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GOOD’s Acquisition of Jumo Is a Model That Should Be Replicated

I have a few thoughts on the Jumo acquisition.

First, kudos to Chris Hughes for having the courage to fold Jumo into GOOD. From all public accounts, Jumo wasn’t doing all that well, with declining web traffic and nonprofit participation and an uncertain funding future. The usual course in the nonprofit sector is to hold on and slowly fade into mediocrity. I’m often asked by reporters if we have too many nonprofits. I actually think that the low barrier to entry for starting a new nonprofit is a good thing, as it can encourage creativity, diversity and passion. The problem comes when a once brilliant idea doesn’t catch on. When that happens in the for-profit world, small start-ups go out of business or are sold. In the nonprofit world, start-ups tend to find just enough grant money to stay in business but not enough to do anything meaningful. One of the implications of chosing to send more money to high-performing organizations is that more nonprofit organizations will close up shop. So, thanks Chris Hughes for giving us a good model of what more nonprofit leaders need to have the courage to do.

Bradford K. Smith, president of the Foundation Center, has been leading an interesting discussion this week on the implications of the grant-funded Jumo going to the for-profit GOOD. Brad calls it “shapeshifting.” As Brad observes in his blog,”

Jumo is (or was) a 501(c)(3) nonprofit and as such, eligible for two types of support from a foundation: an outright grant or a program-related investment (below-market rate loan), both for charitable purposes. A for-profit start up, on the other hand, would have access only to capital from the foundation’s investment portfolio (no charitable purpose required) in the form of private equity. There’s no indication that foundations supported Jumo for the purpose of it becoming a for-profit; rather, it appears the grants in question got caught in the middle of Jumo’s shapeshifting… I would hate to see the 501(c)(3) status come to be seen as a kind of quick-and-easy way to get free startup capital en route to flipping one’s organization into a for-profit enterprise, social or otherwise.

Some have come to the defense of the acquisition, notably Antony Bugg-Levine, a managing director of the Rockefeller Foundation, who says there is a new world dawning:

For foundation executives that will mean creating new grant agreements that acknowledge the increasingly fluid line between nonprofit and for-profit corporate forms. It will mean recognizing the power our endowment investments have to contribute to our social mission and reorganizing our management and governance accordingly. And it will mean supporting regulatory reform that acknowledges how for-profit investment and private enterprise can complement philanthropy and government action.

Could be. I don’t disagree with the new world point, but I don’t think we’re there yet. I’m more in alignment with Brad’s opinion that in this particular case all of this grant money flowing into a for-profit organization which ultimately benefits the owners causes some legal and regulatory issues.

This situation surfaces two long-standing concerns of mine: one, foundations often focus on new and shiny projects that have high risk rather than those with better chances of achieving scale and impact. In a relatively short period of time, Jumo was able to raise $3.5 million (and my guess is even more than that) for a totally unproven concept in a very crowded space. Were these good foundation investment?

Second, because of the focus on “new” short-term projects, those organizations that have been around a few years find it hard to find sources of “mezzanine” funding – something beyond the initial start-up money. We need more foundation support for organizations that have a proven, market-tested concept, have strong business models and a demonstrated way to reach scale, impact and sustainability. Providing seed money is important, but it alone can’t build the high-performing organizations the sector needs to truly make a difference.

What are your thoughts on Jumo’s acquisition of GOOD?

Bob.jpgThe preceding is a guest post by Bob Ottenhoff,  Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.

Topics: Senior Executive Issues