Monday, February 12, 2007

Revisiting Whether I Should Start a Foundation

When I posted a few months ago about foundations, I concluded that "I'm not convinced that I need a family foundation at the moment. For the time being, my wife and I are de facto directors of our unofficial family foundation."

Since then, a couple things have changed:

  • One person suggested that rather than doing their own research to determine a non-profit's efficiency and effectiveness, they'd love to give money to me and trust that I'll do the research and donating for them. They wanted to know whether they could get a tax deduction if they gave me money directly. The answer is currently "no."
  • After launching my Room to Search web site (e.g., my free-to-use search engine that donates 100% of search-generated advertising revenue to charity), a couple people have raised concerns that Room to Search is not organized as a 501(c)(3) charity. Simply put, they question whether I'm really donating money to charity or saving for a new TV. If I were organized as a 501(c)(3), they would not have the same concerns.
Here are the main reasons I would consider forming a private foundation, or even a public charity:

  • Since my efforts to fight poverty are legitimate, I want them to be easily recognized as such.
  • If people want to donate money to help me in the fight against poverty, I want their donations to be tax-deductible.
  • My company donates money to a non-profit after an employee has volunteered 25-40 hours, and this may therefore be an additional way to raise funds to fight poverty.
  • I'm in the fight against poverty for the long haul, so hopefully any up-front inconvenience and/or expense would hopefully be short-lived and a good investment.
But there are also reasons not to form a private foundation or public charity:

  • It's expensive. An Inc. magazine article titled Foundations R Us says that it costs "less than $5,000" to set up a foundation through 3rd-party who will take care of everything. That's considered an excellent bargain, since apparently it used to cost $30,000 and take three months.
  • If I don't pay someone else $5,000 to do it for me, it will likely take me months since I've never done it before and don't have a lot of time to focus on the process.
  • The Inc. article suggested that $250,000 in assets is a "sufficient" amount of assets to form an economically viable foundation, but that's more than I have.
  • It might make more sense for me to get at least a year or two of experience volunteering with Room to Read before I try to do anything on my own.
  • In the beginning, my charity would probably primarily re-grant money to other organizations rather than having the infrastructure to address poverty directly.
  • I would need to have a business plan before launching to ensure that I'm providing a product or service that creates value.

So here's my thought -- I'll do my research and planning online as if I were going to start my own 501(c)(3). Most for-profit entities wouldn't do such a thing, because it's all about competition. But I'm more interested in efficiency and effectiveness than winning, so if I come up with a good idea for a non-profit and someone steals it, all the better.

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