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The Nonprofit Strategist

Why the Nonprofit Sector Needs More Accelerator Programs

We frequently talk with founders of tech and nonprofit startups, and we see a lot of similarities. Both nonprofit and tech founders are entrepreneurial, passionate about their ideas and face countless challenges ranging from the strategic to the tactical and mundane--any of which can rise up to bite the founder in the behind.  Interestingly, the management literature* largely confirms our observations.

You might ask, what’s the biggest challenge facing nonprofit entrepreneurs?  Money, money, MONEY! No surprise, duh in fact, but the literature confirms it:

Nonprofit founders face more challenges in raising capital than their tech founder brethren.  

In fact, tech startups appear to have it easy by comparison! To begin with, there’s more capital available and more investors with an interest--and there are hundreds of accelerator and incubator programs that provide crucial support. This is simply not the case in the nonprofit arena, no matter that tens of thousands of new US nonprofits are formed each year.

Plainly, from a public policy perspective this is a tremendous challenge. People with good new ideas that could meet social needs in innovative ways struggle too hard to be taken seriously, and the innovation we desperately need to achieve social change in this country is being suppressed. Most founders just don’t have enough capital to truly test their ideas in anything like a timely fashion. In fact, the research shows that lack of access to capital is the biggest reason why the typical nonprofit startup incubation period can be as long as seven to ten years. As a consequence their ideas don’t scale (or fail, as many indeed should) for far too long. It’s crazy, and it’s unacceptable!

My observation is that if tech founders had to do what nonprofit founders do to get startup funding, we wouldn’t HAVE a tech industry in this country. They would go work on Wall Street or something instead.

From outward appearances, private foundations would be the most natural constituency for startup capital. Yet the vast majority of foundations don’t fund organizations less than three years old, or those with small budgets, or without detailed financials, and so on. The message is pretty plain: they don’t want to deal with the messy world of startups. It sounds terrible, but there are good counter arguments. Some of the foundation executives I’ve spoken with say they don’t have the expertise to make sound judgments about funding startups, the expertise to guide their development, or else they are simply constrained by mandates that contributions benefit direct beneficiaries rather than new ideas that might or might not ultimately help people. Yes, there are some foundations that do provide startup funding. And yes, there has been a lot interest in recent years in launching earned income schemes to help sustain new or existing nonprofits, but it is naive to think this approach can apply to every nonprofit. Most startup nonprofits have enormous difficulty in developing the "old-fashioned” fundraising programs that might sustain them. But instead, it takes nearly a decade for many to reach sustainability—let alone scale.

What to do?  It’s not a complete answer, but I would put my money on the need to greatly expand on the trend found in new accelerator programs like those run by Techstars or FastForward, both of which fund nonprofit along with for-profit founders, or Social Innovation Accelerator, which focuses on funding and accelerating the leadership of innovative new nonprofits, including, crucially, developing fundraising and program design capability. Unlike most incubators, good accelerator programs are designed to directly impact an organization’s ability to scale, and the best of them bring founders into direct working contact with potential investors.

There’s one more cardinal point about accelerator programs: While they do provide technical support and funding, they are also selective and competitive. Their process helps the best founders develop the best ideas faster, which is what we all want. Meanwhile, others will fail faster, which is what we should also want, since not every nonprofit idea is a good one. So, more of this!

*For more, check out Fredrik Andersson’s Nascent Nonprofit Entrepreneurship: Exploring the Formative Stage of Emerging Nonprofit Organizations. (Nonprofit and Voluntary Sector Quarterly, Sage)