An Overview of Non-Profit Investment

Why would a 501c3 consider investment from a for-profit vehicle? If the organization wanted to be a for-profit, why not launch as a for profit?

Uber began as a luxury limo brand. The original MVP for Yelp did not include a feature for collecting customer reviews. And when was the last time you received a Netflix DVD in the mail?

Pivot. Turnaround. Transformation. Successful organizations often look significantly different than they did on Day 1. These transitions frequently require additional capital, typically provided by venture capital or private equity firms.

But how does a 501c3 fundraise for a business model shift? Most foundations aren’t structured to fund and support grantees as they undergo organizational transformation, nor do they have the due diligence capabilities to identify organizations with hidden potential in the first place.

In certain instances, venture capital and private equity can help some nonprofits unlock their potential.

“We’re operating in such a competitive space that we need to pursue hyper growth or we risk being pushed out of the market.”

“We see opportunities to leverage attractive adjacent opportunities & build new products that align with our current brand and footprint.”

“We have a product that customers love, but we need additional support with distribution, marketing, and/or product development.”

For decades, nonprofit organizations have successfully competed against for-profit organizations. There is nothing inherently superior to one model over another. But when a nonprofit organization faces one of these three situations, the traditional philanthropic donation model often can’t move quickly enough for them to adapt.

When faced with one of these three challenges, nonprofit investment is one option available to leaders and governance boards.