Do-gooders in startup land?!

Meet Y Combinator’s first class of non-profits

Silicon Valley’s top startup program, Y Combinator, graduated its first class of non-profit startups yesterday.

As the genre defining startup accelerator, this is a pretty big deal. YC is the same institution that brought us household names like Airbnb, Dropbox, Reddit and many more.

Traditionally they’ve been very focused on finding the next billion dollar company—and they’ve been quite good at that. So, what will it look like when they start working with non-profits? Well, now we have a few answers.

First, let’s meet the class

CareMessage: Uses SMS and automated voice technology to help hospitals and other care providers increase their engagement with at-risk patients.

Immunity: Crowdfunding their new approach to developing an HIV vaccine—and, if successful, they’ll offer it for free.

OneDegree: Basically, Yelp for social services. Aims to make it easier for individuals discover non-profit social services (like low cost dental, or job training).

Zidisha: Peer-to-peer micro-lending. Like Kiva, but with lower interest rates (achieved by keeping things p2p, instead of using local financial institutions).

NooraHealth: Trains families to care for loved ones after they leave the hospital.

CodeNow: Teaches kids in low-income communities to code through a mix of online and inperson training.

Some trends emerge

Product focused.

5 of the 6 are creating (mostly software) products—and the one outlier is helping kids learn to create software products. This isn’t surprising. The product focus means these non-profits will be able to benefit from YC’s core expertise of helping young software companies grow quickly.

Inspiring—and non-controversial.

These organizations all share super inspiring missions. But, it’s also important to note how non-controversial they all are. Who could be against creating an HIV vaccine?

Closely related is that none of them have structural approaches towards making the world a better place (i.e. advocating for schools to start teaching software dev in the classroom). Instead, they all focus on providing services. In other words, the belief that non-profits should play an important role in challenging or changing existing institutions and laws doesn’t seem to fit into YC’s selection criteria.

Donation dependent (for now).

Interestingly, most of these startups seem to depend on donations for income. I haven’t seen any their business models, but tellingly 5 of the 6 had a large donate button on their homepage. I can easily imagine that most could (and perhaps are already planning to) transition to a revenue generating approach, but it doesn’t appear to be where they’re starting from.

This is noteworthy because a big trend in the broader non-profit tech community is focusing on product based revenue generation from the get-go—so you’re not as dependent on the whims of major donors or subject to the long timelines and reporting requirements of major foundations.

I suspect that as the YC mentors gain more experience in watching their startups go through the process of raising major donations, you’ll see more of these non-profits launching with baked in revenue generation models.

What it means beyond YC

Y Combinator casts a long shadow in the tech world. So, bringing non-profits into the mix has the potential to create some really interesting change outside of the program itself.

Training Silicon Valley heavyweights to become donors

Despite it’s massive accumulation of wealth, the tech industry isn’t great at giving money away. Part of this is because there is little cultural focus on the virtues of being a donor. If you belong to a church, you’re encouraged to make a donation every week. If you’re an middle-aged executive at a major corporation, you’re encouraged to join some community organization’s board or at least host a fundraiser. Most founders and VCs have none of these influences.

YC has a huge role in setting cultural norms in SV, and beyond. It’s been great to see YC founder Paul Graham talk up Watsi (the first YC backed non-profit, which he sits on the board of) and YC partner Paul Bucheit offer a $10 donation for each person who mentioned Zidisha on Facebook/Twitter. If this level of engagement continues, hopefully you’ll see more if seep throughout the eco-system as it becomes normalized.

This has the potential to not only unlock a lot more money for non-profits, but also to create some really valuable mentors and connectors.

You can change the world with non-profits too?!

Silicon Valley is filled with really well intention people who want to change the world and make it a better place. Unfortunately, two other trends often get in the way:

1. A very generous interpretation of what changing the world means (i.e. “Our photo sharing app is going to change everything!”)
2. A conviction that venture backed for-profit startups are the only vehicles capable of such change.

Simply by accepting ambitious, world changing, non-profits into it’s program, YC is showing us all what’s possible and helping to blow up both of these narrow minded trends.

So, here’s to hoping this is the beginning of a new wave of big-thinking, do-gooder, world-changing startups that are solely focused on impact, not tax status.

Update: Thoughts from a YC founder

Rey Faustino, founder at One Degree, reached out to me with a few of his thoughts on this piece. At his suggestion, I’ve included his email below. Oh, and just case you wanted to read even more, I’ve included my response to him as well.

Rey’s thoughts:

Thanks for giving us the opportunity to respond to your post. We were really excited to see your writing about the nonprofits in the batch, and we just wanted to correct a few things:

I would strongly disagree with your assessment that “none of [us] have structural approaches towards making the world a better place”. I’ll just speak specifically about One Degree here, although the other nonprofits are each pretty remarkable in their long-term vision. We believe we’re actually confronting a very important structural problem that exists in the nonprofit world and shifting power to those who are the most underserved and unheard in our community by giving voice to actual users of services. It’s not sexy, it’s not “controversial” in the sense that it’s going to rile up politicos, but it’s a very real problem that we think can eventually make a huge impact on about 49 millions people living in poverty (and 80% of us who will face it at some point in our lives).

You also mention “5 of the 6 are creating (mostly software) products.” One Degree is definitely a software product, but Immunity Project, Zidisha, and CodeNow are not, and I’m not sure I would classify NooraHealth or CareMessage as primarily software products either — most of their service occurs offline or in SMS.

You also note that “most of these startups seem to depend on donations for income. I haven’t seen any their business models.” In fact, Zidisha, NooraHealth, and CareMessage each have earned revenue streams (these were all in their pitch), and we (One Degree) intend to pilot one soon as well. Regardless, many for-profit startups are starting from a place of investment rather than earned revenue as well, so I don’t think using reliance on donations as a starting point for nonprofits should be surprising or disappointing.

My thoughts on his thoughts (as expressed in the email I wrote back to him):

• It sounds like we probably mean different things when we say structural. I guess it probably would have been clearer if I had just said that “none of them have advocacy based approaches towards making the world a better place.” To me, those two words mean basically the same thing in this context (since advocacy is about structurally changing institutions/laws vs having a direct direct impact) but I totally get how they might not mean the same thing to everyone.
• I’m a bit surprised about your response on products. I get that Immunity is clearly not creating a software product ;), but they are developing a vaccine, which I think of as a pharmaceutical product. And it seems to me (from afar) that Zidisha, NooraHealth and CareMessage are building interesting, and necessary, software to support their offline goals
  Again, this could be a matter of perspective. I’ve seen a lot of non-profits who don’t have the capacity to ship code, so they have to rely on crappy off-the-shelf stuff, or limit the scale of their ambition. So, it was pretty awesome to see so many non-profits with developers and a focus on building new things, and I wanted to highlight that.
  (Though, I also think in many cases, organizations can do an enormous amount of good without bothering with new technology, but that’s another story ;)
• Totally fair point on donations. I assumed that many of you had ideas for revenue down the line, but I led with a headline that points in a different direction which probably wasn’t the right decision. I think that revenue generating non-profits are super cool (and super hard), so I’m eager to see what folks do. And, you’re totally right, all startups basically start off with a donate button on their page ;) (and that might be even more true after the JOBS act finishing making it’s way into law).