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Donors:  The Perils of Starting Your Own Nonprofit

Posted on September 23, 2015 by Mark Neithercut

The Wall Street Journal had an excellent piece this week entitled “The Mistakes Charitable Start-ups Make” (Monday, September 21, 2015, P. R5). The article reviews a number of important issues regarding starting a nonprofit, including:

  • The likelihood that an organization already exists that works on your issue(s) of interest.
  • The large amount of paperwork and reporting required of a nonprofit.
  • The tendency to pick friends and family to serve as board members when they may not be qualified.
  • A misunderstanding of the importance of fundraising.

These are all important issues, but we find in our work with high-net-worth families that people with significant resources face a series of additional obstacles. First, meeting the public support test can be difficult for any new nonprofit, but it can be particularly challenging for a nonprofit that is started by, and publicly identified with, a person of significant means. A common reaction to a fundraising request from this type of organization is: “That is Bob’s organization, and he has more money than anyone I know. Why should I support his personal and private interests when he can afford to pay for it on his own?” If a nonprofit is funded largely by the founder and his/her extended family, the organization may eventually fail the public support test, resulting in a private foundation.

Second, a new nonprofit that is started by a person of significant means can have trouble maintaining momentum after five or 10 years, especially if the founder grows weary or is unable to stay involved.  A nonprofit so closely tied to a wealthy family can languish for reasons similar to the fundraising issues. If the entity is intimately connected with a specific person or family, others may be less willing or interested when it comes to getting involved and being supportive, especially after the initial bloom of excitement has faded.

The bottom line is this: It’s important to recognize that starting a new nonprofit can be a challenging task — and for a person with significant resources, remember that it presents a few additional challenges.

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