Nonprofits and technology often don’t mix. The nonprofit landscape is littered with abandoned grant-funded and poorly maintained tech projects. It isn’t because nonprofits are fundamentally inept with technology, however. Nonprofit tech projects have trouble getting off the ground because they rarely have the consistent funding needed to make the project the full time focus of an experienced developer team.
Technology projects in the nonprofit sector are simultaneously outrageously expensive and drastically underfunded. The process often involves bringing in outside consultants to scope the work, costing tens of thousands of dollars before even a single line of code is written. Sometimes, after all that work, the project goes no further.
Even when there is funding to build a tech solution, perhaps from a large foundation, there is rarely the long-term funding to maintain it, let alone improve it. And the nonprofit is left hanging, ten years later, with a tool that is full of bugs and issues, near unusable. Before long, you’ll have the development assistant searching Google for “technology grants.”
The nonprofit world’s approach to funding does not, and will not, work for the capital intensive, open source driven, risk-laden landscape of technology today. It costs millions to build a tech platform. Only technology companies (with some exceptions in the open-source world) do that well. Ultimately, tech platforms require too much time and care to be just a side-project for most nonprofits.
For that reason, most nonprofits turn to the for-profit world for solutions. Those solutions—those companies—see the nonprofit world as a “market,” and in our capitalist society, markets are meant to be exploited for profit.
Nonprofits need to find a way to share the costs of maintaining technology that works for them and that will work for them in the long term. Sustainability and resilience are key. How can we build something that is immune to the whims of the for-profit market?
The Open Collective Idea
Open Collective launched in 2015 to offer solutions to a basic need: informal groups, like collectives, have few places to put their shared money. For example, if a group raises $1,000 for a project that builds community power—like a mutual aid group, a skillshare, a giving circle, a timebank, or a tool library—who is going to hold onto the money that was raised? The platform allows groups to legally spend and collect money without incorporating, opening a bank account, or unfairly burdening an individual in the group with responsibility for collective funds and complicating their taxes. Combining a tech platform with fiscal sponsorship, Open Collective can take on the compliance side—like dealing with the Internal Revenue Service—so that groups can focus on their work.
Through the Open Collective Foundation, we are supporting the solidarity economy, with over 100 mutual aid projects and over 300 hosted groups, and through Open Source Collective we host nearly 3,000 open source technology communities. We also partner with a decentralized global network of over 600 fiscal sponsors to support more than more than 7,000 groups that collectively raise over $35 million a year.
As we have engaged with movement communities, nonprofits, and funders, we have sometimes encountered unease about engaging with an organization from the “tech world.” After all, Open Collective Inc is a for-profit business. A tech start-up. What makes us any different? Is all this just a marketing campaign? Can we really be depended on for the long term?
Using Venture Tools for Mission Ends
In the tech world, Open Collective is a strange beast: furiously mission-driven, long-term oriented, and very patient. We know what we want to achieve—making communities around the world financially sustainable—and we always knew it would take a lot more time than the traditional start-up world expects and encourages.
When we started building a tech platform for the commons back in 2015, we had endless discussions about the funding path. As a group, we were driven by purpose, not profit, which meant that many of the traditional paths did not work for us.
We considered bootstrapping, for example—slowly growing the company’s revenue, without investors—but our own financial situations meant we needed a salary to make a living, and we didn’t want Open Collective to be just a side project. The extractive, growth-hacking practices often required by major venture-capital and hypergrowth “at any cost” were also out of the question. Big venture capital’s usual “exit” paths—which typically involve either an IPO (initial public offering on the stock market) or acquisition—didn’t feel right, anyway, since selling Open Collective would put our mission and values at risk. We asked ourselves: is there another way? In the five years since, we have sought to find that way.
Ultimately, we accepted $3 million in venture investment capital, which gave us five years with a full-time team of experts, paid at market rate, to create a powerful fiscal sponsorship platform. It allowed us the space to make mistakes, and to solve for them. It gave us time to build a small, sustainable company, with some resources in the bank and steadily increasing revenue.
We accepted venture capital money, yes. But here’s the twist: we did so on our own terms, accomplishing something special and uncommon in the process. We retained not only majority ownership, but also all the board seats.
Our approach to funding gave us freedom to cultivate a growing network of collectives, fiscal hosts, contributors, and organizers. Rather than focusing only on driving growth, we could be patient and purposeful. Over time, we connected with the communities that needed us. Impactful collectives of all stripes now depend on our transparent platform to make a difference all over the world.
Understanding the Core Value of the Platform
Open Collective is a legal, financial, and technical commons—a piece of shared infrastructure. Along with that infrastructure comes a network, and a community, of collectives, nonprofits, and funders. A unique impact of Open Collective lies in leveraging its commons and network effects to connect impactful grassroots initiatives all over the world.
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One example of the network’s value is how mutual aid groups in Chicago are coming together to purchase a warehouse space. Another is how funders like the Ford and Sloan Foundations have used our platform to facilitate millions of funding for digital infrastructure research. We were astonished when hundreds of technologists used Open Collective to pool funds to help families get out of Afghanistan.
Of course, fiscal sponsorship, itself, is a commons—with projects sharing the costs of their legal and financial infrastructure. Open Collective takes that principle to another level: what if fiscal sponsors shared their costs?
Funding the Tools that We Need
To be effective, we must combine movement values with the efficiency of startups and access to capital. It all begins with non-extractive finance. Our impact investors are more interested in the future we are cultivating than their earnings. They don’t expect us to grow 10 times bigger in the next three years. Even if they did, our majority ownership and board seats ensure that investors cannot force us to exploit users to make huge profits.
Since we work only with investors who are willing to get paid back slowly and understand our goals, we’ve been able to focus on building a resilient community of users and maximizing our impact. Over time, we were able to grow, and in 2020, we made a profit for the first time.
We are now sustained by our network. When a collective using our platform receives $1,000, a fiscal sponsor with a five-percent fee receives $50 and passes $7.50 of that $50 to Open Collective, leaving the collective with $950. Through our platform, collectives build a sustaining community of contributors. Those collectives then sustain their fiscal sponsors. And those fiscal hosts sustain Open Collective, funding technological improvements.
A normal company would push hard and rack up as much profit as possible, so that the company value rises and the owners get rich. But we’re not interested in profit over purpose, and we don’t have to be.
Non-extractive investment allows platforms like Open Collective to get off the ground, and their users can sustain them. But there are still investors, and however impact driven, most of them will eventually want to sell their stake in the company. This is called an “exit.” In essence, the question becomes: who will buy Open Collective? Who can?
We want our investors to be able to sell so that they can continue to invest in impactful projects like us. But if we sell to the stock market, the goal of the company would quickly become profit above all else.
An Exit to Community Ownership
There is another way—and it is called an “exit to community.” The E2C.how website defines this as “a path for startups to become owned and controlled by users, workers, and stakeholders who value and depend on the startup.”
Exit to community is part of an emerging ecosystem in the United States. Rather than simply aiming for an acquisition by a more established company or a public stock offering, we ask: “Could startups aim to mature into ownership by their stakeholders?”
Few tech platforms have both a successful business model and investor agreements that allow them to shift power directly to their community. Open Collective’s position of strength makes us an ideal testing ground. We can take time to explore, alongside projects such as MetaGov, E2C, MEDLab, Purpose, and Zebras Unite that are helping us find our way.
At Open Collective, we use technology to bend legal structures and entities to fit the needs of communities all over the world. We push the limits of what is doable to enable the biggest number of communities to successfully access and manage funding. Now, we want to engage you to co-create an ownership and governance structure for the commons, which can fund itself for the future, and which integrates its purpose and values into its legal DNA.
Over on our blog, we are digging into the details of what we think we need. There are many potential pathways. Platform cooperatives are an option, and their multi-stakeholder governance features will influence everything we do. Perpetual purpose trusts are another powerful structure, protecting the purpose of the company in the long-term through ownership by a trust. And despite hesitance around their environmental impact and the volatility of the space, we continue to monitor so-called “decentralized autonomous organizations” or DAOs as a technology that could help support inclusive global governance.
Recognizing that creative learning environments center embodied, heart-opening gatherings that can develop and sustain a culture of shared ownership, we are engaging in the process of learning in public about exit to community, financing, about legal strictures, governance, and ourselves. (This is in the same spirit that we allocate time and money to Art.coop Study-into-Action, Community Forums, and other ongoing learning initiatives.)
As we knit together deeper relationships to hold this learning, we’ll continue to practice spreading more wealth and power to nonprofits and grassroots groups. For community power to go hand in hand with financial power, the financial sustainability of the platform alone is not enough. Community members will also need to have the skills to collaborate and the authority to make decisions over the tools that underpin their sustainability.
We’re going to be engaging in public conversation with experts in exit to community, the solidarity economy, steward-ownership, and non-traditional start-up financing through a public conversations video series starting in January 2022. We also seek to collaborate with nonprofits and funders who want to explore the funding of technology in the nonprofit space. Is the business model that we have developed replicable? How can community ownership of technology become the norm, not the exception? Can radical philanthropy support building tools for the movement?
The future we envision harnesses our multi-layered community of communities, with collective governance at every level. As for what that looks like, we still have more questions than answers, but we know what we want: to ensure that Open Collective is sustainable, resilient, transparent, and accountable to the communities that depend on it for years to come.