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Feb 13, 2014 | Insights

Who Chooses Fiscal Sponsorship, and Why?

Fiscal sponsors have traditionally been viewed as incubators of nonprofits, providing support to fledgling initiatives until they are ready to spread their wings as stand-alone, 501(c)(3) organizations. Although this is sometimes the case, research indicates that it’s the exception rather than the rule — especially when it comes to comprehensive fiscal sponsorship.

Because of the support structure comprehensive sponsors provide, change agents are free to focus their energies on mission-driven work, knowing their back office needs are being managed effectively. In fact, it is not uncommon for fiscal sponsorship partnerships to last for decades.

In addition to the classic startup that often turns into a long-term relationship, below are a few examples of other types of groups for which comprehensive fiscal sponsorship is an attractive option.

The Spinoff

Remember that a nonprofit can only sponsor a group if there is a mission fit.

Outgrowing initial fiscal sponsors or evolving missions. Many projects start off under the roof of another nonprofit, quasi-government organization or academic institution. For a number of reasons, the parties eventually decide to part ways.

Frequently, projects start out as small programs of other nonprofit organizations and eventually outgrow the parent, becoming too complex to be effectively supported under the existing infrastructure. Other times, the vision of the sponsor or project may evolve and diverge. Occasionally, the scope of the project actually outgrows the sponsor’s geographical reach.

An example of the latter is Diploma Plus, an initiative partnering with schools to provide rigorous and student-centered alternatives for youth who have been failed by the traditional system. Diploma Plus began its operations in 1996 under the Commonwealth Corporation, an organization dedicated to building upward mobility pathways for Massachusetts residents.

Under the wing of Commonwealth Corporation and with financial support from the Bill and Melinda Gates Foundation, Diploma Plus flourished and grew to the point of where operating at the national level became the next logical step in their growth trajectory. As the Commonwealth Corporation has a Massachusetts-specific focus, Diploma Plus had to evaluate its future options. Rather than build the complex infrastructure needed to support its operations, in 2009, after careful consideration, Diploma Plus partnered with TSNE’s fiscal sponsorship program to provide the back office infrastructure necessary to buttress their growing needs.

Diploma Plus serves as one illustration of how the right comprehensive fiscal sponsor can serve as either a transitional or long-term home to a spinoff project.

The Existing 501(c)(3)

Although this trend is in its early stages, a small but growing number of nonprofits are embracing comprehensive fiscal sponsorship as a model enabling both short-term regrouping and long-term stability. In today’s competitive climate, even financially healthy nonprofits are seeking ways to reduce costs and increase efficiencies. Many other cash-strapped organizations are being pressured to alter their mission and composition through merger.

The fact is that many inefficiencies reside at administrative and not programmatic levels. Small nonprofits often don’t have dedicated human resources, accounting and legal compliance support along with robust liability insurance coverage to manage risk.

Such was the case when MissionSAFE approached TSNE seeking a fiscal sponsorship partnership. For over a decade, MissionSAFE has successfully worked with highly and proven at-risk youth and young adults from challenged situations and communities, working with them to gain the skills and confidence they need to succeed and thrive, not merely survive, and to be agents for positive change in their communities and the larger world.

Running strong programs has always been job number one at MissionSAFE and rightfully so. However, budget constraints drove MissionSAFE to seek out an alternative model to preserve their mission and foster long-term viability.

MissionSAFE’s Director Nikki Flionis explains: “MissionSAFE’s rationale as a (c)3 to seek sponsorship by TSNE is to gain a solid and skilled administrative infrastructure with more varieties of expertise than we could normally afford at our size, so that we can really focus on program; and to access a benefits package that, again, we could not afford or manage as an ‘under a million’ (c)3. This benefits package will help us recruit and retain high quality staff.”

Other benefits MissionSAFE utilizes include access to TSNE training offerings and “the easily accessed network of other nonprofits under the TSNE umbrella.”

The right comprehensive fiscal sponsor can offer a “safe haven” for merger-leery nonprofits, preserving their missions while providing high-level administrative support and the time and space to regroup, signaling to funders the organization’s long-term intention to survive and succeed.  

The Network Facilitator

The growth and impact of properly structured networks in recent years is hard to overstate. A “network” has been defined as any sustained effort around which different, autonomous organizations work in concert as equal partners in pursuit of a common social or civic purpose.1

A key feature to most successful networks is a dedicated group serving as a facilitator or connector, who doesn’t necessarily lead the network, but builds relationships and marshals resources to achieve the network’s objectives. To maintain its independence and integrity, the facilitator should be as neutral as possible, ideally not an arm of one of the partner organizations. Comprehensive fiscal sponsors can provide this neutral home.

The Rhode Island Land Trust Council is one example of a network facilitator; creating a network of land trusts in Rhode Island. They foster a sustainable land conservation movement in Rhode Island by supporting the missions and operations of land trusts and providing a forum for their effective cooperation. Most of Rhode Island’s over 45 land trusts are volunteer driven and the Council spearheads coordination, networking and capacity building efforts and serves as the voice for the land trust community in state policy discussions.

After careful deliberation, the Council chose TSNE to serve as a neutral supportive home. Explains Director Rupert Friday, “TSNE provides the Council with a solid foundation and great legal home that supports our work. This enables us to focus more of our time and energy on activities that further our core mission and less on administration.”

Make Sure There Is a Well-Vetted Process – for Both Parties

No matter what the motivations for seeking fiscal sponsorship and no matter what model of fiscal sponsorship is utilized, due diligence is a must for both the fiscal sponsor and group seeking sponsorship.

Once this exploratory process is concluded and fiscal sponsorship is decided upon, an appropriate fiscal sponsorship relationship will have a well-vetted agreement that clearly defines roles and responsibilities. Experienced comprehensive fiscal sponsors have become adept at acting as responsible stewards of charitable funds while providing groups with the maximum autonomy needed to pursue their mission. The mechanisms for achieving this balance should be clear at the outset.

A key, and often overlooked, piece all fiscal sponsorship agreements should contemplate and account for is the potential termination of the relationship down the road. After all, for a plethora of valid reasons, projects do leave their current fiscal sponsor for a better suited partner or to become a standalone entity and should be able to do so without burdensome complications over ownership of intellectual property and other assets and costly legal fees. Appropriate attention to such details on the front end will foster a healthy partnership and an amicable split should the need arise.