Presentation to D-Prize Seminar January 12, 2016 Rachel Fyall

Topics Organizational form Popular expectations of social entrepreneurs Basics of (traditional) fundraising

The Social Enterprise Spectrum Source: Dees and Anderson (2006) as reprinted in Renz (2010), p. 283 Purely charitablePurely commercial Motives, Methods, and Goals Appeal to goodwill Mission-driven Social value creation Mixed motives Balance of mission and market Social and economic value Appeal to self-interest Market-driven Economic value creation Key stakeholders Targeted customersPay nothingSubsidized rates, and/or mix of full payers and those who pay nothing Pay full market rates Work forceVolunteersBelow-market wages and/or mix of volunteers and fully paid staff Market rate compensation SuppliersMake in-kind donations Special discounts and/or mix of in-kind and full price Charge full market prices

Considerations in determining organizational form Resource options – 501(c)(3) charities allow for tax-exempt donations (donor benefit) – Most traditional foundations require 501(c)(3) status for grant recipients – For businesses, more options for getting money from banks (such as through small business loans) and other traditional lenders/investors Preferred uses for “profit” – 501(c)(3)’s cannot distribute profits to stakeholders (profits must be re-invested into venture), this is why nonprofits are tax-exempt – Businesses can distribute profits to individuals or investors But you are not taxed unless there are profits (Ventures that lose money do not pay income taxes) Ownership and autonomy – 501(c)(3)’s do not have clear lines of ownership. Boards of directors have legal responsibilities in their role as governing and oversight bodies. – Businesses have clearly defined owners who are autonomous and legally responsible.

Considerations in determining organizational form Start-up challenges – 501(c)(3) status requires state incorporation, then IRS approval (some consider this burdensome) But the world of nonprofit activity includes many “organizations” without official status – Small businesses are generally considered more straight-forward to start LLCs and other legal forms (such as B-corporations or L3Cs) are defined by state law Normative and cultural preferences – Many owners/founders have a natural preference or bias regarding organizational form – Some funders/investors/donors also have organizational form preferences Who or what is your target resource base? – Customers, clients, or beneficiaries rarely know or care Source consulted: Child, Witesman, & Spencer (2015)

Organizational form (options depend on state) Social Purpose Corporations: WA state alternative to for-benefit enterprises – Currently 101 active SPCs registered in WA state B-Corporation Certification: – Not a legal structure – Currently 1,550 certified B Corps in 42 countries L3C (Low-Profit Limited Liability Company):

(Popular) Expectations of social entrepreneurs Evangelist for an idea or venture Personally dedicated to the success of the venture Able to convincingly articulate how an idea or venture transforms systems or disrupts the status quo See Ashoka’s selection criteria: – The Knockout Test: A New Idea – Creativity – Entrepreneurial Quality “These leaders often have little interest in anything beyond their mission, and they are willing to spend the next ten to fifteen years making a historical development take place.” – Social Impact of the Idea – Ethical Fiber

Fundraising, resources, and supporters Founder is chief fundraiser Board members should substantially contribute as donors or fundraisers, – Exception may be if board members serves as a “specialized” volunteer, essentially donating a skill or expertise that would otherwise be needed (e.g., legal expertise, translation services) Survey of nonprofit startups: 70% reported their most important funding source in Year 1 came from donations and private individuals (Van Slyke & Lecy, 2012) – 28% reported the source was a private individual or family member of the founder Foundation grants, prizes, and government funding tend to be time-consuming to pursue with low odds for success – Consider probability of success before pursuing opportunities – Success builds on success (probability of success increases with each award or grant)

The Fundraising Process (Worth 2014, p. 272) Determine priorities and develop the case Identify and qualify prospects Cultivate relationships with prospects Steward the gift and relationship with the donor Acknowledge the gift and recognize the donor Solicit the gift

Social enterprise-focused foundations and support organizations Skoll foundation ( Schwab foundation ( Ashoka ( Social Enterprise Alliance ( Social Venture Partners ( Echoing Green (

Additional reading from my nonprofit class On social enterprise: – Nicholas Kristof (2010), D.I.Y. Foreign-Aid Revolution – Teju Cole (2012), The White-Savior Industrial Complex complex/254843/ complex/254843/ On fundraising – Sasha Dichter (2008), In Defense of Raising Money: a Manifesto for NonProfit CEOs – Peter Buffet (2013), The Charitable-Industrial Complex On boards of directors – David Renz (2007), Nonprofit Governance and the Work of the Board