Ep. 7: A New Structure for Network for Good (2024)

By Maddie Vann

Episode 7in Network for Good’s “mini-podcast” where we are sharing key learnings for how to bring durable capital to sustainable outcomes

TL;DR / Highlight: Network for Good’s existing Donor Advised Fund (DAF) model is misaligned with the future vision to provide “durable capital for sustainable outcomes.” We’re exploring a holding company model that will house the existing Network for Good DAF while also providing the infrastructure to be able to rapidly deploy innovative new models and ideas for advancing “sustainable outcomes” while growing assets under management.

I recently sat down with Network for Good’s CEO, Abby Ross, to discuss how we’ve been thinking about structuring Network for Good to best position the organization to deliver “durable capital for sustainable outcomes.” In this episode, we discuss the holding company model we plan to pursue as Network for Good’s new corporate structure, why it’s important to protect the current Donor Advised Fund (DAF) model, and why building assets under management (AUM) will be a key part of Network for Good’s evolving strategy.

Here is the transcript from our conversation:

Maddie: One of the insights we’ve had over the past 18 months of strategic discovery is that Network for Good’s current organizational structure is misaligned with our future vision. Can you elaborate about what that means?

Abby: If we reflect on this year, the first half of the year was dedicated to exploring climate driven disasters as a use case for our strategic vision, which is durable capital for sustainable, community-aligned outcomes. And we wanted this scoping mechanism as a way to find a place where capital is not durable. A place where we can define what community alignment might look like and have a perspective on what a sustainable outcome could look like. And I think we accomplished that mission and we’ve built some evidence for why this is a compelling use case. And we even started riffing on some ways that we might go about bringing that durable capital.

And so then we set up our second half of the year to be focused on how we can launch some specific initiatives and programs that can help us learn and really start to innovate in this specific space. However, we realized that in order to launch truly novel initiatives, we’re restricted by the current structure of our 501(c)3 status of how we operate as a DAF, and all of the compliance requirements that come along with the fact that we’re a business that has been operating for 22 years and has a set of things that we need to protect and be beholden to.

Maddie: Great, so we’ve built the evidence, I think, for why climate driven disasters need durable capital. We know capital is definitely not durable, nor is it flowing freely right now to communities to deliver sustainable outcomes–and our definition of “communities” and what we mean there is something that’s evolving and we have a lot of work to do on. But can you clarify what it means when we say we’re restricted by the current DAF (donor advised fund) business structure, model, and compliance requirements?

Abby: Right now we’ve been safely cooking on this expanded vision, essentially focused on R&D (research & development) for what the future could be. And in doing so we’ve ultimately elevated our ambitions and we’re defining success outside of the current Network for Good mission of “unleashing generosity,” and what that means to help nonprofits raise more donations. I believe that’s a critical component of what the future requires. But as we start looking at new models, especially broadening the scope of where money is flowing (from whom, and to whom) we’re thinking across the capital stack and outside of just nonprofits.

So we’re considering organizations like B-Corps and fiscally sponsored orgs, or even what it might look like to bring durable capital directly to individuals. So when we start diving into what it means to design for the future, we’re starting to bump up against some constraints of what it means to be a 501(c)3 and the expansion of that mission. The idea of possibly creating what’s called UBI (unrelated business income), which can put your 501(c)3 at risk and is taxed at a higher rate. And even just expanding our programs. So we’ve been safe in this R&D land, but as we start thinking about truly launching programs or businesses or even new spin-outs, we need to tool ourselves to be a little bit more broad.

Maddie: So I imagine the restrictions you just mentioned about our current donor advised fund model, some of those are there for a reason and, I imagine, would be pretty challenging to change.

Abby: Yeah, and you know what we really don’t want to change them either. So our guiding principles as we think about how we go after this new strategic vision is that we need to recognize that the past 20 years, and operating a donor advised fund, is an absolute asset. It’s also a utility, and it needs to exist in this ecosystem in perpetuity. And we need to honor the governing rules of being a 501(c)3. That’s ultimately, when we think about changing the DAF, or even building programs that might sit outside of it, we really want to come at this from the perspective of “how do we protect what this organization has been for the past 20 years?”

Maddie: And a quick thought there–as you say, “our donor advised fund needs to exist in perpetuity,” I think that’s a conversation that’s raised plenty of its own debate in the field of donor advised funds. And I think just one piece that I’d flag, that’s unique and different about Network for Good’s donor advised fund, is that all of the donations when they come into Network for Good are directed to a nonprofit at the time of donation when they come in from a donor. So we don’t mean sitting here in perpetuity to hold on to or amass capital. It’s all going out the door immediately (or as quickly as our processes and verification and compliance steps will allow it to go out) to the nonprofits that a donor intended. So, in perpetuity, we just want to maintain our role as a vehicle that’s enabling that practice of generosity from individuals to nonprofits.

So given these challenges, Abby, what’s the next step here for Network for Good?

Abby: So first off, we have to acknowledge that we’ve elevated our ambitions. Second, continuing on the work that we’ve been doing, we have to interrogate the system for how money flows to the business of doing good today. Ultimately the current financial systems are not serving the most vulnerable communities. And they’re prioritizing short term outcomes. And you put that in the context of the next 20, 50, 100 years, and the climate crisis is creating a 10x multiplier across issues where traditional finance structures are going to fail us. Examples like insurance, mortgages, transportation, health–and the original mission of Network for Good, unleashing generosity, is certainly a part of the solution, but it’s not enough. To solve the massive and urgent challenges that face us as a society. So essentially, ultimately, what I’m suggesting is that we need to construct a new financial system where capital flows to sustainable outcomes and it’s important to acknowledge these outcomes are not things that are defined by us, but by communities served.

Maddie: And again, that’s a piece we’re continuing to figure out–what does that mean that an outcome is defined by a community served. And we have a lot of work still to do there and have engaged some partners to help us explore that, partners who have a lot more experience than we do.

And either way, a new financial system certainly sounds ambitious, difficult, and abstract. And maybe Network for Good is just one player in that. So, I maybe have no business referencing this when I haven’t actually finished reading the whole book, but: Marjorie Kelly’s book, Wealth Supremacy, just came out in which she talks about a next system that isn’t just improved capitalism, but something novel. So I think there are big questions to ask about scale and if this is part of a new economy or somewhere in between. But that’s a whole, bigger topic we’ll continue evaluating. And when I finish the book we can come back and have a more meaningful discussion–I know you’re reading it too, Abby. But in the meantime, I’m wondering if you can talk to me about what your vision is for this new financial system?

Abby: A system for financing sustainable outcomes doesn’t exist today. I’d argue it’s a disconnected group of investors, funds, philanthropists, across capital flowing to nonprofits, B-Corps, across the capital stack. And this gap in financial services means that capital just isn’t flowing as efficiently or effectively to organizations that are in the business of doing good. Especially compared to traditional markets of maximizing profit. So our new mission is to create a new financial system of durable capital that drives community aligned, sustainable outcomes. And there are four components that I think are critical to this financial system:

• One, we need to be big enough to matter.
• Two, we need to rapidly deploy innovative models that solve root cause problems–part of that sustainable outcomes piece.
• Three, organizations that are driving these sustainable outcomes need to be built to endure for 50–100 years.
• And four, communities-served need to drive the market.

So what does that mean for how we design ourselves and our organization to do this?

• So first, if we want to be big enough to matter, we, Network for Good, need to build our assets under management.
• It’s about being in that position of power if we want to, secondly, rapidly deploy innovative models that solve root cause problems. And I think we need to stand up a studio where we can incubate and found and fund early stage ideas that are big bets, big swings.
• Third, if we want organizations to drive sustainable outcomes to endure, to last forever, we need to think about how we can change the mechanics of how organizations build. And I think we can do this in a couple of ways. One, what’s a pathway to liquidity–whether that’s offering better financial services to nonprofits, or that could be thinking about revenue based financing as a way to help organizations prove out how they can sustain forever.
• And then four, communities-served, drive the market. We need to build a way to measure this, and then find a way to direct capital that’s aligned with that thesis. I’d say that’s the fuzziest. But it’s also probably the hardest and most critical for this new system to work.

So what this means for Network for Good is we’re moving to a holding company structure on top. That holding company is all about the vision of durable capital for sustainable outcomes. And the Network for Good donor advised fund, growing as a durable capital source for nonprofits by delivering critical infrastructure and financial services for nonprofits, is totally part of this vision. And then ultimately what else is underneath this holding company is we’re going to think about how we can fund, found, and/or buy companies that can deliver sustainable outcomes. So in essence, the holding company is a little bit of a test bed for what a new system for durable capital could look like.

Maddie: How would this holding company be structured? Why do we need a holding co structure for Network for Good?

Abby: So it’s going to be structured as a 501(c)3, but with this broader, expanded mission. It’s ultimately going to serve as the backbone for any novel way to bring durable capital to sustainable outcomes. And we did it this way first and foremost to protect the DAF, and how that operates today as a component of this ecosystem. This also avoids creating taxable activity that could impact how we operate today. As I mentioned before, there’s ultimately also way fewer constraints in the idea development and business opportunities. This gives us basically the ability to manage multiple spin outs and direct capital to meet the demands of what new models might require. And I also believe that this is going to maintain a common sense of purpose and connectedness between related entities. And it just gives a lot more flexibility for the future. It could even allow us to expand into things like advocacy and more systems-level levers that can get at what this new financial system could look like.

Maddie: And with those different kinds of levers or places in which the holding company could play, how are you thinking about measuring the success of this “HoldCo”?

Abby: Our goal over the next five years is to prove this out as a model for a way that a new financial system can deploy durable capital to sustainable outcomes. And essentially we want to 10X our assets under management from this new thesis.

Maddie: So assets under management, does that feel like the right measure of success?

Abby: Oh no, definitely not on its own. It has to be assets under management that are then going towards sustainable community outcomes. Which, as we’ve said, is still something we’re working to define. But we’re putting this first stake in the ground that, if we need to be big enough to matter, this is one of the ways that gets there and will prove to the existing market that this is a way that can work and can evolve how we fund things that are going to help the most people, especially the most underserved today.