Yes, I think spinning out an “ops as a service” org might be one alternative path here that’s worth exploring—though I’m guessing there are various bits of ops that are significantly harder to offer as a service to another org than as part of one legal entity.
My understanding from running the RP special projects program is you basically cannot offer anything helpful with regard to HR, legal, and finance without being one legal entity. RP special projects (such as Epoch) are thus legally the same as RP though maintain strong independence (via norms instead of laws).
Can I ask you for clarification? There are obviously lawyers and accountants that do pro bono work, and I think there’s a nonprofit HR org somewhere in the EAsphere, so it can’t be a legal brick wall.
So in each case (HR, legal, finance):
What would you say the barriers are?
Would those barriers differ if it was a paid service, vs if they were a donor-funded nonprofit themselves?
What is your estimation for the net annual cost of overcoming such barriers, and would you expect that cost to scale with org size, be fixed, or somewhere in between?
It depends a lot on what you want from your service.
If you want to talk with lawyers, you obviously can get third-party services rather than hire your own in-house counsel. If you want to go over your books with an accountant, you can get third-party accountants to do that.
But if you prefer to just focus on the things you are good at and want everything handled for you so that you don’t even have to worry about talking with accountants and lawyers and figuring all that out, that’s where things like RP Special Projects and Effective Ventures come in.
And that’s what can’t be handled without the legal incorporation.
This kind of service we’re trying to offer where you just don’t even need to think about HR, payroll, legal compliance, finance, getting and having your own US 501c3 status, etc. is what I’m offering, but unfortunately no amount of money could ever make that service work without the legal incorporation.
So the net annual cost of overcoming those barriers are whatever it would cost for all the organizations in question to just furnish all of these HR+legal+finance services themselves and not make use of RP or EV at all. You would find your own COO / Director of Operations, hire them, hope they are good, and file all your paperwork. You’d find your own lawyers and accountants. You’d get your own payroll set up. Etc.
In the case of Epoch, one of our fiscal sponsors, we basically set them up to be able to start scaling immediately. We helped them get all their money, legally hire their employees, helped them run their hiring round doing all the admin side of it, etc. Their team just focuses on the research they’re good at and not worry about other things. I know we saved their team 100s of hours of work and I’m pretty sure we saved them at least a year of wall clock time waiting to hire that COO, waiting to file paperwork, etc.
Hey Peter, thanks for the response. I’ve upvoted, but I feel like it still leaves open the question of why a third party service can’t get you to the point where you ‘just don’t even need to think about HR, payroll, legal compliance, finance, getting and having your own US 501c3 status, etc. is what I’m offering, but unfortunately no amount of money could ever make that service work without the legal incorporation.’
Assume the service in question is an EA-aligned org—the same people who are currently running those ops at RP special projects and Effective Ventures, for example. What goes wrong if a) you throw a bunch of money at them as a retainer to work on your stuff whenever you need them to, or b) they’re a nonprofit who can commit to supporting your org inasmuch as a reasonable cost-benefit calculation (that takes into account eg costs of uncertainty) suggests they should do?
You legally can’t just rent/borrow a 501c3 status from a third-party… you have to be legally a part of the org with the 501c3 status to also have that status (though of course the org can give you credible promises of independence, as RP does).
Same goes for directly handling books and directly administering payroll. There certainly are third-party services that help a lot with books and payroll (e.g., Quickbooks, Sage, JazzHR, Remote… RP uses those) but they can’t handle your books and payroll 100% entirely on your behalf without being legally responsible for them.
I know becoming a charity is difficult, but from having been through it myself, it seems mostly so because new charity founders have no idea what kind of legal minefield they’re walking into. My memory of our process was that if we’d done it with a knowledgeable lawyer available from the beginning it would have taken total <10 hours work and perhaps a few months of waiting, during which you wouldn’t be eligible for charity tax benefits (this was in the UK). Does that sound fair/similar to the US?
Re books and payroll, what if there were a company or nonprofit that was willing to take on that legal responsibility? Are you saying they simply wouldn’t be allowed to do so? If so, which specific element of it would be forbidden?
My understanding is that books and payroll/finance can in fact be outsourced, and this is common practice. In the US, there are charitable accounting services (like Jitasa) that do all books and file most/all required financial filings for charities (this still requires some work on the charity’s end). There are PEOs (like JustWorks and Insperity) that in some cases run all of HR (and are legally responsible for it). To my understanding PEOs can be used with charitable organizations.
I think there may be some efficiency gains from centralization, like covering fixed costs (such as ~$10,000/year to pay a legal firm to register to fundraise in all US states) but they’re small or insignificant when you reach a multimillion-dollar scale. I’d imagine the all-in gains in avoiding fixed costs to be in the low tens of thousands of dollars.
At a larger scale, becoming independent could even be a cost savings! Administering lots of tiny projects can be operationally burdensome for a fiscal sponsor. There are also benefits of being independent, like being able to use your own operational processes, having a separate legal existence, etc.
That’s why fiscal sponsorship services , e.g. what’s provided by EV and RP, are usually offered to small/burgeoning or temporary projects in the broader charitable world, rather than being used by massive organizations. Accumulated funds at a fiscal sponsor can be easily donated to the new entity, although the later the spin out, the larger the operational complexity I’d imagine.
These days, setting up a company or charity is as easy as filling out a website, no formal legal firm required if it’s pretty standard. Stripe Atlas and Clerky are popular for for-profit startups, and Resilia is one such service for nonprofits.
One possibility might be for the smaller organizations to be legally independent with their own funding streams and boards, and then contract the actual substantive work of their organization out to EVF (so the work would technically be done by EVF employees who are contractors of the smaller organization). A little awkward, but it would keep title to the smaller organization’s assets, IP, and the like legally under the control of the smaller organization. A decision of whether to break up the smaller org-EVF relationship could be exercised by either party, while only EVF has that power now. And since the workers were ultimately getting paid by the smaller organization (which could decide their services were no longer needed), it could give the smaller organization more control over its workers than under the current model where EVF holds all the formal power.
All that would be logistically at least a bit of a headache, so you’d have to balance the interests of more independence for the smaller organization vs. efficiency.
I agree insofar as a more complex arrangement does not make sense for startups.
But take the Good Ventures Foundation / Open Phil relationship as a simplified example. As I understand it, GVF basically does nothing other than cut checks when Open Phil recommends it. Although Open Phil’s funding is doubtless routed in a way that avoids its characterization as a private foundation, my understanding is that it practically comes from Good Ventures (or from an allied source). In other words, GVF gives Open Phil a grant to perform essentially all of the operations GVF would like to see done.
Either Open Phil or GVF could pull the plug on this relationship and break up if either wanted to. Although GVF has no legal control over the actions of Open Phil staff, it has legal control over the relevant assets (and could easily be structured to protect/license certain IP as well). And it has great practical control over how Open Phil runs the program (although GVF has shown zero interest in using that power), which it could enforce if desired with some creative writing of grant rules.
So it is possible for Organization A to “hire” Organization B to run programs it wants without Organization A giving up all control and authority to Organization B. It incurs some extra costs and hassle that have to be balanced against the benefits and usually won’t make sense for smaller organizations.
Right. But OpenPhil doesn’t administer Good Ventures books, OpenPhil doesn’t ensure Good Ventures is compliant with relevant laws, OpenPhil doesn’t hire/employ Good Ventures staff, and OpenPhil doesn’t administer Good Ventures’s payroll, and OpenPhil doesn’t operate or provide Good Ventures’s a “private foundation” or “LLC” status.
So while what you’re describing is definitely a viable (if not complex) arrangement, it is not similar to the kind of arrangement I’m aiming to describe.
Similarly, RP can and does offer services (e.g., research consulting, running an event, administering a fund) on behalf of another org without legally absorbing that org, but the kind of fiscal sponsorship I’m describing that RP and Effective Ventures does require legally absorbing the org (while still credibly promising independence).
I think I should aim to be clearer that I definitely do think it will often be the right choice for an org to not seek fiscal sponsorship (or to eventually spin off from fiscal sponsorship) and become its own org with its own 501c3 status and its own board and its own books and its own payroll, but I think there are also a bunch of projects where all that overhead doesn’t make sense (yet) and so fiscal sponsorship is the right play.
I definitely want to affirm that what you’re offering is incredibly valuable for many organizations, especially those that are younger or smaller, and that it is the right play for many organizations.
Yes, if the smaller org pulled the contractor-supply contract, it could then hire away the former contractors as employees. That loses the advantages of EVF involvement but is an option.
If I understand correctly, that’s exactly what EV ops is doing. They are supporting organisations inside and outside of EVF with Ops work so that might not be auch a big reason not to slit upt EVF orgs. (Formerly that was CEAs/EVFs ops team and now is a separate organisation, but possibly officially still part of EVF?)
Yes, I think spinning out an “ops as a service” org might be one alternative path here that’s worth exploring—though I’m guessing there are various bits of ops that are significantly harder to offer as a service to another org than as part of one legal entity.
My understanding from running the RP special projects program is you basically cannot offer anything helpful with regard to HR, legal, and finance without being one legal entity. RP special projects (such as Epoch) are thus legally the same as RP though maintain strong independence (via norms instead of laws).
Can I ask you for clarification? There are obviously lawyers and accountants that do pro bono work, and I think there’s a nonprofit HR org somewhere in the EAsphere, so it can’t be a legal brick wall.
So in each case (HR, legal, finance):
What would you say the barriers are?
Would those barriers differ if it was a paid service, vs if they were a donor-funded nonprofit themselves?
What is your estimation for the net annual cost of overcoming such barriers, and would you expect that cost to scale with org size, be fixed, or somewhere in between?
It depends a lot on what you want from your service.
If you want to talk with lawyers, you obviously can get third-party services rather than hire your own in-house counsel. If you want to go over your books with an accountant, you can get third-party accountants to do that.
But if you prefer to just focus on the things you are good at and want everything handled for you so that you don’t even have to worry about talking with accountants and lawyers and figuring all that out, that’s where things like RP Special Projects and Effective Ventures come in.
And that’s what can’t be handled without the legal incorporation.
This kind of service we’re trying to offer where you just don’t even need to think about HR, payroll, legal compliance, finance, getting and having your own US 501c3 status, etc. is what I’m offering, but unfortunately no amount of money could ever make that service work without the legal incorporation.
So the net annual cost of overcoming those barriers are whatever it would cost for all the organizations in question to just furnish all of these HR+legal+finance services themselves and not make use of RP or EV at all. You would find your own COO / Director of Operations, hire them, hope they are good, and file all your paperwork. You’d find your own lawyers and accountants. You’d get your own payroll set up. Etc.
In the case of Epoch, one of our fiscal sponsors, we basically set them up to be able to start scaling immediately. We helped them get all their money, legally hire their employees, helped them run their hiring round doing all the admin side of it, etc. Their team just focuses on the research they’re good at and not worry about other things. I know we saved their team 100s of hours of work and I’m pretty sure we saved them at least a year of wall clock time waiting to hire that COO, waiting to file paperwork, etc.
Hey Peter, thanks for the response. I’ve upvoted, but I feel like it still leaves open the question of why a third party service can’t get you to the point where you ‘just don’t even need to think about HR, payroll, legal compliance, finance, getting and having your own US 501c3 status, etc. is what I’m offering, but unfortunately no amount of money could ever make that service work without the legal incorporation.’
Assume the service in question is an EA-aligned org—the same people who are currently running those ops at RP special projects and Effective Ventures, for example. What goes wrong if a) you throw a bunch of money at them as a retainer to work on your stuff whenever you need them to, or b) they’re a nonprofit who can commit to supporting your org inasmuch as a reasonable cost-benefit calculation (that takes into account eg costs of uncertainty) suggests they should do?
The problem is laws.
You legally can’t just rent/borrow a 501c3 status from a third-party… you have to be legally a part of the org with the 501c3 status to also have that status (though of course the org can give you credible promises of independence, as RP does).
Same goes for directly handling books and directly administering payroll. There certainly are third-party services that help a lot with books and payroll (e.g., Quickbooks, Sage, JazzHR, Remote… RP uses those) but they can’t handle your books and payroll 100% entirely on your behalf without being legally responsible for them.
I know becoming a charity is difficult, but from having been through it myself, it seems mostly so because new charity founders have no idea what kind of legal minefield they’re walking into. My memory of our process was that if we’d done it with a knowledgeable lawyer available from the beginning it would have taken total <10 hours work and perhaps a few months of waiting, during which you wouldn’t be eligible for charity tax benefits (this was in the UK). Does that sound fair/similar to the US?
Re books and payroll, what if there were a company or nonprofit that was willing to take on that legal responsibility? Are you saying they simply wouldn’t be allowed to do so? If so, which specific element of it would be forbidden?
Speaking for the US:
My understanding is that books and payroll/finance can in fact be outsourced, and this is common practice. In the US, there are charitable accounting services (like Jitasa) that do all books and file most/all required financial filings for charities (this still requires some work on the charity’s end). There are PEOs (like JustWorks and Insperity) that in some cases run all of HR (and are legally responsible for it). To my understanding PEOs can be used with charitable organizations.
I think there may be some efficiency gains from centralization, like covering fixed costs (such as ~$10,000/year to pay a legal firm to register to fundraise in all US states) but they’re small or insignificant when you reach a multimillion-dollar scale. I’d imagine the all-in gains in avoiding fixed costs to be in the low tens of thousands of dollars.
At a larger scale, becoming independent could even be a cost savings! Administering lots of tiny projects can be operationally burdensome for a fiscal sponsor. There are also benefits of being independent, like being able to use your own operational processes, having a separate legal existence, etc.
That’s why fiscal sponsorship services , e.g. what’s provided by EV and RP, are usually offered to small/burgeoning or temporary projects in the broader charitable world, rather than being used by massive organizations. Accumulated funds at a fiscal sponsor can be easily donated to the new entity, although the later the spin out, the larger the operational complexity I’d imagine.
These days, setting up a company or charity is as easy as filling out a website, no formal legal firm required if it’s pretty standard. Stripe Atlas and Clerky are popular for for-profit startups, and Resilia is one such service for nonprofits.
One possibility might be for the smaller organizations to be legally independent with their own funding streams and boards, and then contract the actual substantive work of their organization out to EVF (so the work would technically be done by EVF employees who are contractors of the smaller organization). A little awkward, but it would keep title to the smaller organization’s assets, IP, and the like legally under the control of the smaller organization. A decision of whether to break up the smaller org-EVF relationship could be exercised by either party, while only EVF has that power now. And since the workers were ultimately getting paid by the smaller organization (which could decide their services were no longer needed), it could give the smaller organization more control over its workers than under the current model where EVF holds all the formal power.
All that would be logistically at least a bit of a headache, so you’d have to balance the interests of more independence for the smaller organization vs. efficiency.
See my other comment here for why I don’t think that would work in practice
I agree insofar as a more complex arrangement does not make sense for startups.
But take the Good Ventures Foundation / Open Phil relationship as a simplified example. As I understand it, GVF basically does nothing other than cut checks when Open Phil recommends it. Although Open Phil’s funding is doubtless routed in a way that avoids its characterization as a private foundation, my understanding is that it practically comes from Good Ventures (or from an allied source). In other words, GVF gives Open Phil a grant to perform essentially all of the operations GVF would like to see done.
Either Open Phil or GVF could pull the plug on this relationship and break up if either wanted to. Although GVF has no legal control over the actions of Open Phil staff, it has legal control over the relevant assets (and could easily be structured to protect/license certain IP as well). And it has great practical control over how Open Phil runs the program (although GVF has shown zero interest in using that power), which it could enforce if desired with some creative writing of grant rules.
So it is possible for Organization A to “hire” Organization B to run programs it wants without Organization A giving up all control and authority to Organization B. It incurs some extra costs and hassle that have to be balanced against the benefits and usually won’t make sense for smaller organizations.
Right. But OpenPhil doesn’t administer Good Ventures books, OpenPhil doesn’t ensure Good Ventures is compliant with relevant laws, OpenPhil doesn’t hire/employ Good Ventures staff, and OpenPhil doesn’t administer Good Ventures’s payroll, and OpenPhil doesn’t operate or provide Good Ventures’s a “private foundation” or “LLC” status.
So while what you’re describing is definitely a viable (if not complex) arrangement, it is not similar to the kind of arrangement I’m aiming to describe.
Similarly, RP can and does offer services (e.g., research consulting, running an event, administering a fund) on behalf of another org without legally absorbing that org, but the kind of fiscal sponsorship I’m describing that RP and Effective Ventures does require legally absorbing the org (while still credibly promising independence).
I think I should aim to be clearer that I definitely do think it will often be the right choice for an org to not seek fiscal sponsorship (or to eventually spin off from fiscal sponsorship) and become its own org with its own 501c3 status and its own board and its own books and its own payroll, but I think there are also a bunch of projects where all that overhead doesn’t make sense (yet) and so fiscal sponsorship is the right play.
I definitely want to affirm that what you’re offering is incredibly valuable for many organizations, especially those that are younger or smaller, and that it is the right play for many organizations.
Thanks!
Would the smaller orgs really be able to do this, if their “employees” are actually employed by EVF?
Yes, if the smaller org pulled the contractor-supply contract, it could then hire away the former contractors as employees. That loses the advantages of EVF involvement but is an option.
If I understand correctly, that’s exactly what EV ops is doing. They are supporting organisations inside and outside of EVF with Ops work so that might not be auch a big reason not to slit upt EVF orgs. (Formerly that was CEAs/EVFs ops team and now is a separate organisation, but possibly officially still part of EVF?)