My previous post on why donating to for-profit organizations is both smart and easy was really just a tee-up for this blog post - because I’m thrilled to share that Rise Together Ventures has officially joined the cap table of Ribbon, a digital fiscal sponsorship platform that is transforming the way charities and charitable projects are started, funded and operated.
If you are an entrepreneur or fund manager, then you are likely familiar with how inefficient and frustrating fundraising can be. The truth is that capital markets can be incredibly inefficient, but everything is relative…if you think that the capital markets for venture capital are challenging, just take a look at philanthropic capital markets…it's rough.
If you have ever tried spinning up your own nonprofit then you know this. A for-profit founder can start raising capital within days of formalizing their ambition, but it doesn’t work that way in the nonprofit world. A startup charity needs to first obtain tax-exempt status from the IRS prior to being able to accept philanthropic donations - and obtaining 501(c)(3) status from the IRS can take up to a year and thousands of dollars in costs. Can you imagine if the startup world worked this way?
The good news is that social entrepreneurs do not really need to have their own 501(c)(3) tax-exempt status to get started. Fiscal Sponsorship is a formal arrangement in which a 501(c)(3) public charity can act as a sponsor of a charitable project for an individual or organization. This alternative to starting an independent nonprofit allows a person, group or company to seek grants and solicit tax-deductible donations under a sponsor's exempt status. Fiscal sponsorship can be a cost-effective way for charitable projects to operate without the need to become an independent tax-exempt organization. It also allows the project leaders to test the viability of their ideas and demonstrate proof of concept before deciding to start an independent charity. And, it can help for-profit organizations that have technology or products that can be leveraged to do good, receive tax-deductible donations to do that work (obvious call out: we use Ribbon to provide our portfolio companies with non-dilutive philanthropic capital!).
Ribbon isn’t just about helping social entrepreneurs to get going faster. It’s about becoming the financial and administrative operating infrastructure that enables a new generation of philanthropic innovation. The average non-profit spends ~15-40% of their annual budget on non-programmatic expenses…and ~40% of that chunk is spent on admin functions. This means the average U.S. charity spends 6-15% of total collections on admin expenses or $30-75B in total allocated expenditure. Ribbon is going to streamline the operating costs for the philanthropic sector as a long-term partner to social changemakers.
Ribbon’s product roadmap includes continuing to build out a full SaaS offering for the complex infrastructure, marketing, and donor tools required by nonprofit organizations - essentially, the operating system for the $485B nonprofit sector. This opportunity really excites us, particularly as we embark on an $84 TRILLION generational wealth transfer over the next two decades, accelerating a new paradigm of social entrepreneurship and philanthropic engagement. Ribbon is empowering a new generation of social entrepreneurs and making it easier for philanthropic capital to find its way to meaningful and innovative projects that really matter.
Simply put, the company’s innovative offering is a game-changer in the non-profit sector, significantly streamlining the often tedious and time-consuming processes associated with starting and running a charity. By minimizing the administrative burdens typically faced by charities, Ribbon empowers social entrepreneurs to focus more on their mission and less on operational challenges.
Therefore, on the philanthropic side, we are excited to seed the Ribbon Foundation (which, yes, is a fiscal sponsorship instance using Ribbon’s platform…I know...super meta). Ribbon has a first-hand look into charitable organizations that are built well to execute on their mission, but aren’t set up for scalability. Often run by a small team, the operators of these organizations spend their time focused “in the business,” instead of “on the business.” There is an opportunity to pair some of these high potential organizations with capacity building experts to help them see what their organizations could become in the future and we are excited to fund this work through the Ribbon Foundation.
