The Nonlinear Library EA - How to Accelerate Your New EA Organization with Fiscal Sponsorship and Operations Support by KevinN
Feb 16, 2024
23:16
Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: How to Accelerate Your New EA Organization with Fiscal Sponsorship and Operations Support, published by KevinN on February 16, 2024 on The Effective Altruism Forum.
This post is primarily written for people who are considering, or are in the process of, starting a new nonprofit organization, especially those who are concerned about the operational aspects of running the project. Forming a new organization can be a daunting prospect, and finding the right fiscal sponsorship or operations support provider can significantly lower the bar for setting up a new org.
In my experience, there is limited awareness and understanding of these services within the EA community, which encouraged me to create a post like this. There are
many,
many great projects that are yet to be founded, and my hope is that increased awareness of the benefits of these services encourages more prospective founders to take the leap into entrepreneurship.
Summary
What these terms mean:
Fiscal sponsorship: Leverage another organization's existing legal and tax-exempt status (such as 501(c)(3) status in the US), rather than establishing a new tax-exempt entity. This is also called 'fiscal hosting' in the UK.
Operations support: Hire domain experts on a fractional, as-needed basis to perform operational services (compliance, finance, human resources, etc.) for an organization.
Key potential benefits and drawbacks:
Fiscal sponsorship = Instant initial infrastructure: Fiscal sponsorship significantly reduces the cost and time required to start doing object-level work by avoiding the need to create and operate a new tax-exempt entity.
Operations support = Ongoing support from specialists: Operations support provides additional organizational capacity and allows efficient access to a wide variety of skill sets.
Coordinated expert capacity - Hiring comprehensive operations support, or fiscal sponsorship plus operations support, can yield additional benefits when a service provider works cross-functionally in an efficient and synergistic way.
Potential Drawbacks - Costs and control: Entering into a fiscal sponsorship agreement and hiring operations support may incur significant service costs. Fiscal sponsorship, in particular, may slow down decision-making and restrict flexibility around key tasks such as financial management, hiring, and traveling, due to the fiscal sponsor's governance process and policies.
Due to the benefits and costs, fiscal sponsorship and operations support tend to have outsized benefits for newer and smaller organizations.
New organizations generally benefit more from the 'instant infrastructure' of fiscal sponsorship and find the limited flexibility less costly. For a new organization already facing a huge amount of other decisions, having some functional structure and process in place quickly and easily can be much more valuable than having it be perfect. On the other hand, organizations that already have an existing legal structure and tax-exempt status may not benefit as much from fiscal sponsorship.
Smaller organizations often benefit from operations support, where part-time contractors can provide expert capacity (or even coordinated expert capacity) across a variety of skill sets in a way that's more cost-efficient than a full-time operations employee. Conversely, a larger organization that requires more than several full-time operations staff may see less benefit from operations support as they are able to hire for more specialized operations roles internally.
New organizations may choose to start off utilizing fiscal sponsorship and operations support services to get up to speed quickly and then, over time, reduce their reliance on external support providers as they build internal capacity, scale, and expertise.
Disclosures: I have tried to provide a balanced view of fiscal s...
This post is primarily written for people who are considering, or are in the process of, starting a new nonprofit organization, especially those who are concerned about the operational aspects of running the project. Forming a new organization can be a daunting prospect, and finding the right fiscal sponsorship or operations support provider can significantly lower the bar for setting up a new org.
In my experience, there is limited awareness and understanding of these services within the EA community, which encouraged me to create a post like this. There are
many,
many great projects that are yet to be founded, and my hope is that increased awareness of the benefits of these services encourages more prospective founders to take the leap into entrepreneurship.
Summary
What these terms mean:
Fiscal sponsorship: Leverage another organization's existing legal and tax-exempt status (such as 501(c)(3) status in the US), rather than establishing a new tax-exempt entity. This is also called 'fiscal hosting' in the UK.
Operations support: Hire domain experts on a fractional, as-needed basis to perform operational services (compliance, finance, human resources, etc.) for an organization.
Key potential benefits and drawbacks:
Fiscal sponsorship = Instant initial infrastructure: Fiscal sponsorship significantly reduces the cost and time required to start doing object-level work by avoiding the need to create and operate a new tax-exempt entity.
Operations support = Ongoing support from specialists: Operations support provides additional organizational capacity and allows efficient access to a wide variety of skill sets.
Coordinated expert capacity - Hiring comprehensive operations support, or fiscal sponsorship plus operations support, can yield additional benefits when a service provider works cross-functionally in an efficient and synergistic way.
Potential Drawbacks - Costs and control: Entering into a fiscal sponsorship agreement and hiring operations support may incur significant service costs. Fiscal sponsorship, in particular, may slow down decision-making and restrict flexibility around key tasks such as financial management, hiring, and traveling, due to the fiscal sponsor's governance process and policies.
Due to the benefits and costs, fiscal sponsorship and operations support tend to have outsized benefits for newer and smaller organizations.
New organizations generally benefit more from the 'instant infrastructure' of fiscal sponsorship and find the limited flexibility less costly. For a new organization already facing a huge amount of other decisions, having some functional structure and process in place quickly and easily can be much more valuable than having it be perfect. On the other hand, organizations that already have an existing legal structure and tax-exempt status may not benefit as much from fiscal sponsorship.
Smaller organizations often benefit from operations support, where part-time contractors can provide expert capacity (or even coordinated expert capacity) across a variety of skill sets in a way that's more cost-efficient than a full-time operations employee. Conversely, a larger organization that requires more than several full-time operations staff may see less benefit from operations support as they are able to hire for more specialized operations roles internally.
New organizations may choose to start off utilizing fiscal sponsorship and operations support services to get up to speed quickly and then, over time, reduce their reliance on external support providers as they build internal capacity, scale, and expertise.
Disclosures: I have tried to provide a balanced view of fiscal s...