Category: Funder Relations

Hi everyone, before we begin, I’m on a webinar hosted by the Whitman Institute this Wednesday, 8/1, at 10am PDT, with other leaders, to discuss funding dynamics and how we need more trust between foundations and nonprofits. It’s free. Register here (or RSVP at whitmaninstitute@gmail.com if you have trouble registering).

Sorry about this click-bait title, but let’s just say that fiscal sponsorship, as a topic, is not the most exciting to many people. I, however, am VERY excited about it and think it is one of the most-important-yet-underused tools in our sector. So I am filling this post with pictures of bunnies to encourage you to read it. Please make sure you read the entire post, and not just glance at the pictures of the baby bunnies. It’s an honor system. I trust you. Don’t let me and the bunnies down!

Recently, Josh Sattely of TSNE MissionWorks and I wrote an open letter to tech companies

asking them to provide donations to organizations that are fiscally sponsored. Right now, these organizations cannot get access to very useful tools like Google for Nonprofits, Microsoft Office, Slack, and a bunch of other stuff on Techsoup.org. They must have a 501c status, which leaves behind some incredibly effective orgs that are fiscally sponsored, while also allowing a few documented hate groups access to these tools simply because they do have status.

Thank you Nonprofit Quarterly for publishing our letter. I encourage everyone to please read it

and more importantly, put pressure on the tech giants to extend their donations to groups that are fiscally sponsored. Please email Techsoup at beyondc3@techsoup.org. The National Network of Fiscal Sponsors is actively working with TechSoup to evolve its platform to support fiscally sponsored programs. TechSoup encourages everyone to send them your stories, frustrations, and words of encouragement, which they will share with senior management and partner companies to further advocate for needed changes. Please email Techsoup and CC fiscalsponsors@gmail.com so NNFS has a record of your advocacy efforts.

This brings up a similar issue: Some funders still refuse to fund organizations that are fiscally sponsored. This practice is inequitable and prevents our sector from advancing. If you are at one of these foundations, I—and all these adorable bunnies—implore you to reconsider. Here are several things to think about:

Nonprofits led by marginalized communities are more likely to be fiscally sponsored: Organizations led by communities of color, LGBTQ, communities of disabilities, and rural communities tend to be smaller, and smaller organizations are often the ones seeking fiscal sponsorship. By not funding fiscally sponsored organizations, you punish these communities and continue the inequitable distribution of resources that has been a challenge for our sector over decades. Less than 10% of philanthropic dollars go to communities-of-color-led nonprofits, for example, and this only-fund-501cs policy helps to ensure that the communities most affected by injustice continue to get the smallest amount of resources to do the most urgent work.

501c tax status is not a good indication of integrity or effectiveness. In the US, there is a false belief among many funders (and tech companies) that having 501c3 status means that an org is “legit.” But let’s be honest, it is usually not hard to get 501c3 status, which is why thousands of new ones are created every year. Anyone and their cousin can get status. Heck, I could probably found a nonprofit called “Unicycles for Puppies”—Mission: To empower our canine friends to reach their full potential through the circus arts—and get status within a few months. You might be thinking, “If it’s so easy, then why is this an issue?” Getting status is easy, but it leads to a host of challenges, which is why many groups choose to go the fiscal sponsorship route. Read on, below. 

Fiscal sponsorship allows nonprofit staff to focus their time on programs and services:

Since some funders refuse to fund fiscally-sponsored organizations, many nonprofits have been seeking out 501c3s. While this is the right step for some, for many it is a time-consuming task to set up systems and apply for status. And then after they get their 501c status, they now must spend time finding staff or consultants to run HR, financial management, insurance, payroll, etc. These are highly specialized skills, requiring time and energy to do well. But because small nonprofits often don’t have funding for operations staff, the duties often fall on staff who are running programs and services.

Fiscal sponsorship encourages nonprofits to collaborate and benefit from economy of

scale: One of the reasons why fiscal sponsorships are effective is because it allows nonprofits to capitalize on economies of scales around a host of areas. Things like financial management, health insurance, and general liabilities insurance becomes cheaper for everyone when purchased under one umbrella. Forcing nonprofits to be their own legal entities prevents this economy of scale and increases costs, and again, organizations led by marginalized communities have even less funding to spend.

Fiscal sponsorship lets boards focus on mission and community-building work: Many small

organizations, especially ones led by marginalized communities, recruit brilliant leaders from their communities to serve on their boards. Unfortunately, because many of these organizations have to form 501cs to get funding, their boards suddenly become mired in myriad complex operations. This means they have less time to focus on fundraising, strategic planning, community mobilizing, and other duties that organizations need their boards to do to effectively carry out their critical missions. And as the roles blur, it often leads to staff/board tension and burnout.

Fiscal sponsorship helps nonprofits get out of the Capacity Paradox: The Capacity

Paradox is when nonprofits cannot get significant funding until they build capacity, but they can’t build their capacity until they get significant funding. Fiscally sponsored organizations can bypass this paradox and get high-quality capacity infrastructure in place almost instantly, allowing them to get significant funding and carry out their important work right away. By not accepting organizations unless they have a 501c3, you force them deeper into this paradox that is very difficult for many organizations led by marginalized communities to escape.

Fiscal sponsorship increases the quality of operations in each organization: By pooling

funds together under a fiscal sponsorship model, not only are organizations saving funds, but the quality of operations often drastically increases. Payrolls and financial reports are more timely and accurate. HR functions are more comprehensive. Legal crises are dealt with more effectively as they arise. Forcing each organization into a piecemeal approach, where they have little resources to spend on a host of complex operations tasks, risks each task being less dependable and accurate.

As our communities face increasing challenges, the way that we have been used to doing things needs to change. Fiscal sponsorship allows nonprofits to be more collaborative, effective, efficient, and helps to channel more funding into organizations led by and serving communities of color and other marginalized communities.

If you are with a foundation that has a hard policy against funding fiscally sponsored

organizations, please bring these arguments up to your team for discussion. And if you are a foundation that funds fiscally sponsored organizations and know foundations that do not, please use your influence to ask them to reconsider.

Everyone else, please email Techsoup at beyondc3@techsoup.org, and encourage foundations that don’t fund orgs unless they have 501c3 status to discuss this issue. 

The many amazing fiscally-sponsored organizations, many of which are led by communities most affected by injustice, must be provided the tools and support they need to do their critical work. We all benefit that way. 

These bunnies all agree.

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