How should a mission-driven venture choose between a for-profit and non-profit corporate structure?

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Accepted Answer

Hi,

This is going to be your choice - but it's a big one since it will effect everything that happens downstream: are you a non-profit, or a for-profit? And that's not just a "what do i want" question, it's a question about what you think is the best way to advance your obectives.

Being for-profit certainly has it's advantages, in that it potentially creates a flywheel where the revenue from previous projects accelerates your ability to take on more and bigger ones. it also allows you to. more easily attract capital to support those things, and potentially widens the pool of people who are interested.

But if you position this as a for-profit company, investors aren't just looking to support a great mission. They expect a return. They want to see how this scales and how their money multiplies. If the documentary and these events are the end game, that's tough to scale like a traditional startup. It's not unimportant that it's a "force for good"as well. They would rather make money on something that improves the world rather than gambling or cigarettes, but they need to make money.

If it's a non-profit, you pitch foundations and donors who align with the mission. They don't want cash back; they want impact. This doesn't mean you still don't have an obligation to generate revenue, since you don't want to be perpetually with your hand out, but by being non-profit you are explicitly saying that any revenue you do generate needs to be cycled back into the organization - and not will ever get distributed to the supporters.

So when the family offices are asking who you are, this is what they are trying to determine. Does the money you're asking for come out of the bucket that is earmarked for "money they are never going to see again" or it is earmarked for the usually considerably bigger one earmarked for "money that is going to generate substantial positive returns for us".

With your background, I know you are aware of all this, but if you're tempted by the for-profit route, you have to make sure that the business you are running is actually designed to be a profitable venture - and can be profitable enough that you eventually have a way to return profits to your investors. And then you have to demonstrate this (which is the core of our other messages). But you also have to make sure that YOU are designed to run a for-profit, which requires that profitability becomes your core objective. It's possible to make money and do good for the world (Patagonia is a good exmaple) but it's very rare and very difficult. Once you have taken someone's money for a for profit venture, you hae a moral obligation to do everything in your power to return to them eventually - hopefully multiplied by 100x.

You need to decide: are you building a rocket ship that returns cash, or a mission-driven project? There's no wrong answer, just the one that's right for you.

So tell me, what's the real end game?