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For any start-up, funding is a perennial concern. From inception through to IPO, start-ups are perpetually on the hunt for ways to stay financially afloat. In the context of for-profit startups, the path is a relatively well-paved one.
Though the journey to sustainable funding can be arduous, for private start-ups, its details are well-established. The round-based funding model has become the prevailing way that upstart tech companies achieve financial viability, and today, there is a robust infrastructure and market in place to facilitate these kinds of transactions.
Non-profit startups, though, can’t rely on this formula. Because non-profits don’t generate financial returns, the core incentives that drive investor behavior simply don’t exist. Funding for these nascent organizations must be motivated by altruism, not profitability.
But for several reasons, these tools do not lend themselves as neatly to a startup. For one, governments and large NGO’s typically have arduous requirements for demonstrating effectiveness (impact), and it’s unlikely that a new non-profit will have enough of a track record to satisfy their demands.
But the picture isn’t entirely bleak. For social startups engaging in visionary, ambitious work, several decisions can make the possibility of funding more likely.
In a nutshell, it’s imperative that non-profit startups position themselves so that they can make substantive and novel contributions — either helping to address previously-neglected issues, or solving existing ones in new ways. Whereas for-profit companies can sometimes replicate existing models with great success (for example, taking an existing model and expanding it to new geographies), social startups are most likely to make a real difference by developing solutions that have yet to be conceptualized.
Ultimately, the path to financial viability for non-profit startups remains relatively untrodden.
Read the full article about funding as a non-profit start-up by Kevin Wong at Books v. Bytes.