For Profit -
Overall, it seems like they've replaced 'company' with 'organization', and dropped a number of questions relating to making money.
Interestingly, many of the questions have been dropped without replacement, even when I would imagine the answer would be very interesting to YC!
For instance, 'Who are your competitors' has been dropped entirely.
Nonprofit companies can certainly compete with one another.. But they also often compete with for-profit companies.
Take for example Wikipedia - They're a 501(c)(3) but they've certainly competed with Encyclopedia Britannica, Grolier, Encarta, etc.
It might be helpful to keep the questions, but to ask them in a modified way.
For instance, "Who is this going to disrupt?"
Similarly they dropped "How do or will you make money?", without replacing it with "How do you plan to you raise money?"
"How will you get users", and "Was any of your code written by someone who is not one of your founders?" were also dropped.
They also haven't (yet) added questions relating to non-profits, such as "Why do you think you will be able to get a 501c(3) classification?"
It's a really interesting idea, and it'll be interesting to see where they grow with it.
It really reminds me of the first few years of YC where they were making it up as they went along, before they started the current cycle of continuous improvements through validated learning.
Watsi was the MVP, now they're ready for Beta ;)
There are charities who take in millions of dollars, keep some, and spend the rest to send bibles to Africa. By every measure, they're "killing it": they have a well-paid staff, a happy donation base, and they send out a heckuva lot of bibles. It's an easy business model to copy, and an almost-guaranteed smash-hit in terms of getting returns on investment. But, here's the rub--do you think there's any evidence that sending people bibles increases their quality-of-life?
Basically, I'm hoping here that PG is getting into the nonprofit sector because he wants to help people--not just to become (more) rich by looking like he's helping people.
Caveat: Givewell tends to focus attention on nonprofits with well-validated, very-high-probability, easily-quantifiable effects which is not where one would expect the greatest expected value from daring new attempts to be located. Nonetheless I would expect that talking to Givewell would be very epistemically profitable if you are just venturing out into the nonprofit space.
Evergreen funding source/s is (arguably) the definition of success, for any organization, profit or otherwhise, at least empirically. Competition for scarce resources is thus a key part of the game.
The CEO of MOMA (non-profit) has a salary approaching $2MM/yr. This is rationally viewed as a sales comission ($2mm/ on $XXmm in fundraising prowess) by the trustees. There is no other measure of 'productivity' at that order of magnitude for a "non-profit" organization (10x the statuatory salary of POTUS). Similarly, at non-profit universities. Both in the administration and elsewhere (multi-million dollar salaries for NCAA D1 sports linked with television contracts). Comparably, also the Clinton Foundation, per this recent note from the NY Times:
Worried that the foundation’s operating revenues depend too heavily on Mr. Clinton’s nonstop fund-raising, the three Clintons are embarking on a drive to raise an endowment of as much as $250 million, with events already scheduled in the Hamptons and London.
But they happen to also be the CEO, formally in charge of the whole operation, and further tend to set the tone for that operation. Then you have the fundraising tail wagging the mission dog. As a result, some nonprofits (and universities) start to look more like weird corporations that exist to perpetuate themselves and their top staff, with some kind of mumbo jumbo relating to public service being an official goal but nowhere near the top of the priority list. An organization that exists primarily to perpetuate itself and pay its staff well is perfectly fine, but then it doesn't really have any business claiming to be a charity...
sample: Robert J. Mazzuca, Past Chief Scout Executive Boy Scouts of America - N.O.
This is a bit naive. As someone who has worked a bit with non-profits, neglecting sales (and the whole "how do we get money in the door" part) of nonprofits is often what causes them to fail.
PG, assuming that you're as connected in the business world as I assume you are, I would recommend reaching out to John Wood, author of "Leaving Microsoft to Change the World" - http://www.leavingmicrosoftbook.com/ His book fundamentally changed my view on how successful nonprofits are built.
Also, I find the "how do you make money" question still the most important. Sure a non-profit shouldn't focus on making money, but the more money it can pull in, the bigger its impact is and the higher the likelihood for success.
Venture capital economics is premised on founders accepting low initial salaries based on the hope for long-term big payoffs. Which makes it OK for seed funding to be very small (on the order of tens of thousands).
However, non-profits have no hope for long-term big pay offs and therefore have no financial incentive to seek small amounts of seed funding.
In other words, it is sensible for a for-profit startup founder to accept zero salary (or close to it). However, it is nonsensical for a non-profit startup founder to accept close-to-zero salary.
I believe the YC non-profit initiative could still be beneficial to non-profits for the sake of mentorship, networking, etc. But I don't think many non-profit founders will drop their day-job salaries to launch YC non-profit startups.
And yet we do, often for years at a stretch.
As for-profit founders want to go to YC to earn a lot of money later, non-profit founders will want to go to YC to earn a sufficient amount of money later. Both will be motivated by creating impact.
But I don't think you should take for granted this and an important step in any non-profit validation is if the non-profit will have enough money to pay its leaders and employees. In regular for-profits it's just assumed that, if you raise enoughs funds or sell enough product, the founders will have their share. With non-profits that can be tricky.
Finally, congratulations, I think this is a great decision. I have being noticing the similarities between startups and non-profit challenges and they are pretty much the same. I applied a lot of "customer development" concepts at my last job on a non-profit, and now I am applying a lot of non-profit concepts on my for-profit startups.
The non-profit startups that are going to fit YC are going to be the ones that aren't in dire need of a market salary, who don't need the potential of a huge cash windfall to keep on grinding.
The sacrifices here will be made in the pursuit of 'success' (however you define that), and the pursuit of watching your organization be large enough to make a difference (these are also primary motivators of for-profit startups in my experience).
I was implicitly assuming founders of non-profits care about salary. I think it's very admirable that there are people willing to forsake salary for a greater social good. It sounds like this might describe the Watsi crowd.
I am only intimately familiar with one non-profit, whose founder spent years launching her non-profit --- with the financial support of her spouse's salary. I have heard anecdotally of other non-profits whose launch was only possible because the founder was financially supported outside of the non-profit.
But it doesn't have to be this way. I don't think it's intrinsic that potential founders must choose between salary and launching a non-profit. For example, founders could make a salary working part-time for for-profit companies and spend the rest of their time running their non-profits.
Maybe YC could help facilitate such work relationships. I think it would grow the pool of people willing to pursue non-profit endeavors.
Also in tech, its almost impossible to sell workers on the idea of a options-based windfall in favor of lower pay -- let alone the vague promise of 'success'.
Samasource's founder was sleeping at a friend's couch for a while, while being a SAT tutor.
Note: I'm an ex-Samasource employee
I think a lot of people join startups for the same reason, just with the added benefit that they could end up cashing in.
I would highly recommend reading chapter on "Performance Philantrophy" from the book Richistan: http://www.amazon.com/Richistan-Journey-Through-American-Wea...
My only point is that while there is a __financial__ incentive for for-profit founders to eschew short-term salary, there is no __financial__ incentive for non-profit founders eschew short-term salary.
Despite my financial analysis, I still think this initiative could great for non-profits. I am really excited and optimistic to see what comes out of it.
Even that's not necessarily true; sacrificing short-term salary to stablish an organization where you could have a long-term, modest salary doing something you care about (and therefore can stay with over the long term) is a financial incentive. It may not appeal to the same people that a big cash-out payday from a for-profit startup appeals to, but its still a financial incentive.
I'm quitting my day job in January to launch a non-profit startup. The timeframe is more or less the same as YC, so I'm considering applying.
I've volunteered for a non-profit organisation where even full-timers didn't have a salary, including the founders, though their most direct expenses were taken care of by the organisation. These people didn't want money from the organisation because they didn't need it to stay alive and they knew it would be better spent directly on achieving their goals. It makes sense to me; you don't (and perhaps shouldn't) work full-time for a charity you're not passionate about.
That said I'm also excited about it being non-profits particularly - this way YC can help solve problems in which there's no money to be made.
As a side note, I think that we've as a culture have been approaching non-profits entirely wrong . Instead of letting them build structure to actually maximise the help they can give, we require them to be stripped-down organizations so their metrics can show they're giving as much money away as possible. This is why we've seen such a surge in for-profit-but-that's-not-the-main-point companies like Tom's Shoes lately. It's simply the best way to do the most good.
Profit making companies like Tom's Shoes that see philanthropy as a core brand value, are a different matter. There's room for more of them irrespective of how the charitable sector organizes itself.
I disagree. With donor funded nonprofits, the product can be to fulfill the donors wish to see their money achieving outcome X, not seeing their money spent on outcome X (it can also be as you present; different donors have different motives.)
I don't think that necessary challenges your conclusions, but I think it is an important distinction.
Watsi was an experiment waiting to be repeated, looking forward to see which non-profits will make it through here.
An amazing group/experience is a big understatement.
Disclaimer: I'm a 2nd year fellow.
It would be super exciting if we started to see overlap between Y Combinator and the effective altruism movement (http://en.wikipedia.org/wiki/Effective_altruism), which is people who are trying to make the world a better place in the most effective way.
(I do for-profit startups but am also involved in the EA movement. Please contact me if this is interesting to you.)
1. At what percentage will your entity spend on administration costs?
2. Will you agree to keep it to less
than 10%, if we give you funds?"
3. Flat out ask the future non-profit, "How much money
do you feel you will need to run the non-profit. Would
you agree to take only what the standard cost of living
in the county you reside--if it succeeds?"
4. Will your BOD contain any family, friends, or relatives?
5.(Sorry if I sound callous; I live in a county where
starting a non-profit is a career move. Some of the salaries are mind boggling.)
6. (Note to any future non-profit. I applaud your efforts
if they are honest. Just a reminder--if you ever close
down the 501(c)3 you can't keep any assets--not even a
paper clip. Nothing belongs to you. )
In particular, it turns out that "administration" doesn't scale linearly. A 4 person nonprofit still needs their ED to spend ~50% of time fundraising; there's likely >15% of your salary right there.
Information from folks that have done this for a while: http://philanthropy.com/article/3-Major-Charity-Groups-Ask/1...
Data, if you want: http://nonprofitquarterly.org/management/22239-new-study-low...
Even when it would be, "ratio of total spending to administration spending" probably is almost never the right single number.
Any nonprofit founder, should be able to answer a few questions; "How much do you, the founder expect in salary--
present and future. If we decide to fund your initial
nonprofit, would you agree to work for these amounts?
If you want to make a large salary--start a for-profit business. There's nothing wrong with wanting to make
a good living, but don't hide behind a nonprofit entity.
Oh yea, Obama is hip the nonprofit dance, but hasn't done
anything. A few years ago, he wanted to separate legitimate
nonprofits from just money making businesses. As far as
I know, nothing has been done?
Certainly, having an objective measure of value produced and maximizing the ratio of that measure to total dollars spent is a good thing, but "dollars spent less admin costs" is not a good objective measure of value produced for most non-profits.
Guess what accounting bucket that goes into?
Sometimes (important word, sometimes) admin costs need to go above 10%. You have to spend money to make money.
If a business had an opportunity to spend 1 million dollars to make 2 million dollars, they would do it all day. (Taking into account their rate of return etc.) If a nonprofit had the opportunity to spend 1 million dollars to make 2 million, they might not, because they don't want their admin costs getting "too high".
I'm someone who's generally very skeptical about the VC ways of doing things (difficult to really describe my feelings here, let's just say some just seem a bit too unapologetically mercenary in my eyes), so this move really sets apart YC from all the other startup-incubators/VCs.
Watsi is fantastic in every way I can think of. I hope more people are encouraged to create nonprofit companies to solve some real problems (read: non-first-world-problems) in a true hackerly fashion.
Cosmic level blessings on Paul Graham for doing this. Badly needed. The entire sector needs catalytic infusions of entrepreneurial energy and expertise.
Only 150 non-profits have grown past $10M in revenue since 1970. North Korea has better business acumen. Love to see efforts like this.
Thank you Y Combinator!
I don't want to seem like I think this can only have bad intentions, but finance people and investors aren't typically known to be charitable.
That's incredibly false.
pg - Can you explain your reasoning on a charitable donation to the "startup"? It seems that if these .orgs are successful one great way to literally pay it forward is into a separate fund that could grow more .org's.
Program-related investments (http://www.irs.gov/Charities-&-Non-Profits/Private-Foundatio...) from a ycombinator.org would seem to fulfill both investments in .orgs and investments in for-profits with a mission.
YC has the money to fund many more companies than they do. But not the bandwidth.
Y Combinator is not selling their capital, they're selling their time, expertise, and network. A separate fund would defeat that purpose.
I don't think that--in the vast majority of cases--this will be particularly helpful.
edit: what's with the downvotes? that's puzzling
Without that, you're still suggesting that they fund a team that is so uninspired that they can't spend a little time on the application. YC does not have unlimited resources with which to filter applicants, so increasing the number of applicants and decreasing their average quality (an argument that this wouldn't happen would be interesting if you have one) seems like a lose-lose situation.
PG is always innovating, I'm sure the current process he's created is not the global maximum. He might be interested in matching founders, giving initial ideas, codifying more of his process into apps - anything that might increase ROI he will try as a rational businessman.
Funnily enough, in her struggle to get her nonprofit off the ground, I got my idea for my "startup". Bravo to YC for taking an unorthodox step here.
But yes, they will pay less taxes.
So, if their tax rate is 35%, every donated dollar costs them only 65 cents.
Have you considered looking at groups who've really "disrupted markets" (in the most literal sense, like sex slave and child labor markets, even markets in general); break unjust things, and are real risk-takers who risked poverty/jail/beatings? You know, serious hackers.
3. Flat out ask the future non-profit, "How much money
do you feel