The Death of the Nonprofit Start-up.
Is the nonprofit start-up dead in America? Based on my conversation with Wendy Gonzales, CEO of Samasource, I think so.
Founded in 2008 by Leila Janah, Samasource piloted a bold frontier for Machine Learning: what if we trained AI in Uganda, simultaneously creating thousands of jobs for the poor while advancing our autonomous tech future?
Janah started Samasource as a nonprofit (then called Market for Change) as one of the first ventures to seriously engage in impact sourcing. Leveraging her experience of having previously lived in Africa, she aimed to alleviate global poverty by equalizing access to work. Samasource claims that their worker's wages have increased four-fold after three years and that they have empowered thousands with a living wage.
Here’s where things get interesting: ten years later, in 2018, Samasource created a for-profit company that is majority-owned by the nonprofit (now the Leila Janah Foundation) to carry out operations, raising $14.8 million from private investors in the process. Gonzales claims this hybrid model enables a unique level of accountability.
In the past two decades, many companies trying to balance profit and doing good have looked to the Public-Benefit Corporation, a structure that legally requires them to consider both shareholders’ interests as well as a social cause. Patagonia, Kickstarter, and This American Life are Public-Benefit Corporations. I myself chose for my company, Donera, to become a benefit corporation in order to ensure that our commitment to fighting the climate crisis wouldn’t waiver. However, Samasource’s model was completely new to me.
I was more surprised to learn that Samasource created the for-profit subsidiary in order to raise capital, enabling them to scale operations. This dumbfounded me: Samasource had existed for over a decade and received numerous accolades–yet despite this success, had not been able to source sufficient funding. If a nonprofit as successful as theirs couldn’t make it work, what does that say about the structure as a whole?
Now, maybe I’m being a bit dramatic to say the nonprofit start-up is “dead” in America; but Samasource’s story suggests that they have a low chance for success. Michael Seibel, CEO of Y Combinator, once told me that nonprofits were “a pain in the ass” to run, as he had seen around 50 go through his accelerator with many of them going on to face severe barriers. In addition to the constant pain of raising money from donors, one huge headache nonprofits face is that they must register and file annual reports in any state in which they solicit donations. Worse, the laws on this vary by state, so the registration and reporting requirements are all different. For any non-profit start-up engaged in a multi-state digital outreach, the legal and administrative challenges are overwhelming.
For instance, a Facebook post that reaches one person in Alaska and results in a modest donation may subject the organization to Alaskan charity laws, despite the fact that the donation was small and Alaska was never part of their market focus. Since the US has no national framework regulating charitable solicitations, nonprofits engaging in broad digital campaigns would need to register and annually report in every state in order to “stay safe”; this is unfeasible for solo founders or small teams, who also have a host of other legal considerations to make. This immense legal overhead, combined with restricted access to capital and antiquated regulations, make nonprofits tough to start in the digital age.
At Princeton, my research focuses on how the nonprofit space can catch up to the digital age and leverage the tools and strategies of the for-profit sector; reflecting on my conversation with Wendy Gonzales, it may be that nonprofits are becoming increasingly anachronistic and may not be able to exist at all.
