Raising Capital

A New Form of Fiscal Sponsorship May Help Social Enterprises Raise Funds

Anne Field | October 5, 2015

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Social enterprises are trying out all sorts of approaches to funding and structuring their ventures. But as for-profits, they are often cut off from grant opportunities (although that is changing). A new form of fiscal sponsorship promises to help fill the gap.

A fiscal sponsor is a nonprofit organization that leverages its legal and tax-exempt status to help similarly aligned projects and nonprofit organizations receive grant funding. Fiscal sponsors administer the grant, deal with tax reporting, and provide fiduciary oversight. They may also provide training, human resource and other services—in effect, letting the sponsored party use their back end services. For this service, fiscal sponsors typically charge a fee.

The sponsorship model has helped resource-strapped nonprofits and social good programs access funding. Now, some fiscal sponsors are experimenting with a more pared back approach called a limited fiscal sponsorship that could be used to help social enterprises.

Josh Sattely of TSNE
Josh Sattely of TSNE

One of the organizations exploring limited fiscal sponsorships is Third Sector New England (TSNE), a nonprofit that provides training, assistance and grants to other non-profits. Founded in 1959, TSNE has been a longtime fiscal sponsor. But its work with for-profit social enterprises is new.

“Fiscal sponsors are evolving their practices to explore ways to support great ideas that benefit the greater good,” says Josh Sattely, compliance and legal affairs specialist at TSNE, which works with projects and programs focusing on education reform, economic inequality and heath equity, among other areas.

Social enterprises are testing out a variety of other structures, challenging traditional notions of what it means to be for-profit or non-profit.

TSNE started out offering a program called comprehensive fiscal sponsorship. That means it carries out an organization’s back office, human resources, accounting and other administrative and management functions and is the contracting party for contracts with vendors. The program’s employees technically are employed by TSNE. The idea is to allow the client to focus on its core mission.

More recently, however, it introduced a limited fiscal sponsorship option. Still in the experimental stage, it allows TSNE to administer a grant and then make sure the recipient is doing the things it’s contractually supposed to do with the money. Under the limited arrangement, the client is a separate legal entity responsible for managing its own tax reporting.

So far TSNE has tried this out with 15 organizations. Some, like Boston-based Fresh Truck, which runs a mobile market (pictured above) that stops in low-income areas plagued by food deserts, are for-profit social enterprises (Fresh Truck is a B-Corp). TSNE can accept charitable contributions to support Fresh Truck’s mission, and then, basically, contract with the company to do worth that furthers the goals of both groups. behalf and essentially re-grants them to the company.

Courtesy of Fresh Truck
Courtesy of Fresh Truck

For now, many of TSNE’s limited fiscal sponsorships are short-term projects, but that could change. “We are learning a lot about what it takes to work with innovative companies and social entrepreneurs and hope to continue testing this model on new ventures,” says Sattely, emphasizing that these efforts are still in their infancy.

As the social impact field grows and evolves, this limited model is gaining interest. The National Network of Fiscal Sponsors, an organization co-founded by TSNE, has 36 members. About half practice some form of the more-limited model.

Social enterprises are testing out a variety of other structures, as well, challenging traditional notions of what it means to be for-profit or non-profit and adopting new approaches. For example, there’s the L3C, a type of mission-oriented LLC that advocates hope can attract foundation investment.

Related: Kickstarter, a B Corp., Becomes a Benefit Corp. What’s The Difference?

“People are experimenting with all sorts of structures that can help enhance social change,” says Sattely. “This is another tool in the arsenal of social good.”

Anne Field is a freelance journalist that writes about social enterprise. A version of this article ran on her Not Only For Profit blog on Forbes. 

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Comments

  1. Do you know if the L3C can use a fiscal sponsorship as a way to fund charitable projects?

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