Since our founding, we’ve been creatively solving problems by building on an established model known as fiscal sponsorship, which provides operational expertise to our change leaders to save them time, energy, and resources.
Fiscal sponsorship is a tool that allows us, our projects, and our partners to drive change in a more efficient, cost-effective, and time-saving way.
Below, we provide answers to some common questions about what fiscal sponsorship is, how it works, and why we use this tool to advance our goal of accelerating impact by partnering with people and projects that make the world a better place.
What is a fiscal sponsor?
Fiscal sponsors, like the New Venture Fund, are nonprofit organizations that house projects for people or groups who want to engage in charitable activities. Under one common model, these projects are not separate legal entities. Rather, they share the legal and tax-exempt status of the fiscal sponsor. The fiscal sponsor serves as the administrative host of the project so that the project doesn’t have to go to the trouble and expense of establishing itself as an independent nonprofit organization.
This practice has existed since the 1950s, when the parts of the tax code that govern the nonprofit sector were written.
What does a fiscal sponsor do?
Fiscal sponsors enable nonprofits to incubate new initiatives, accept tax-deductible contributions, and execute projects without having to build the infrastructure of an entirely new nonprofit organization.
Fiscal sponsors like the New Venture Fund provide administrative, accounting, and legal support services that relieve nonprofit leaders of operational burdens and free them to focus on what they do best.
What does a fiscal sponsor not do?
Fiscal sponsors must follow all laws governing nonprofit organizations, which include multiple restrictions to ensure funds meet intended charitable purposes.
For example, 501(c)(3) public charities like the New Venture Fund cannot undertake political activity such as contributing to a political candidate or coordinating with a candidate’s campaign. Different types of nonprofits have different restrictions.
What are the advantages of using a fiscal sponsor for nonprofit entrepreneurs?
Using a fiscal sponsor enables innovators to quickly launch new initiatives, access flexible support that can expand or contract with the needs of the project, and increase cost efficiency by sharing services with similar nonprofit efforts.
For example, the New Venture Fund can launch projects in weeks that could otherwise take more than a year to get off the ground if they were launched as fully independent nonprofit organizations. Instead of setting up and learning new accounting systems, HR protocols, funding databases, and compliance rules, mission-focused leaders can focus on what they are best at: making an impact.
What are the advantages of using a fiscal sponsor for nonprofit funders?
Working with a fiscal sponsor also creates unique advantages for funders of nonprofit initiatives and projects. Fiscal sponsors can facilitate collaboration among donors with shared interests. Fiscal sponsors can create sub-granting programs that increase the flexibility and adaptability of grant-making efforts, enabling more resources to get to programs and intended recipients. And fiscal sponsors can enable both funders and nonprofit leaders to efficiently develop and implement time- or outcome-bound efforts for which there is no reason to build a separate, permanent nonprofit organization.
Are there any drawbacks to fiscal sponsorship?
Sharing services means that projects hosted by a fiscal sponsor have to follow the fiscal sponsor’s procedures and rules. For those who want the maximum possible control over their own organizations or projects, a different model may work better. Sometimes building a separate, permanent organization is the right way to accomplish a goal.
Additionally, the unique structure of fiscal sponsorship organizations may be unfamiliar and thus confusing to some, even though fiscal sponsorship is actually a commonly used structure across the nonprofit spectrum.
Where does the money for projects come from?
Just like other nonprofits, fiscal sponsors and the projects they host receive funding from a variety of individuals and institutions, including large institutional foundations, family foundations or individual donors, corporations, community groups, associations, nonprofit organizations, and other donors seeking to fund charitable causes.
Like other fiscal sponsors, the New Venture Fund is not the original source of our projects’ funding. In the fiscal sponsorship model, each hosted project seeks funds for its own activities. When a foundation or other funder makes a contribution to support a project, the fiscal sponsor is the recipient of the donation (and if the donation is a grant, the fiscal sponsor is legally the grantee). Of course, foundations or other donors may impose restrictions when granting funds, just as they do with other nonprofit organizations.
Once a donation is made, the fiscal sponsor has legal and fiduciary responsibility for the funds and is accountable for disbursing them in compliance with any legal requirements. The fiscal sponsor may also provide reports back to the donor, if requested, to demonstrate how the funds were used.
Where can I learn more about fiscal sponsorship?
- National Council of Nonprofits, “Fiscal Sponsorship for Nonprofits.”
- “Fiscal Sponsorship: A Hidden Resource for Nonprofit Entrepreneurs,” February 21, 2018, Nonprofit Quarterly.
- “Fiscal Sponsorship: A Balanced Overview,” January 28, 2020, Nonprofit Quarterly.
- “Fiscal Sponsorship: Six Ways to Do It Right,” 3rd Edition, Gregory L. Colvin and Stephanie L. Petit.
- Website: National Network of Fiscal Sponsors