Comment by wpietri | Hacker News Reader

Comment by wpietri | Hacker News Reader

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> dance to their tune to get their funding”) doesn't really make sense

It makes perfect sense to me, having worked for a couple of non-profits. A regular business gets money by selling products to people. A nonprofit gets money by selling good feelings to rich people.

Often, one of those good feelings a rich person buys is a sense of control. They don't just give you money and say go; they give you money for a very specific purpose. Often, to get that money you have to apply for grants, meaning that you must conform to their desires up front, write a big project plan, and the follow that plan closely to receive the money. It's very much a waterfall approach to things, which can cause a lot of waste, and can be very distracting for people who want to focus on the non-profit mission. You also of course need a whole apparatus to find and flatter those rich people, which isn't free.

Basically non-profits sound like a better vehicle in theory than they are in practice for many purposes. And they don't guarantee fiscal probity from the community's perspective. A non-profit exec can still pay themselves millions of dollars [1].

For what it's worth, I am happy to help out community-oriented for-profit businesses. E.g., San Francisco's Borderlands Books, which is community-sponsored [1]. I give them $100/year just because I want them to keep existing, and bookstores in SF aren't really viable businesses anymore.

[1] https://www.erieri.com/blog/post/top-10-highest-paid-ceos-at...

[2] https://www.theguardian.com/books/2015/feb/25/borderlands-bo...

But couldn't they do the exact same things as they'll do now, only with the tax breaks of a non profit? If they're soliciting funding from the community in the same way, what difference does it make? A large contributor or customer could try to exert control either way, couldn't they?

I think there are two separate but tangled questions here: becoming a non-profit (as traditionally understood) and using a 501c3 as a legal entity (to keep doing exactly what they're doing). I was mainly talking about the former; it sounds like you're asking about the latter.

As far as I know, the only 501c3 tax break is to donors. So the question is whether that will get them sufficiently more money to make it worth the significant downsides, restrictions, and increases in administrative hassle. I expect for small donors, it doesn't make much difference. And regardless, I'd be willing to trust that they know what they're doing in this regard.

You seem to be describing a (for profit) relationship between a small to medium size IT vendor and a large blue chip, and the internal decision making process of a blue chip as well.

No, it's more like the relationship between a small store that adds value to a community in ways that don't appear in GAAP calculations, and a corporation that extracts value from communities in ways that ditto.

It's going to take a while for it to become clear if this new venture is the first or the second type.

Obviously everyone is hoping for the former.

You mean for how a 501c3 interacts with donors and foundations? Yeah, it seems to be very often like that. I've talked with people in the non-profit world who are trying to make 501c3s work more like startups, where what investors/donors are paying for is exploration and learning. But apparently that's vanishingly rare.

Yes, that is the case if you are funding your non-profit from large donations.

But there is nothing stopping a non-profit from selling products and services to individuals and or soliciting small donations from lots of people.

So I don't agree that this is a legitimate reason to go for profit.

Selling products and services would make them a hybrid (for-profit/non-profit) organization. The sales would be subject to sales tax. Without a 501(c)(3) status, they also wouldn't be eligible for many grants to secure larger fundings.

That's incorrect. You can sell products and charge sales tax as a non-profit.

Just look at the American Red Cross, they sell the blood that is donated to them.

You of course can't have a profit that is distributed at the end of the year. But you can keep "profits" in the organization for furthering the goals of the 501c3.

If you would like to give it a try, I encourage it. But if you're not going to raise money except in small donations, then I don't see any advantage in doing a 501c3, and there are a lot of disadvantages. There's also nothing stopping an LLC or a C corp from "selling products and services to individuals and or soliciting small donations from lots of people", and that's a much more straightforward and flexible entity.

Sure there are advantages. If you have retained earnings at the end of the year with a c-corp, you have to pay corporate taxes.

With a 501c3, you don't. Although I think there are some limitations.

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