Why the ACLU’s Acceptance into Y Combinator is a Win for Nonprofits
Last week, Y Combinator, a well-know startup accelerator, announced that it will be accepting the ACLU into their Winter 2017 batch.
This isn’t the first nonprofit that YC has accepted. They started accepting nonprofit organizations in 2013, beginning with Watsi. What this means is that all the money and time put into a YC nonprofit is a charitable donation, without YC having an financial investment.
So if this has been going on since 2013, why does the acceptance of the ACLU impact other nonprofits today?
Well, this acceptance follows a trend. In 2016, YC announced their latest request for startups, which included 3 separate references to nonprofits — Diversity, Global Health and Underserved Communities.
These recent announcements remind us that nonprofits are valuable in our society because they can do what others cannot. They can rally people, advocate for those they serve and inspire action.
YC understands this, and I think we are at the beginning of a time in our history where the value of nonprofits will continue to increase and alternative ways to exist as social welfare organizations will emerge.
Something that I’ve been thinking about for the past few years, is how organizations with an altruistic purpose can break out of the standard formula of applying to for 501(c) status and then applying for grants. For many organizations, there is nothing wrong with this formula. Funding and support may be on the side of the 501(c) organization, and there are obvious perks that come along with this status.
However, this formula might not allow all organizations to thrive because of rules and restrictions associated with 501c status and grants.
Here are a couple of hybrid options that have bubbled to the surface in my research for Make a Mark.
Disclaimer: I’m still in the discovery process as well, and would absolutely advise that you discuss the best options for your initiative with legal counsel.
Benefit Corporation
While most companies must focus on profit above all else, benefit corporations get to consider their societal impact when making decisions.
Perks: Benefit corporations have more freedom when engaging in political activity, more stockholder rights, opportunity to attract more talent and increased chance for investment.
Draw Backs: Benefit corporations were not designated as such until 2010 and are only available in some states — 31 to be exact with 7 working on it.
Kickstarter is a perfect example of a benefit corporation that uses their impact on art, design and technology to improve our society, culture and economy.
Low-Profit Limited Liability Company
An L3C is similar to a Limited Liability Corporation, but with a specific social welfare purpose driving activities, not profit. An L3C is designed to take private donations and capital investments for its benefit.
Perks: L3Cs get many benefits of both nonprofit organizations and for-profit companies. They attract a high level of investment from private organizations and impact investors.
Draw Backs: Like benefit corporations, L3Cs are new on the scene and are still a relative unknown. They are only available in 9 states as of 2016.
Social Entrepreneurship
You can also operate as a traditional private company like a C Corporation, Limited Liability Company or others, and simply create a ‘give back’ program. However, you’ll need to make sure that any charitable giving does not cause issues for co-owners, investors or stockholders in the company.
Perks: More accessible, across states, than a benefit corporation. There is plenty of case law regarding private companies like C Corps and LLCs.
Draw Backs: Lines can blur when you’re blending profit with altruism as a private company. Its best to discuss this with a lawyer and/or accountant.
Thinx is a great example of a social start up that acts as a private company, but contributes part of its earnings toward a grassroots organization in Kampala that is fighting a similar issue. You can read more about their model here.
These are certainly not all of the options, but just a few that have bubbled to the surface in my own journey. I look forward to seeing how this space evolves.
Because nonprofits can fight in ways that the government cannot, there are many opportunities for leveraging the power of nonprofits and building more sustainable legal entities for them.
Remember to explore all of your options, because the work that you do matters.
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