A Little Look at Fiscal Sponsorship

The Wisdom of Heaven makes all things equal.

This Wisdom is not the way of man.

Man takes from the needy to add to his own excess.

Who is he who possesses great wealth and can bring it to the service of the world?

Only he who knows the Wisdom of Heaven.

This is why the wise man acts without expectation of reward, and completes his task without claiming merit.

For thus he hides his wealth. - The Daodejing (Tao Te Ching), Chapter 77

Recently, Greg Colvin shared some insights on fiscal sponsorship, its history, and evolving models, and is worth a read because what became a concept tainted by association that led to a changing terminology and evolution of several new models of fiscal sponsorship.

Here’s a quick summary: the original concept known was “fiscal agency” implied that a project was in charge of the money–but this is simply not true, and later on became associated with money laundering due to an article in 1989 heavily criticizing it, saying “it is generally accepted that when grants or gifts cannot be made directly, all one must do is launder the money through a convenient fiscal agent, which is frequently the local community foundation or some other well-established public charity.”

The result of that article led Colvin and several groups in San Francisco to meet in 1991 and come up with the term fiscal sponsorship in order to disassociate from the dirty word that was fiscal agency, which was also confusing. From that, the group came up with six models of fiscal sponsorship that detailed and specified the relationship between patrons and their recipients with regards to how their money would and could be used. 

Of those six models, the most significant one is the third one: the sponsor pre-approves the project as a grantee and sets up a money flow that comes into the fiscal sponsor, then is re-granted to the grantee. It involves a separate party — an individual or maybe an incubating 501(c)(3) not ready to go into business for itself — that receives grants until it either disbands or gets its own (c)(3) status.

Yep: that’s the Angels for Angels model! 

The importance of knowing clear and distinct terms of sponsorship define the scope of participation in a project that a sponsor has. Some can be hands-off and leave the recipients to independently produce their deliverables, whereas others take a more active role where they not only provide funding, but guidance and expertise, providing insights on best practices so as to not repeat the same mistakes again and again, which will cost everyone more time and money than is necessary. 

Through this model, it is a way of empowering newer or smaller organizations and projects, akin to a mentor who not only teaches you how to do something you want to do better, but also gives you the money and plan to be able to realize it. 

So rather than treating a project as an extension of a sponsor’s activity–that is to say, Bill Gates taking credit for something he pays for but everyone else does the work–this model of fiscal sponsorship is closer to our quote at the beginning, of giving a little help and encouragement, stepping back, and letting you flourish.

Here are some things to consider to imagine how fiscal sponsorship: let’s say you have three students. Each one is given the same amount of money to do the same job–let’s say making and selling cookies.

Student A is given money, detailed instructions on how to make and sell the cookies, to whom, when, and where, and receives payment after she fulfills your instructions to the letter. She essentially works for you.

Student B gets only the money to make and sell cookies, gives full credit to you and gets his share of money as agreed upon, then moves on and offers his services to whomever else wants his baking and selling experience. He’s basically a contractor. 

Student C proposes their idea to you and estimated costs, you step in and make a counteroffer to do the same thing but better for less, teach them a few tips as an experienced baker and seller, agree to sponsor their project, watch them experiment in addition to considering some of your suggestions, and then they take full credit for creating Brookies–brownie/cookies–then give you a return on your investment while taking off and making their own Brookie empire, paying it forward and by sponsoring and advising other budding bakers just as you did for them. 

Now, based on these three scenarios for fiscal sponsorship, which student do you think will have greater growth potential? How do these models affect the student–that is, how does it change them beyond making them a little wealthier?