It’s a question that every social enterprise has to answer- do we want to be a business or do we want to be a non profit, or hey- do we want to be both? It’s a question that we struggled long and hard over and we have come to a decision: We are only going to be an Indian for profit (at least for the next year) with the option of creating an additional non profit arm later down the road.
Our thought process: We had decided early on that we wanted to at LEAST be a for profit in India.
Reasoning: In our collective experience, we felt that it was easier to get work done in India as a for profit. We also felt that people in India had more respect for businesses (as opposed to non profits)- probably because there were so many non profits already present, doing work in India. Image wise, we felt business was the way to go to get things done.
Why incorporate in India as opposed to the US company with an Indian subsidiary? Good question. It’s tough because American investors are definitely wary about investing in Indian companies (and we do not have any typical investments to date- besides grants aka free money), but we are interested in working/partnering with Indian governments. And if we are an American company, we felt that it would jeopardize our ability to work with Indian government entities, and even to some extent the Indian public. We would always be the foreigners coming in and doing things. Not optimal.
That wasn’t hard- Where’s the dilemma?: Well, we were seriously considering being a hybrid non-profit/for profit company to get the best of both the worlds.
And here is why:
Grant funding: We figured we may have an easier time raising money from our non profit side (if we had one). $ is always good.
Partnerships: We thought that maybe if we were an American Non profit, it would be easier to form partnerships with government, and other Non governmental agencies and/or Universities.
Focus: We thought that maybe if each of us focused on a separate part of NextDrop (non profit= improving transparency and impact, for profit= execution and scalability/profitability) we would get best of both the worlds. We thought it may be difficult for one entity to try and FOCUS on both (with the same funds).
Why did we decide NOT to do a hybrid?
Funding: We realized that…NextDrop had been winning a lot of cool things, not because it was a non profit (because it wasn’t), but because…it was a good idea. And people wanted to help see if it would work. And that hasn’t changed. We figured that if we break up NextDrop, it may not have the same appeal. Lets face it, people funding non profits don’t really want to be funding tons and tons of impact evaluations/R& D stuff (at least according to Draper Richards- they want to fund innovation). Which makes sense. So we are banking on the fact that we can still attract investment/grants (for the dual purpose of social impact and small financial returns). And FYI, grant making organizations CAN give to for profit organizations (it’s just more difficult, but we are proof that it can happen). Sometimes it’s in the form of free money, but many times it’s in the form of a PRI (Program Related Investment). This means they actually do get equity in your company and it is a convertible note (as far as I can tell- pleases feel free to correct me if I’m wrong!)
Focus: Ari made a good point. If we had two separate organizations, one focusing on impact and transparency, and the other focusing on execution and scale, what happens down the road if the two separate from each other? What happens to NextDrop then? Does it become a pure moneymaking machine? Given that this is a really new field topic (hybrid models in general), and the only examples we see are non profits that are pretty much subsidiaries of the for profit (i.e. they don’t exactly do a WHOLE lot to influence the actual for profit entity), we thought that maybe it was in our best interests to keep the two together- at least for the first year. We also weren’t terribly sure what interesting things the non profit could do (because we didn’t want to set one up that didn’t do much except write grants and do impact evaluations- important as they are, making that a stand alone non profit doesn’t make sense).
Partnerships: We realized that it really doesn’t matter weather you do a for profit or a non profit (well, most of the time). Emily had a good point- if something is important to your organization (i.e. partnering with Universities, government agencies etc…) it doesn’t matter what the legal structure of your organization is. Even in cases like the World Bank etc…they contract out to private entities on the ground all the time to get things like surveys done. Since most of the people we would want to partner with have a history of partnering with BOTH non profits AND for profits, it won’t really jeopardize our ability to work together with amazing institutions.
And that is how we (finally) came to our decision. We have put in some legal paperwork, so we will hopefully be a legal entity in India within the next few months.