In 2021, the Johnson Center for Philanthropy posted an article, “So, you want to start a nonprofit?” by Senior Program Manager Tamela Spicer. The piece, their most-read blog post of 2021, covered reasons why someone might want to create a nonprofit and how to get started.
The purpose of the following article is to present an alternative to anyone who has read that post, as well as anyone who is considering starting their own nonprofit. Nonprofits are a popular way to give back. However, they are not the only option — and many would say they may not be the best option. Giving circles are an excellent alternative that may provide greater impact with lower effort.
In her article, Tamela discusses the founders she has met who have wanted to start a nonprofit because of their love of humanity, strong desire to help others, and passion for making communities better places to live. These are wonderful goals that I attribute to an inspiring group of people that I call “Founders for Good” — people who want to start something new in the world that makes a positive difference.
These Founders for Good have led to the creation of more than 1.8 million nonprofits across the United States today. According to the IRS, the growth of nonprofits in the United States is 5% net year-over-year for the last five years. This means an average of nearly 100,000 new nonprofits have been started every single year since 2017.
When we look at the breakdown of nonprofits across the country, the vast majority are smaller organizations. Two-thirds of nonprofits, 66.6%, have an annual budget of less than $500,000, and nearly 30% have budgets of less than $100,000.
And there isn’t much of a middle. Only 5.4% of nonprofits in 2019 had budgets above the $10 million mark, leaving only 28% of all nonprofits in the U.S. between those two extremes.
However, the legal structure applied to nonprofits with a $100,000 budget is the same as the legal structure used for nonprofits with annual budgets of hundreds of millions of dollars. In 2006, the IRS implemented a new 990-EZ form for those nonprofits with budgets of less than $50,000 per year to lessen the administrative burden. This was a significant step forward for these nonprofits, as it made it easier for them to file their annual reports to the IRS and continue their operations.
However, the initial application process to even start your 501(c)(3), as well as the time it takes for that 501(c)(3) status to be approved by the IRS — once you’ve already spent several months putting together your application — is the same. When I looked into setting up a nonprofit, advisors at the law firm Gibson Dunn shared that it typically takes 8 to 12 months or more for the IRS to approve new nonprofits.
And the reality is, many of these nonprofit organizations struggle to survive amidst so many others. There is also a widely adopted belief in philanthropy and nonprofit circles that we don’t need more nonprofits, but rather more collaboration and consolidation of existing ones to be more effective as a sector.
An alternative for lighter-weight organizing for communities can be seen in the fiscal sponsorship model.
Social Impact Commons defines fiscal sponsorship as “a nonprofit organization that shares with multiple independent missions a common corporate structure, tax exemption, and insurances, as well as staff and systems for managing your finances, human resources, legal, fundraising, marketing, and other areas of back office support.”
In this model, instead of starting a new nonprofit, a Founder for Good can essentially set up an account with an existing nonprofit. They can solicit, accept, and receive gifts; benefit from the support structures and oversight of the sponsoring organization; and generally act as if they are merely a program under the umbrella of their sponsor and therefore fall under their tax ID status.
“[A] fiscally sponsored project is a lighter-weight charitable entity. … However, it doesn’t necessarily encourage more collaboration between nonprofits or programs for more effective impact.”
However, it is important to note that the challenges with using a fiscally sponsored account are also abundant. It is a fractured market and therefore it can be difficult to find a fiscal sponsor, especially one that aligns with your mission and price point. It can also be an expensive model, with sponsors often taking 10% to 30% of the funds that they host, in my experience.
Despite these challenges, a fiscally sponsored project is a lighter-weight charitable entity. It requires less setup time and reduces some of the administrative overhead, legal risk, and expense that a full nonprofit status requires. However, it doesn’t necessarily encourage more collaboration between nonprofits or programs for more effective impact.
Another alternative is to establish a giving circle. I would like to suggest that, in most cases, a giving circle is a much better way to make a difference in our communities than either of the other two options.
Giving circles provide a more cost-effective model that requires less administrative and overhead work. And in many cases, giving circles better leverage the real skills and assets of a potential Founder for Good while also encouraging community-based collaboration with existing organizations and programs that can lead to healthier communities, mission efficiency, and greater impact.
As frequent readers of the Johnson Center’s blog will know, a giving circle is formed when a group of people come together to pool their donations and collaborate to decide which nonprofits to support with their money.
The reality is that, whether they realize it or not, most Founders for Good begin their journey toward creating a nonprofit by doing the very same work that goes into establishing a giving circle. Every nonprofit, no matter its size, must begin by:
Just as you would need to start by organizing a board and getting core donors to believe in you and your mission if you were to start your own nonprofit, you would need to do the same when creating a giving circle. The difference is that you would be able to set up a giving circle much more quickly and start making an impact immediately.
In fact, you can set up a giving circle in just a couple of minutes. Modern tools like those we provide at Grapevine and Philanthropy Together’s Launchpad program provide all the features and support you need to build a community and run a giving circle in one place while automating away the administrative, legal, and accounting overhead.
Through the process of learning about organizations and exploring issues more deeply, it is not uncommon for giving circles to uncover issues in their communities that go beyond the capacity of existing organizations to address.
“Through the process of learning about organizations and exploring issues more deeply, it is not uncommon for giving circles to uncover issues in their communities that go beyond the capacity of existing organizations to address.”
In this case, the giving circle can turn out to be the perfect first step into a broader social impact mission. This is the ideal opportunity to explore fiscal sponsorship, to help an existing nonprofit expand its services, or to consider the creation of a wholly new nonprofit.
Those of us at Grapevine have seen giving circles transition from solely making grants to existing organizations, to beginning to implement their own programs to fill critical needs in their communities by setting up a fiscally sponsored account. In this way, some of the funds that they have raised can be used by their members to carry out programs directly.
Giving circles are a grassroots movement that started here in the United States in the early 1980s with deep roots going back centuries and spanning cultures around the world. This movement has already facilitated more than $1.3 billion in donations and engaged over 150,000 donors, and it’s just getting started. The rapid rise of this model is increasing and its global reach continues to expand.
We launched the first-ever global giving circle directory in 2021 in collaboration with Philanthropy Together. So far, we’ve documented over 3,000 giving circles around the world. As this movement grows, the diversity of donors participating in the model and the types of giving circles being created are also increasing. There are more and more young donors across economic backgrounds, races, and cultures getting involved.
“As this movement grows, the diversity of donors participating … and the types of giving circles being created are also increasing. There are more and more young donors across economic backgrounds, races, and cultures getting involved.”
The rapid rise of the giving circle movement is exciting, but it’s not rapid enough. Imagine if just 5% of the Founders for Good that are starting the 100,000 new nonprofits every year started a giving circle instead? That’s 5,000 new giving circles per year, which would more than double the number of giving circles in the first year alone! If each circle had an average of 100 members who each donated just $50 per quarter ($200 per year), that would generate $100,000,000 more per year to be invested in communities!
The best way for this high-impact model to grow more quickly is by getting the word out to the broader impact community. To those people who want to make a difference and be Founders for Good, the best way to join this movement is to found a giving circle, not a new 501(c)(3) organization.
I believe the energy, passion, and determination of Founders for Good are key to solving problems across this country and around the world. I believe it is up to us as a community to make a difference.
I believe that for people with that intention, we need to point them in a direction that is meaningful, impactful, and will not be too onerous or expensive for them, in order to avoid the massive burnout issues we’re currently seeing in this sector. I believe that it is a natural human desire to create something, to build something, to start something fresh, new, and exciting — to be a Founder for Good. I believe this because I am this.
I founded Grapevine to power giving circles, so I understand what it means to be a Founder for Good. I understand what it means to feel that drive to create something with your direction, vision, and mission at the helm. For those reasons, I don’t want to tell any potential Founder for Good not to build something. On the contrary, I am sending out a call to Founders for Good everywhere to build.
We need you. We need your energy, your strategy, your dreams, your goals, your experience, your passion, your seeds of discontent, your communities, your stories, your brilliance, and your unique insights. We need all of it. And we need it now. Don’t say, “next year.” Be a Founder for Good and join the movement today.