Investments · Non-profit

What I should learn/research about value proposition for investors in social impact projects?

Eduardo Fonseca Cloud Provider | Azure & Unity 3d Developer | Senior .NET Software Engineer | MCTS

July 28th, 2015

What I should learn/research about funding, if a company would be some kind of non profit?
If am not mistaken in these type or organizations the revenue should be re-invested, so am I right to say there will be no ROI?

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Alistair Davidson Eclicktick Consulting

July 28th, 2015

It strikes me that ROI is still appropriate for internal investments that make the operations of the not-for-profit more efficient.

More generally, you should be looking at the societal return on the spending of the not-for-profit. If you have a portfolio of spending choices, you still need to rank the benefits of the approach. Clearly, ROI in its simplest interpretation does not necessarily capture all the outcomes, but a balanced scorecard approach may be more appropriate.

Zvi CFA Senior Quantitative Analyst | Data Scientist

July 29th, 2015

For non profits, the steps are: 1. Finding organizations or people that fund other non-profit companies. 2. Figuring out what deliverables they want. This could be "lives saved" "people helped" "graduation rates" etc. 3. Put together a pitch explaining how funding your company would maximize their ROI. But, ROI is defined in terms of deliverables/funding. An example would be, "lives saved" per dollar. 4. Note that, besides your general idea, any normal sponsor would need to know how your team is better than other teams, that your plan makes sense, and that your calculations are based in fact. z

Daniel Ross

July 29th, 2015

Nonprofits will measure social impacts on investment rather than traditional financial ROI.  That said, nonprofits can have for-profit subsidiaries that raise capital and provide returns to profit-minded investors.  Also, as a previous commenter mentioned, there are new legal structures for social enterprises in many states - i.e. Benefit corporations and L3Cs - that allow for both grant funding and equity investment.

Eli Castellanoos Operations at MiChefs Network

July 28th, 2015

That's not necessarily how a non profit works.  I have worked with non profits for over 20 years.  There are a number of tax issues affecting your status and the determination letter recieved from the IRS.

I strongly suggest you speak with someone with a background in this area first.  I have gone in a number of times to fix issues because the ones forming the non profit did not understand the rules.

Camille Leon Founder of the Holistic Chamber of Commerce

July 28th, 2015

These days, social impact cause-oriented organizations also have the option of incorporating as a Benefit Corporation (B-corp) in about 25 states. This allows your focus to be on the cause while also allowing you to provide financial ROI with early investors.

Alex Place

July 28th, 2015

Eduardo,

Non-profits have access to both public and private foundations, as well as government grants. 

In a nonprofit, there are no "traditional investors" that seek to get their money back or any other compensation as a result of donating. 

@Alistair-- I would agree that it is in the best interest of nonprofits to work as much like real businesses as possible; analyzing internal investments and activities ensure efficient uses of funds and this is often the NPO's (Non Profit Organization) best way of attracting more support. Donors want to put their money towards tangible impact results and sustained societal benefits brought about through the nonprofit. 

@Eduardo-- I am an Unreasonable Institute Mexico fellow and would urge you to look at NCITE Mexico; they are also Unreasonable Institute fellows and are working on social impact through videogames. LINK: http://ncite.mx/ 

Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

July 30th, 2015

If you are a non-profit your financing will be limited to loans or donations. The former will be determined by credit worthiness and ability to pay interest. The latter depend on the charisma and effectiveness of your charitable patrons outreach team. Scott McGregor, Scott@soundfit.me, (408) 505-4123 Sent from my iPhone

Michael Barnathan

July 28th, 2015

The primary restriction on a non profit is that except for salary and other compensation for services rendered (which can sometimes be quite high but should always be based on fair market rates), the profits of the organization should not inure to shareholders (in fact, there are no shareholders). That means you likely won't become rich starting one. This applies even when you dissolve the corporation - the assets either go to another nonprofit, or a court decides what to do with them. Also, you are not allowed as an organization to lobby or endorse a candidate for public office. In exchange for these restrictions and a focus on a particular mission supported by the IRS (IIRC, educational, religious, public housing, youth services, medical, scientific, literary - I'm probably forgetting a few), donations to your organization will be tax deductible.

Nelson Morgan CEO at UpRise Campaigns, SPC; Research Scientist at ICSI

July 31st, 2015

Many good points above, but also: non-profits are eligible for many kinds of U.S. government grants and contracts, though they are usually very competitive (and so take a significant amount of work for proposals that may not be funded). The governments ROI is the access to what you have produced (especially in the case of contracts), and for grants, they primarily have an interest in promoting a particular area in the country. But if you do want access to funding from investors who want a monetary return, as some have mentioned, you might want to consider some flavor of benefit corporation (in some states like California we have something called a Social Benefit Corporation, for instance).

Michael Barnathan

July 28th, 2015

The ROI for donors is the tax deduction and the impact.