be an indicator of other assets – or not • Real estate can be the gift itself – especially if the prospect owns multiple properties • $1 million buys more real estate in some area than others • Someone who owns valuable property may not be wealthy • Property may have appreciated in value over a long period of ownership • Property may be heavily mortgaged • Recently purchased property is a good indicator of capacity • Can work backwards to an estimated minimum salary figure • Use mortgage calculator to figure monthly payments • Lenders will generally require that a person’s income be at least 3x the mortgage • A person who purchased a valuable property recently convinced the lender than he or she has the wherewithal to pay the mortgage

  31. Foundations

  32. Foundation Research • Types of foundations • Public charities file 990s • Private foundations file 990 PFs • What to look for • Year covered • Contact information • Asset value • Officers, directors or trustees • Salaries paid • Any large gifts made to the foundation • Guidelines • Grants paid • Future grants committed

  33. Interpreting Foundation Information • If your prospect is a director of a private foundation, this might be another source of a donation • Pay special attention to the guidelines – go to the foundation’s website if possible • The grant history will help determine the kind of projects the foundation actually funds • Getting a grant from a foundation requires the same personal cultivation as that needed for securing a gift from a person • Family foundations can be a way to hide assets but… • The foundation must give away 5% of its assets every year

  34. Professionals

  35. Researching Professionals • Ziggs Search for Professionals • Zoom Info • ZabaSearch • Doctors • AMA Physician Select • AIM Docfinder • Medical Salaries • Lawyers • Martindale & Hubbell • FindLaw

  36. Filling in the Details

  37. What If You Don’t Know… • Where the prospect works • FEC • Hoovers • Google • Zoom • Where the prospect lives • FEC • Phone directory

  38. Donations NOZA FEC State Political Donors One Step Birthdays Biographies Online Landings (Airplane Owners) Salary Surveys Google or Altavista Foundation Affiliations Guidestar Grantsmart Foundation Center Foundation Directory FC Search Taft Foundation Reporter Public Records Filling In The Details

  39. Making Sense of the Data • Gift capacity is a portion of net worth and income • Net worth=assets-liabilities

  40. Distribution of Assets for Wealthy Families Households whose net worth is between 1M - 10M (Source:2001 IRS data, published in 2006) Page #40 © 2004 Blackbaud

  41. The Art of Prospect Rating • Philanthropic history • Income based • Slightly more than 2% of income goes to charity • 5 year pledge=10% of income • Asset based • Make best guess of net worth >> philanthropic capacity is 2-5% of net worth • Philanthropic capacity is 5% of total identified assets • Average annual gift x 10 • Consider places where the prospect may be influential

  42. Prospect Research Resources • www.lambresearch.com • Prospect Research: A Primer for Growing Nonprofits • APRA (www.aprahome.org) • International Conference • Great Plains Chapter • Prspct-L (www.yahoogroups.com/prspct-l)

  43. Tools You Might Buy • LexisNexis for Development Professionals • FC Search: www.fdncenter.org • Waltman’s Donor Series: www.donorseries.com • 10K Wizard: www.tenkwizard.com • KnowX: www.knowx.com

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