CalNonprofits Annual Convention 2016


The CalNonprofits 2016 Annual Convention will take place at The California Endowment (1000 N. Alameda Street) in Los Angeles next week on Thursday, October 6. The Convention features Alicia Garza, Co-Founder of Black Lives Matter, as its keynote speaker.

This year’s theme, the Power of California Nonprofits, focuses on how to use our collective power to strengthen our ability to thrive as organizations and make California’s communities stronger.

The Convention also features an opening plenary delivered by CalNonprofits CEO Jan Masaoka on the state of the nonprofit sector and predictions for the future, a panel on nonprofit leaders winning public office, a debate on the right to know versus the right to privacy (I’ll be all ears for this), and several workshops covering a range of topics from disparities in nonprofit funding to overhead messaging.

I’m also looking forward to participating on a panel discussing Hot Topics to Keep Your Organization Out of Hot Water:

Get the straight scoop from the real deal: Tania Ibañez, the ranking attorney in charge of nonprofits at the California Attorney General’s office, and two of the smartest, best nonprofit attorneys around — Gene Takagi and Liz Bluestein — will let you in on the new and most important ways to stay out of trouble with the law. You’ll never get better information or a better place to ask your questions than this session, which will be moderated by nationally recognized attorney Rosemary Fei.


Rosemary Fei, Principal, Adler & Colvin (Moderator)
Tania Ibanez, Senior Assistant to the Attorney General of California
Gene Takagi, Managing Attorney, NEO Law Group
Elizabeth Bluestein, Vice President and General Counsel, Public Counsel


Nonprofit Tweets of the Week – 9/23/16

Business man's hand hiding money in pocket - Corruption and Fraud Concept

The Trump Foundation continues to be hot in the news and, if the reports are true, a lesson in how a private foundation cannot be governed and operated. Meanwhile, New York City hosted the Social Good Summit, the United Nations General Assembly, and the final Clinton Global Initiative Annual Meeting. Have a listen to Sam Cooke‘s Wonderful World (“don’t know much …”) while perusing our curated nonprofit tweets of the week:

  • Independent Sector: 78% of voters support a bigger role 4 charitable sector working w/ gov’t to produce solutions. #united4charity
  • Urban Institute: Report: What to know about state regulation & enforcement in the charitable sector
  • David Fahrenthold: “I represent 700 nonprofits a year & I’ve never encountered anything so brazen” Tax expert on @realdonaldtrump’s Fdn Washington Post
  • Charitable Reform: New Trump Tax Plan Caps Charitable Deductions via NonProfit Times.
  • Charitable Reform: The @HillaryClinton plan carves out char. ded. from 28% cap according to @TaxPolicyCenter: Alliance for Charitable Reform … @NonProfitTimes
  • Nonprofit Quarterly: Do you understand how money works in the nonprofit sector? Take this classic quiz to find out!  NPQ
  • Gene: Should I serve on this board? Great article by @ErinBradrick from BoardSource  #nonprofits
  • Nell Edgington: How can philanthropy be more responsive to those who need it most?  #nonprofit
  • Devex: 4 takeaways from #SocialGood Summit 2016: … #2030Now #GlobalGoals
  • Sara Wallace Beatty: Now that @ClintonGlobal is over, what’s next? See our piece on rethinking the #globaldev convening in SSIReview
  • Foundation Center – SF: Chan Zuckerberg Initiative Commit $3 Billion, Develop Plan Toward Tackling All Diseases By 2100 @sal19 via @Inc

The Power of Nonprofit Advocacy: Best Lobbying Resource Ever!


From Independent Sector –

Voter polling commissioned by Independent Sector has found that, across the political spectrum, American voters are overwhelmingly united in support of the charitable sector. The findings are summarized in a new report, “United for Charity.”


As the report title suggests, voters show a high degree of trust and value in the charitable community. In particular, voters show exceptionally strong bipartisan support for expanded incentives for charitable giving and increased collaboration between government and the charitable sector. For more info and the full report, visit


We invite you to use #United4Charity to join the conversation about these new findings on social media.

Highlights –

  • A strong majority of voters (78 percent) support a bigger role for the charitable sector in working with the federal government to produce more effective and efficient solutions to problems.
  • 70 percent of voters are more likely to vote for a candidate who supports policies that help the charitable sector become more involved in government policy making.
  • About 88 percent believe we should make it easier for people to deduct charitable contributions from their taxes.
  • An overwhelming majority (85 percent) believe charitable groups and nonprofits should operate under the same set of rules and regulations as everyone else in the policymaking space.
  • About 74 percent trust charities with their checkbooks over the federal government and want to see expanded access to charitable giving.

Tip –

Share this powerful 1-page infographic with your policymakers whenever lobbying on a bill, advocating for policy change, or otherwise seeking their attention. Help them understand the charitable sector, its influence, and its (often untapped) power.



20th Annual Western Conference on Tax-Exempt Organizations


The 20th annual Western Conference on Tax-Exempt Organizations (WCTEO) will take place at the Millennium Biltmore Hotel in downtown Los Angeles on December 1-2, 2016. The WCTEO has been my top go-to conference every year since starting NEO Law Group, and I’m particularly excited about this year, my first as a member of the planning committee. With a schedule that features panels led by some of the country’s top tax-law experts (no hyperbole!), I highly recommend the WCTEO to all of my professional colleagues serving or working in the nonprofit sector and am happy to talk with anybody considering attending. You can register here.

Some Highlights from the Schedule:

  • Exempt Organization Practice: A Twenty Year Retrospective – Marcus Owens (former Director of the IRS Exempt Organizations Division).
  • Current Developments – Bruce Hopkins
  • Investing in the Future: What Does Mission Have to Do with It? – Jeffrey R. Hom,  David A. Levitt
  • Funding Through Exploitation – The Life Cycle of Nonprofit IP and Other Desirable Assets – Ofer Lion,  Michael I. Sanders 
  • A Twenty Year Prospective – Exempt Organizations Through 2036 – Ofer Lion,  Alexander L. Reid,  Jean L. Tom,  Stephanie Wilkinson

In addition, there are sessions on tax compliance issues, property tax exemption, private foundations, charitable solicitations, charitable giving, accelerators and incubators, and international activities, and an update from the IRS and Treasury. I’m looking forward to moderating an informative and fun session on crowdfunding with panelists Jeanette Lodwig, Arthur M. Rieman, and Jean L. Tom.

More information to follow. I hope to see some readers of the Nonprofit Law Blog at the WCTEO. If you’re a first time attendee, please say hi and first round’s on me!


SOCAP16: Additional Thoughts and Highlights


SOCAP16, this year’s iteration of the premier social capital markets (SOCAP) conference hosted in San Francisco each year, reflected a growing maturity in the fields of social entrepreneurship and impact investing. The discussions emphasized the need for inclusion of those most impacted by the problems social entrepreneurs are trying to solve. They recognized the lack of domestic investments in communities of color. They noted that incremental change was insufficient to change the culture necessary for accomplishing broader, positive social impact. They moved away from preaching on the need to collect data to discussing what data needs to be collected and how. They identified equity as inherently an economic growth strategy. And they highlighted that philanthropy, while a key partner in impact innovation and an underutilized player in impact investing, is a product of power and privilege (and, as Stanford professor Rob Reich insightfully added, an exercise of power and reminder of privilege).

Jed Emerson, originator of the term “Blended Value” and Chief Impact Strategist with ImpactAssets, talked about framing impact investing as creating a new kind of value and not as sacrificing (or not sacrificing) financial return. He also questioned the purpose of capital. You can watch Emerson’s talk at the opening plenary here. His article, SOCAP16 And Beyond: A Community of Parts and Whole, reflecting on the evolution of the conference and the urgent need for action is both illuminating and inspiring:

As we move to scale our impact and continue to embrace the ongoing mainstreaming of our vision and practices, we need to create a truly big tent that may simultaneously hold all our various parts while also ensuring we’re all a part of the same gathering and overall movement committed to impact, equity and the effective deployment of diverse types of capital in pursuit of multiple returns.



Finally, as you move through the presentations and conversations to come, both here at SOCAP16 and at home in the months ahead, I remind us there is a unique and critical urgency to our getting on with the order of the day. Black men, women and children continue to be murdered in their own communities, going about their daily lives, driving cars and playing in front yards. Women around the world continue to be objects of abuse, trafficking and economic injustice. Animals and diverse species on our planet whose interests are wrongly deemed subservient to Homo Sapiens are in some cases directly exploited through industrial farming and in other cases increasingly tipping toward permanent extinction as a result not of natural processes but of the economic, cultural and related systems we have put in place and with which we dominate our world.

Matthew Weatherley-White, Managing Director of The CapROCK Group, suggested having ESG (environmental, social and governance) investing as the default from which investors would have to opt out if they wanted to broaden their investments to include companies that exploit workers and corrupt the market.

Jonathan Jenkins, CEO of Social Investment Business, observed in his excellent article SOCAP16 – views from a reformed conference cynic:

  • People are no longer asking how the metrics should fit mainstream expectations. People are asking why we should fit the mainstream expectations when many of those are entrenched to only consider risk and return, not impact?
  • Some people are even going full circle and questioning whether we have thought about impact (the “why”) enough, in our rush to create a market place (the “how”).

Further evidencing the growing importance of both SOCAP and social entrepreneurship, the New York Times noted in Social Entrepreneurs Say They Face Tough Hurdles but Making Headway:

  • Attendees at SOCAP said governments are promoting social entrepreneurship and schools are teaching it, while enterprises are finding fresh, creative ways to obtain credit and financing.
  • But nearly 60 percent of experts cited [in a Thomson Reuters Foundation poll of almost 900 social enterprise experts in the world’s 45 biggest economies] a lack of public understanding, access to investment and selling to governments as the biggest challenges that could hamper growth [of the social enterprise sector].

NEO Law Group’s Michele Berger chronicled her personal takeaways from SOCAP16 here.

Additional Resources

The Best Countries to be a Social Entrepreneur 2016 (Thompson Reuters Foundation)

Success for women entrepreneurs in poor countries means enlisting men: activists (Reuters)

Hub of Impact (Huffington Post)

Impact investors: will you accept these three dares? (Bold Social Ventures)


Nonprofit Tweets of the Week – 9/16/16

Washington DC Capitol dome detail on american flag background

I’m back in DC as dialogue about patriotism (prompted by Colin Kaepernick), the presidential election, and the foundations associated with the two party candidates heats up. Have a listen to The Clash’s Know Your Rights while perusing our curated nonprofit tweets of the week:

  • David Fahrenthold: NEW: How @realDonaldTrump re-tooled his charity so he could give other people’s $ away. Our deep dive into Trump Fdn WashPo
  • David Fahrenthold: NY AG opens investigation into @realDonaldTrump’s Foundation: my story with @mattzap. WashPo
  • David Fahrenthold: Report: after @realdonaldtrump bought 6-ft-tall portrait of himself w/ charity $, he had it shipped to NY golf club. WashPo
  • NYT Politics: The Clinton Foundation’s largest arm will spin off into an independent organization if Hillary Clinton is elected NY Times
  • Council of Nonprofits: #Collaborations can be messy 5 tips for busy #nonprofit leaders
  • La Piana Consulting: More Nonprofit (And Life) Lessons from STAR TREK
  • Gene: Ninth Circuit Upholds Upholds CA Ban on Sexual Orientation Conversion Therapy Against Religion Clauses Challenge Constitutional Law Prof Blog
  • Ellis Carter: When is a Contribution Not a Contribution? By Billy Minch, CPA #nonprofits
  • CompassPoint: New on our blog this week: Exploring Influence Without Authority. From @Proud_Smith: #nplead
  • Fast Co. Exist: Silicon Valley’s talent wars are killing vital community institutions: nonprofits



The Nonprofit Law Blog has been writing about SOCAP (Social Capital Markets) since 2010, and I am thrilled to be attending and covering the annual SOCAP conference this year.

SOCAP16 is gathering impact investors, social entrepreneurs, foundations, corporations, global nonprofits, and other valuable strangers all contributing to a vibrant marketplace for socially, environmentally and economically sustainable solutions.

SOCAP identifies itself as “a network of heart-centered investors, entrepreneurs, and social impact leaders who believe in an inclusive and socially responsible economy to address the world’s toughest challenges.” Its mission is “to create a platform where investors willing to put money into enterprises focused foremost on social return can meet the world’s most innovative entrepreneurs.” The SOCAP annual event, operated by Mission Hub LLC, a Certified B Corp, is the biggest of its type and has drawn more than 10,000 people.

SOCAP16 will highlight recurring themes from the community including:

  • Impact Investing
  • Meaning
  • Neighborhood Economics
  • Cities: Centers for Change
  • Inclusive Entrepreneurship
  • Clean Energy for All
  • Sustainable Food and Agriculture
  • Country Context

Below is a running list of highlights:


Opening Plenary

Presenters at Wednesday’s opening plenary session discussed the “how” and the “why” of social capital markets.

  • Impact At Scale – Nancy Pfund, Maya Chorengel, and David Kirkpatrick began with their journeys to scaling impact and considered how to continue the growth.
    • The vocabulary for objectively measuring impact is still emerging – Maya Chorengel
    • We have to be in this for the long haul, we are disrupting age-old industries – Nancy Pfund
    • “We need responsible stewards of capital who are committed to impact”- Maya Chorengel
    • As we look to the future, we have to ask ourselves: How do we drive policy change? How do we mentor and build the impact investing field more broadly? – David Kirkpatrick
  • Matthew Weatherley-White posed a question: what if the institutions who hold the world’s invested assets implemented ESG (Environmental, social and governance) factors into every phase of the investment process?
    • Weatherley-White suggested reframing the opt in/opt out choice: what would happen if investors were actually asked to opt in to investing in companies that exploit workers and corrupt the market, versus opting out of investing in sustainable and impactful funds?
    • Like organ donation, the prevailing view in countries that opt in is that donating organs is a move of extraordinary altruism; in opt out countries, it is seen as ordinary community behavior
    • Rather than asking investors to fight cognitive biases of opting in to contributing to socially and environmentally responsible capital markets, asking them to opt out would change the system irrevocably
  • Transformative Edge of Impact – Morgan Simon and Edward Dugger III
    • Markets are good at scaling things that are better, but better doesn’t mean fair – Morgan Simon
    • The goal of impact investing should be to create more value in communities than we take out in return
    • Impact investing is reinventing investing. How do we create the most powerful ripple effects that we can? How do we include the excluded? – Edward Dugger III
  • Jed Emerson (who has said, SOCAP is where Wall Street met Burning Man) talked about wanting to shift the focus from “how” (how to structure funds, how to measure impact, how to raise capital) to include the “why” (the purpose of capital)
    • The “why” question is a deeper, historical question that requires looking at the parts and the Whole
    • When the focus is only about the mechanics of impact investing, there is a risk of developing high functioning funds with limited impact
    • “You can’t have cheap impact. Intentionality is required”
  • When we put financial return above everything else, we’re all contributing to the world we’re trying to avoid and change. We need to do something radically different – Matt Stichcomb
    • If we want to change business, we need to change business education (who is teaching, and who is being taught)
    • Stichcomb has 6 principles of what it means to do good work. Good work.. honors nature; nourishes the whole human; invokes community; embodies integrity; strives great, not big; leaves room for the mystery.

Navigating Impact Investing: The Pursuit of Clarity and Simplicity

Debbie McCoy, Yasemin Lamy, Nick O’Donohoe, Giselle Leung, and Cathy Clark

  • For simplicity and clarity, investment teams need outcome orientation from investors. Investors sometimes do not have the “why” in mind when they choose to incorporate something other than risk and return into their investment portfolios, and can have a range of interests from broad to niche. – Debbie McCoy
  • Find lessons in past structures and unpack how these transactions came together. – Giselle Leung
  • Create patterns and simplify investment structures to core elements that others can replicate. – Cathy Clark
  • For Omidyar Network, the definition of impact is: what is the direct impact on that firm or organization’s beneficiaries? – Yasemin Lamy
  • For the Gates Foundation, impact management is more important that impact measurement. Beneficiary identification and governance are critical – Nick O’Donohoe

Impact Women Tell All

Cody Nystrom, Fran Seegull, Tasha Seitz, Johanna Posada, Nancy Pfund, and moderator Stephanie Nieman

  • Statistics show the gap between the large percentage of women who are asset owners and the small percentage of women who are investment firm partners.
  • When there are women investment professionals at investment firms, firms are 3x more likely to invest in women entrepreneurs.
  • There are more women impact investors than women who are traditional investors. Why? Is it a safer place to invest?
    • Panelists refuted. Impact investors have to hit returns like any other investor, but must optimize on two levels: returns and impact, which inherently makes the work harder.

Extinction or Extension? The Role of Corporations & INGOs in Social Enterprise

Ryan Johnson, Jitendra Kavathekar, Wendy Gonzales, Lewis Hower, Marilia Bezerra, and Kevin Connolly

  • Why should INGOs, large corporations, and social enterprises partner?
    • From a scaling perspective, partnership is critical – Kevin Connolly
    • Startups that use innovation and technology to solve problems for human beings need resources from large corporations, but also need INGOs in the field to implement their ideas.
    • Social enterprises can learn from INGOS and large corporations about the need for process.
  • In order to form meaningful partnerships, each side must get over themselves and their own agenda for the sake of coming together. Each side must be willing to experiment, innovate, and step out of their comfort zone. – Marilia Bezerra

Crowdfunding For Impact

Ken Nguyen, Eve Picker, Pitichoke Chulapamornsri, and John Katovich

  • Equity crowdfunding can help democratize investing, leveling the playing field for founders who don’t fit the mold. – Ken Nguyen
  • Municipal bonds are arguably the oldest impact investing instrument. Across the market, municipal bonds are low risk and the returns are high impact. The Golden Gate Bridge was built by municipal bonds. – Pitichoke Chulapamornsri
    • The high denomination of bonds and the opaque nature of the municipal bond market has made them traditionally inaccessible to many people.
  • Crowdfunding can and should be used not just for investment capital, but also for product marketing.

Additional Resources from or featuring Wednesday’s Speakers

Matthew Weatherley-White – The Most Fascinating Impact Investor You’ve Never Heard Of

Fran Seegull – Impact Investing: What Will It Take to Get to Scale?

Nick O’Donohoe – The Role of Big Society Capital in Growing Impact Investment

Ken Nguyen – New Impact, New Inclusion in Equity Crowdfunding


Opening Plenary

  • When you own the lens, when you own the story, when you own the power, you can tell your story better – Stephen Ozoigbo discussing the Hollywood in Focus Program
  • How does someone become the face of someone else’s cultural creation? – Devita Davison (Meet The Man Who Launched The Nashville Hot-Chicken Craze versus How Hot Chicken Really Happened)
  • We feel like what we’re doing at SOCAP isn’t political, but most people feel left out of the capital markets – Ross Baird
    • Women make up less than 5% and minorities less 1% of start-up investment
  • Deval Patrik and Jim Shelton discussed what’s next for social enterprise in education
    • “How can we transform the learning equation to empower teachers and students and improve outcomes?” – Jim Shelton
    • School desegregation was about asking children to do what adults didn’t want to do. But now, some schools are more segregated than ever. – Deval Patrik
    • Chan Zuckerberg Initiative on education: the problem has never been the kids. It’s been our inability to solve the problem. – Jim Shelton
    • Setting up a system so that the image of what success in schools looks like has clear benchmarks and transparency to the public—this is a great role for policy and government.
  • Toilet Board Coalition – business-led coalition partnering entrepreneurs, nonprofits, and government
    • 2.4 billion people are held back because of poor sanitation. Business models that deliver sanitation at scale should be supported and accelerated
    • For the next 300 million toilets installed – we need to make sure “they’re not dumb buckets, they’re smart sanitation” –
  • Rick Ridgeway, Patagonia
    • When you reduce energy, you save water, and cut back waste — you save money. You also reduce the risk of impact to the environment and harm to workers.
    • There is no business on a dead planet.
    • Don’t Buy This Jacket
  • 20% of the world does not have electricity to meet their basic needs – Dawn Lippert and Rachel Pritzker
    • The entire world is going to power, but will we burn up our planet? – Dawn Lippert

Eight Years Later: Impact Policy in the Obama Administration

Divya Kumaraiah, Rob Lalka, Mark Newberg, Jessica Yuen

  • “Impact” is a better defined concept than it was 8 years ago
  • There are now four different agencies that have “innovations funds”
  • Social impact bonds are intended to help scale high performing nonprofits.
  • The White House Office of Social Innovation (OSI) began to look at why foundations were apprehensive about granting/loaning to for-profit innovators and wanted to lower the cost of doing these transactions. OSI strived (and succeeded) to update examples in the outdated regs (Program Related Investments)
  • Standardizing PRIs and MRIs would encourage and help foundations to use them
  • State and local governments should not be overlooked with respect to impact policy

Sync and Swim: Demystifying Foundation Investors and Building the Two-Way Pipeline

Gayle Jennings-O’Byrne, John Duong, Melanie Audette, Sam Fankuchen

  • Startups should understand a foundation’s mission and how they fit before seeking funding
  • Alignment with a private foundation can give credibility to a social enterprise – John Duong
  • PRIs, as a financing tool, has not been flexed as much as it should – Gayle Jennings-O’Byrne
  • Ask yourself: how can you cultivate your network and relationships to get credible access to both investors and entrepreneurs?

Prize Philanthropy: Driving Social Change Through Contests

Phillip Denny, Juno Fitzpatrick, Sarah Koch, Ani Vallabhaneni

  • Early stage innovation competitions provide publicity to issues and connections to investors and subject matter experts – Juno Fitzpatrick
    • Critics of prize philanthropy say: “Ideas are easy but implementation is hard”; see Dump the Prizes
  • From a funders perspective, prizes and competition shed light on projects that wouldn’t otherwise be easily found – Sarah Koch
  • Student competition initiatives encourage young people to develop key entrepreneurial skills and build their networks – Phillip Denny

Am I an Entrepreneur? Challenging the Stereotypes

Kelechi Anyadiegwu, Tony Tolentino, Sheila Herrling, Monique Woodard

  • Statistics show that diverse companies are outperforming non-diverse companies
  • Traditional investors did not see the potential in Kelechi Anyadiegwu’s idea: How one 26-year-old turned $500 into $2 million online
  • Barriers to the diversity of entrepreneurs: gender bias, racial bias, homogeneity at the investor firms making funding decisions– Monique Woodard
  • While many startups fail, entrepreneurs of color have more pressure to succeed for the next person waiting behind them

Nonprofit Tweets of the Week – 9/9/16

Copley Square, Boston

I’m back in Boston for the fall. Have a listen to Boston band Aerosmith’s Dream On while perusing our curated nonprofit tweets of the week:

  • Washington Post: Liberal watchdog group to ask IRS to investigate Trump Foundation’s political gift
  • Peter Roskam: I’m holding a [House Ways and Means Oversight Subcommittee] hearing next Tuesday (9/13) on tax-exempt college and university endowments Announcement
  • Bridgespan Group: .@emmettcarson on young Silicon Valley donors & other forces in cutting-edge #philanthropy
  • Haas, Jr. Fund: From Values to Actions. VP of Programs, Sylvia Yee’s reflections on 23 yrs @ Haas, Jr. Fund.
  • L.A. Times: Black Lives Matter partners with charity in a sign of growth [Ed. That charity is San Francisco-based International Development Exchange (IDEX), soon to be known as Thousand Currents.]
  • ABA Journal: Chemerinsky: What will the presidential election mean for SCOTUS? [Ed. While charities cannot intervene in political campaigns, many may find civic engagement to be an effective means of advancing their missions. Read the series of posts from For Purpose Law Group – Part 4 is listed below.]
  • For Purpose Law Group: Political Activities and 501(c)(3)s: What’s Allowable, Part 4
  • Nonprofit Quarterly: Executives are expected to steer clear of voicing opinions in #elections—but what about board members? NPQ
  • Ashoka: I just published “Social Innovation: Let’s Re-Draw the Map” Medium

2016 ABA Business Law Section Annual Meeting

Boston, Massachusetts, USA Skyline at Fan Pier.

The American Bar Association (ABA) Business Law Section is holding its 2016 Annual Meeting in Boston on September 8-10. I’m looking forward to meeting with my colleagues in the Nonprofit Organizations Committee, attending the various programs, and expressing my appreciation as one of the recipients of the Committee’s Outstanding Nonprofit Lawyer Awards.

Accelerators and Incubators

The first program I attended was titled Accelerators and Incubators, Their Clients, and the Role of the Lawyer, described as follows:

The panel will discuss variations in accelerator and incubator ecosystems in various parts of the U.S. Additional topics covered will include securities law issues related to representing early stage companies and how lawyers can cost-effectively represent them. Ethics in attorney compensation and investing in your client will be discussed.

The program began with a discussion of the differences between accelerators and incubators, noting generally that accelerators provide support over a more limited duration (average of 15 weeks); select and work with a more limited group of cohorts (average of 7 portfolio companies); are privately owned and take an equity stake in their portfolio companies (unlike with most incubators, many of which are nonprofits); and appear to be associated with a higher success rate in terms of raising capital, gaining customer traction, and exerting a positive impact on regional entrepreneurial ecosystems.

Lawyers working with startups associated with accelerators and incubators are often asked to assist with company formation, governing documents, capital raises, and general contracting needs. Understanding securities laws is critical. According to panelist Sara Stock (great name!):

Registration is a very cumbersome, time consuming and expensive process. However, luckily, the Act contains exemptions from registration under Regulation D (17 CFR § 230.501 et seq.) Regulation D contains rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC. Securities offered under any of these exemptions are referred to as private placements. How to structure the private placement is critically important, because early stage companies often do not have the funds available for a full private placement memorandum. The attorney should evaluate the situation to determine if the Regulation D exception requirements rise to the level of necessitating a private placement memorandum, or, alternatively, is the company better served with a subscription package that includes items such as: (i) instructions for completion; (ii) disclaimers; (iii) subscription agreement; (iv) instruments for the raise (i.e. form of convertible note); (v) investment considerations; (vi) investor questionnaire; and (vii) company’s business plan, projections and sources and uses.

Some common misunderstandings result from a failure to recognize that: (1) notes (evidencing the sale of debt) and passive interests in a limited liability company are securities, which will require an exemption from registration; and (2) managers that sell securities may need to ensure they fall under an exemption from registration as a broker, which may require that they do not participate in selling an offering of securities for their company more than once every 12 months (challenging if there are multiple rounds of financing).

The program also covered several ethical issues facing attorneys that work with startups at accelerators or incubators, including those associated with: (1) serving on an advisory board or as a mentor; (2) becoming an officer or director of the company1; (3) taking equity or options as compensation; (4) investing in the company; and/or (5) working on a contingent fee.

Supplemental Resources

Handout (ABA Business Law Section 2016 Annual Meeting)

How Lawyers Can Add Value for Startups (Above the Law, 2015)

Summary of the Rule 3a4-1 Safe Harbor for Sales of Securities by Officers, Employees and other Associated Persons of the Issuer (Proskauer, 2012)

What’s a Nonprofit Accelerator Anyway? (Mission Capital)


I’m particularly intrigued by the program titled Chan-Zuckerberg & Friends: Using Philanthropocapitalism to Accomplish Charitable Goals: Will Foundations Become an Endangered Species? 

This program will discuss benefits and traps regarding alternatives to traditional foundations for accomplishing social good; in particular, using LLCs, other philanthropic ventures, and non-charitable tax-exempt entities. We will discuss how these structures avoid constraints imposed on 501 (c) (3) organizations, governance issues, political impacts, and charitable oversight by state Attorneys General.

I’ve previously written about the Chan-Zuckerberg Initiative on this blog here and here and can’t wait to hear the perspectives of the outstanding panelists: William Fournier (Caplin Drysdale), David Levitt (Adler Colvin), Sharon Lincoln (Foley Hoag), J. William Callison (Faegre Baker Daniels), and Will Fitzpatrick (Omidyar Network). Professor Philip Hackney (Louisiana State University) is moderating. I’ll provide some highlights below – stay tuned.

  • Private foundation restrictions like self-dealing and requirements of public disclosure have led to alternative ways of giving using taxable entities. However, private foundations still are very popular vehicles for charitable giving that provide substantial tax benefits to their founders/donors and a charitable mission lock on their assets after their death.
  • Taxable entities as vehicles for achieving social good may provide greater opportunities for donor engagement, flexibility (including in making investments), and earned income. And they may share common ground with nonprofits and be used to facilitate or promote microphilanthropy (e.g., crowdfunding).
  • Private foundations may have more flexibility in investments than some may think:
    • Program-related investments (PRIs). The primary purpose of a PRI is to accomplish one or more of the foundation’s 501(c)(3) exempt purposes (other than testing for public safety), production of income or appreciation of property is not a significant purpose, and influencing legislation or engaging in political campaign intervention is not a purpose.
    • Mission-related investments (MRIs). While an MRI is not currently defined by the Internal Revenue Code or Treasury Regulations, it is generally considered to be an investment for both a financial return and a social impact return (more specifically, one that advances the particular mission of the investor). IRS Notice 2015-62 generally provides that it’s not a lack of reasonable business care and prudence (and therefore not a jeopardizing investment under IRC 4944) merely because the private foundation managers consider the social impact return related to the foundation’s mission as well as the financial return the investment may produce in selecting an investment.
    • Excise tax on net investment income applies to income generated by both PRIs and MRIs. IRC 4940.
  • PRI and MRI rules:
    • PRIs (not MRIs) count toward the foundation’s mandatory distribution requirement, and PRIs (not MRIs) are not counted in the assets for purposes of determining the foundation’s 5% distribution requirement. IRC 4942.
    • Excess business holdings rules apply to MRIs (not PRIs). IRC 4943.
    • PRIs are exceptions to jeopardizing investments; MRIs are not (but see the discussion of IRS Notice 2015-62 above). IRC 4944.
    • The rules regarding taxable expenditures apply to PRIs, including the expenditure responsibility requirements. MRIs, on the other hand, are not subject to these requirements. IRC 4945.
  • Chan-Zuckerberg Initiative – still in its very early stages but with great flexibility, know little about its governance structure and internal obligations/restrictions created, know little about its exit strategy and how to avoid eventual estate taxes, entity discloses what it wants.
  • Omidyar Network – private foundation (grantmaking and PRIs) and taxable LLC (Series A and B investments), which pays for all of the expenses of both entities.
  • Public concern about philanthrocapitalism: no dedication of assets to charitable purposes beyond founder’s (or their heirs’) whims, no required transparency about use of funds.
  • Will we see new laws affecting taxable vehicles with a publicly announced social good purpose?
    • Perhaps nothing directly imposed on private taxable vehicles.
    • But likely to see continued incentives or allowances for social investments.
    • And may continue to see new laws related to deductions and solicitations.

Supplemental Resources

The birth of philanthrocapitalism (The Economist, 2006)

Using New Hybrid Legal Forms: Three Case Studies, Four Important Questions, and a Bunch of Analysis (Tax Analysts, 2012)

A Prediction for the Nonprofit Sector in 2015

Mark Zuckerberg and the Rise of Philanthrocapitalism (The New Yorker, 2015)


Nonprofit Tweets of the Week – 9/2/16


The past week the Internet went crazy over a possible extraterrestrial signal being investigated by the Search for Extraterrestrial Intelligence (SETI) even though noted it “probably isn’t aliens“; and we lost the great Gene Wilder (one of my two most favorite Genes). Have a listen to David Bowie‘s Space Oddity and Wilder’s Pure Imagination while perusing our curated nonprofit tweets of the week:

  • Inside Philanthropy: 7 Tips for Using Tax-Exempt “Charitable” Gifts to Get Your Candidates Elected: Never mind that nonsense that …
  • Stacy Palmer: Murky process for donations to @baltimorepolice doesn’t follow best practices, experts say. by Doug Donovan
  • Gene: Orlando nightclub shooting-Scams, waste loom after millions donated to charity East Bay Times #crowdfunding
  • National Council of Nonprofits: … Just updated 1 of our 2 our pages on fiscal sponsorship w/ this great resource! Go @ErinBradrick ! – [Ed. See Erin’s article on fiscal sponsorship published by the ABA here.]
  • La Piana Consulting: Federated Nonprofit Structures: Fixed or in Flux? – understanding national networks with local affiliates [PDF]
  • Council of Nonprofits: Successful executive director departures – the flip side of onboarding @BoardSource
  • Global Impact: ACHIEVING #SDGs & THE ROLE OF U.S. NONPROFITS – by @jacksonscott3 on @IndSector’s conf. blog
  • Charitable Reform: Judge: Citizens United Must Disclose Donor Information to NY via NY Times
  • Nonprofit Law: The plight of the overworked #nonprofit employee via The Atlantic
  • nptechblogs: ->@mashable: 5 global milestones that will get you ready for the 2016 Social Good Summit