What advantages do tech startups with tax exempt 501(c)(3) status enjoy beyond tax exemption, if any?


1

This past March I co-founded a (for-profit) NV corporation, which created a Facebook App in the C2C social gifting space. This software, however, can be used in multiple industries, and I wanted to demonstrate this by applying the core concept to NGOs and 'donations', where I think there would be a disproportionate interest and demand.

The problem is, even though we already developed the core software (which has been beta tested) and we are in talks with a well respected National/International charity (with ~400,000 Facebook fans) to pilot it's use in this industry, and we seem to have traction with them… we do NOT yet actually have the money to tweak the software to use it in this fashion, even though it's not that much, and I think $5k should cover it.

But I'm personally tapped out just getting our main App 'mobile friendly' right now, Angels aren't going to touch it (and neither will the micro-funding sites) because there is no real money to be made in the non-profit industry… so I'm considering forming a 501(c)(3) organization myself, with hopes that might bring with it some funding options (and press) that are not open to us right now, so we can move forward. But, if I want to do that, now I need another $5k just to get the non-profit shell up and functional, so now I need more money…

Any thoughts, feedback, rules of thumb, advice (or even loosely masked shallow insults) are welcome:) Am I just making red tape for myself here? Or am I really creating options? Maybe I just need to pitch the idea to some Internet savvy philanthropists and see if anyone wants in? I got software, mockups, and I think a big brand partner... I need $5k to make it happen, and then I can replicate for other non-profits.

I've seen worse propositions.

Funding Non Profit Facebook Apps Micro Startup

asked Oct 5 '11 at 07:21
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Robert J Valli
6 points

2 Answers


1

I don't think creating a non-profit entity is going to help your chances much.

And don't think because your prospects are 'non-profit' that they don't have money. Non-profit's are sometimes in situations where they have to spend money.

Anyways, $5,000 is a pretty minor investment for any company / individual to put in for the development of a concept. You could probably get a prospect to pay that and pilot it... or find 5 unrelated non-profits and have them each pay $1,000.

Be open about how you are getting the money together and that you have commitment form organization X, and you just need 2 more 'or whatever.' That way they can get a cool app at a fraction of the cost.

Then once it is built you can sell it to more at low incremental costs. Just make sure you have a clear license agreement where they don't expect they own it.

You have 10 friends? set aside 10% of the company and they can each buy 1% for $500/each ;)

You should be able to raise $5,000 if you have mock-ups, and the concept ready to pitch to people.

answered Oct 5 '11 at 10:58
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Ryan Doom
5,472 points
  • **>non-profit [..] don't have money.** You are right. I worded that poorly. I meant, VC/Angels/Investors are looking for interest and their money back, and I'm talking about seeing if this pilot goes well and if so, replicate it. But I don't intend to make money off the NGO's. That's why I'm thinking about forming a 501c3. But before I start any more corporations, I'd like to test the market. And BTW our 'Buy your friend a Beer' App *is* stable in live beta, so the mockups are only to convert the front end. – Robert J Valli 8 years ago
  • **>find 5 unrelated non-profits and have them each pay $1,000.** this is so difficult I'm not even going to try:) – Robert J Valli 8 years ago
  • **>10% of the company** That strategy doesn't work if you go non-profit... which is the only way to introduce a revenue model, in my mind. Anything else and the haters will tear you apart and question your motives. – Robert J Valli 8 years ago
  • Your beta charity is international. Therefore probably has a dozen plus full time employees. $5,000 is roughly a month of salary for an employee with taxes/overhead. If you can prove that they will get a return on their investment or it should be worth one employees time for the month you are golden. If the ROI is there, you just need to prove the ROI to someone. eg: This $5,000 should allow you to reach 500,000 people, we are estimating a 3% conversion rate at $20 per person $300,000. Even pessimistically we would only need 100 people to donate at $50 to make your investment back - easy sell – Ryan Doom 8 years ago
  • Yeah, I hear ya - let's just hope they see it the same way we do:) – Robert J Valli 8 years ago

0

I don't think the 501(c)(3) is really going to help you, you will just end up with 2 companies that have no money and your effort divided.

You could try defining a project that appeals to your non-profit client and see if they bite

OR

Instead for that sort of money, I think your best bet early on is to start with the crowd funding websites like:

(I pulled this from my blog post at the beginning of the year) and this post I wrote a while ago.
answered Oct 5 '11 at 13:45
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Robin Vessey
8,394 points
  • Kickstarter cannot be used to fund for charity projects or causes but I wrote them anyway and asked for direction. Many others I have seen are the same, or the complete opposite (you need to be a 501c3 to be included.) Rockethub said the idea 'resonated' with them and set up a call for this afternoon:) Quirky is just for products. catwalkgenius is about fashion. fansnextdoor has nothing similar listed (but maybe thats an advantage?) indiegogo looked good; I wrote them as well to ensure the fit. cofundos looked like all products, and profounder was all product oriented as well. – Robert J Valli 8 years ago
  • **>You could try defining a project that appeals to your non-profit client and see if they bite** I did, and (so far) they bit. I'm sorry that wasn't clear. We are in talks with them right now and we are at the stage where they are approving the mockups… which means if they say 'yes', I need $5k just to get the pilot out there. And if the pilot works, then we should probably turn it into a platform, and we will need more money to do that too. – Robert J Valli 8 years ago

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