(Bradford K. Smith is the president of the Foundation Center. In his previous post, he wrote about GOOD's acquisition of nonprofit social networking site Jumo.)
Act II: Jumo is successful in raising $3.5 million in foundation grants for charitable purposes during 2010 and 2011 to further its nonprofit mission.
Act III: August 17, 2011 - Fast Company reports Jumo's acquisition by the for-profit social enterprise GOOD.
The rapid shapeshifting of Jumo, the inadvertent angel investor role played by philanthropy in the process, and the example it may set for aspiring social entrepreneurs is a discussion worth having. I'll get back to that.
First, what doesn't worry me? Since we first blogged about the Jumo/GOOD deal, there have been lots of tweets and a handful of blog posts. Some have waxed eloquent about things like "social connective tissue," "dynamic content-driven engagement," and the like in focusing on the mission synergy that makes this such an intriguing merger. I have nothing against what Jumo and GOOD are trying to do in the world and may be able to do together. The more people that give a damn, care about people less fortunate than themselves, and want to do something about it, the better the world will be. Only a small number of people will ever become Peace Corps Volunteers, so creating ways for far larger numbers of them to engage, network, volunteer, and give online is vital.
But back to shapeshifting and its implications. Jumo is (or was) a 501(c)(3) nonprofit and as such, eligible for two types of support from a foundation: an outright grant or a program-related investment (below-market rate loan), both for charitable purposes. A for-profit start up, on the other hand, would have access only to capital from the foundation's investment portfolio (no charitable purpose required) in the form of private equity. There's no indication that foundations supported Jumo for the purpose of it becoming a for-profit; rather, it appears the grants in question got caught in the middle of Jumo's shapeshifting. Maybe future foundation grant letters of agreement should include language to deal with such changes in status?
The Jumo example doesn't appear to be too common…yet. But I would hate to see the 501(c)(3) status come to be seen as a kind of quick-and-easy way to get free startup capital en route to flipping one's organization into a for-profit enterprise, social or otherwise. I'm not saying this was Jumo's intention, but others could choose to interpret it that way and see it as an interesting strategy to emulate. Chris Hughes is a kind of role model for an entire generation of social entrepreneurs: after co-creating Facebook and helping to get Obama elected, why wouldn't he be? What he does, unintended or not, matters.
The conceptual lines may be blurring as we broaden our notions of how nonprofits and for-profits and things in between can contribute to the public good. Meanwhile, we still live in the real world of tax codes and institutional structures, and I'm not aware of any suggestion or proposal to allow foundation grant dollars to be used for anything with the word "social" in it. Shapeshifting is here to stay and now is the time to think clearly, creatively, and responsibly about how to deal with it. Thanks to Jumo for giving us a test case.
(Illustration: M.C. Escher, "Division of the Plane III")
-- Brad Smith