Startups Venture

Nonprofit Tech Startups Are Neither Strange Nor Destined To Flame Out

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Following the drama at OpenAI this past week, it’s easy to get the impression that technology startups and nonprofit corporate structures make for a strange and messy combination.

In reality, however, tech-focused enterprises that fuse a startup mindset with nonprofit governance aren’t especially unusual. Prominent examples date back decades, including pioneering browser developer Mozilla and the ever-popular Wikipedia.

These days, nonprofits can tap into similar accelerator and seed-stage mentoring programs as their for-profit peers. For instance, famed accelerator Y Combinator began working with nonprofits in 2013 and typically includes a few in each new startup batch.

San Francisco-based accelerator Fast Forward, meanwhile, has scaled up over the past nine years by focusing exclusively on tech nonprofits.

“There’s a role for nonprofits to play in guiding the development of technology,” said Shannon Farley, Fast Forward co-founder and executive director.

While OpenAI may be a case study in dysfunctional board-management relations, other techie nonprofits have a more stable track record of scaling with nonprofit governance in place. Prominent examples, per Farley, include online learning provider Khan Academy, classroom funding site DonorsChoose, and socially conscious lending platform Kiva.

Typically, when it comes to boards, Farley sees nonprofit startups’ governance structure as driven by impact rather than profits or investment returns. Directors’ core responsibility is to define the impact they want to achieve and monitor progress toward that goal.

With this approach in mind, nonprofit startups are still starting up at a steady clip. This year, Fast Forward hosted its 10th startup cohort, featuring upstart nonprofits deploying tech in areas such as literacy tutoring, solar-powered fridges and peer support for young people in crisis.

Opportunity ahead

Looking ahead, Farley also envisions a growing role for AI-focused nonprofits, as she sees the technology providing “a massive opportunity for rethinking how nonprofits service their communities.” Potential use cases include bringing more kids to grade-level reading, extending health care to more people without access to doctors, and even improving air quality.

That said, for the world’s most prominent AI-focused startup governed by a nonprofit board, things haven’t been going  smoothly this past week. Hopefully we’ll see a return to stability ahead, however, with the company having reportedly reached an agreement under which co-founder Sam Altman will return as CEO amid a broad reshuffling of the board’s composition.

Even so, the public image of OpenAI has seen quite a shift from even a few weeks ago, when its unusual governance approach looked less likely to cause waves. The San Francisco company landed the largest startup investment sum of the year, in spite of its unusual structure as a capped-profit company governed by a nonprofit board.

Investors at the time seemed unperturbed by the company’s founding mission statement “to advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return.”

That was then. Attitudes changed following the board’s decision to oust Altman . While directors did not publicly articulate their rationale for the move in detail, the impetus can be traced at least in part to the sometimes conflicting demands of scaling fast, satisfying shareholders and upholding the stated mission.

Farley’s take is that: “OpenAI’s hybrid governance structure is inherently conflicted.” 

“There is tension between growth and social impact,” she said. “And the lure of capitalism is irresistible.”

Looking ahead, the hope is that OpenAI will be able to weather these tensions, and, with some new directors and guiderails in place, be poised to adhere to its original mission to develop AI for the benefit of humanity.

Illustration: Dom Guzman

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