Will Tech Startup Services Help – or Hurt – Fiscal Sponsorship?

When Amanda LaFleur, executive director of Massachusetts-based Nonprofit Organization for Philanthropic Initiatives (NOPI), came across Ribbon, a fintech company that promised to make running her organization more efficient, she says she felt “so excited and so relieved.”

As a fiscal sponsor, NOPI hosts around 40 projects – informal charitable initiatives, grassroots organizations, and nonprofits with or working towards 501(c)3 status. To support them all, NOPI was initially “cobbling together around 10 different platforms,” says LaFleur. Bookkeeping, bill submissions, bill payments, online banking, expenses and reimbursements, fundraising and donor management all ran on separate systems. 

“I worked really hard to find platforms that automatically integrated, but even then, it’s an imperfect system,” she says. 

Ribbon was one of many new tech platforms that offered to simplify things for fiscal sponsors by bringing everything under one roof. But, shortly after NOPI transferred all its projects onto the platform, problems emerged. 

“The technology wasn’t what was promised,” LaFleur recalls. Ribbon’s platform “felt not ready”, and when raising concerns with the company led nowhere, NOPI pulled out. The whole process “set our organization back by months and months and months.”

For her part, LaFleur acknowledges she may have jumped into a new platform too quickly. But experts worry that the painful lesson is not unique to this particular partnership. The risk, some say, is that entrepreneurial newcomers promising to ease the administrative burden of fiscal sponsorship underestimate its complexity. Getting things wrong can irrevocably harm sponsors – and the people and projects they support.

A flood of new tech solutions

Fiscal sponsors are growing in number and in influence. Just 100 collectively supported more than 12,000 projects and stewarded more than $3 billion in funding in 2023, according to research by Social Impact Commons, a nonprofit specializing in this field.  

Managing the backend services for tens of thousands of dynamic grassroots projects is no small feat. Technology plays a role, with many fiscal sponsors using traditional accounting and operation platforms like NetSuite and Bill.com.  

But in the past few years, a handful of tech startups have spotted this trend, and tried to respond by offering software and SaaS solutions for accounting, compliance and workflows, specifically for fiscal sponsors.

Those startups include Mazlo, which offers tools for budgeting, grant tracking, and project onboarding; Monkeypod, which supports Model C fiscal sponsorship with integrated fund accounting and workflow management; and Open Collective, which provides real-time financial tracking and public transparency for hosted groups.

Ribbon was another early entrant in the space, positioning itself as an all-in-one solution for fiscal sponsors before being acquired by Arabella Advisors in 2024. (Ribbon and Arabella Advisors did not respond to Proximate’s requests to comment.)

After decades of virtually zero specialist fiscal sponsorship technology, the arrival of new tech providers is noticeable, says Nathan Hewitt, who previously ran operations at Open Collective and who has recently created a new fiscal sponsor, Raft Foundation. “There’s [now] a big bunch of technology that’s focused on us. We’re not used to having to fend off or sift through the different options.”

High stakes of failure

Adam Huttler is co-founder of Monkeypod, which provides nonprofit software, including fiscal sponsorship services, to those running Model C programs. Before that, he founded and then ran Fractured Atlas from the 1990s, a fiscal sponsor specializing in arts and culture projects, also developing a customized tech platform to manage them.

Huttler’s unusual combination of expertise, across both nonprofits and technology, has given him the edge, he argues, and he questions whether many others in the market understand the field sufficiently to build tools “that are going to keep folks out of trouble.”

“I haven’t seen any [tech firms] that are truly coming from the nonprofit world and truly understand fiscal sponsorship. And that’s dangerous, frankly,” he says.

“I haven’t seen any [tech firms] that are truly coming from the nonprofit world and truly understand fiscal sponsorship. And that’s dangerous."

Huttler is especially skeptical of those bringing a classic tech “move fast and break things” mindset. “The stakes are too high and the domain is too complex for me to be comfortable leaving that to folks who don’t understand the domain super well. Building tools to manage highly complex, multi-regulator workflows and systems is just not really in the Silicon Valley DNA.”

One major concern is that startups will claim or suggest they can handle Model A sponsors when in reality they’re built for Model C. Model C is a simpler setup that centers around a regranting relationship; projects remain a separate entity from the fiscal sponsor, and the model typically runs on cash-based accounting. Meanwhile, Model A involves the project becoming part of the fiscal sponsor, and relies on the more complex system of accruals-based accounting.

Asta Petkeviciute, chief financial steward at Social Impact Commons, warns that financial and accounting systems targeting this more complex version will not meet accounting requirements if they’re not “built and tested by multiple accountants”, and if they do not incorporate accruals-based, balance sheet tracking. 

But others point to risks even with Model C sponsorship. This came up for NOPI: LaFleur says Ribbon’s technology was unable to deal with the reimbursable grants that NOPI manages on behalf of Model C projects. 

Hutter argues that, without expert knowledge, trying to support Model C can be riskier than supporting Model A. The separation between the sponsor and sponsored project means there are “a lot more traps” – for example, less oversight of the sponsored project’s activity could lead to the sponsor unintentionally breaking tax rules.

‍A costly service

There is also the question of cost. 

Fiscal sponsorship is a low-margin business, and wallets are getting tighter: many projects are seeing donations fall following the fundraising highs of the Covid-19 pandemic and with the current withdrawal of federal funds. When project revenues fall, that affects the sponsors hosting them too.

In fact, many sponsors are unclear on what these services are actually costing them, says Petkeviciute. While more fiscal sponsors are trying to invest in appropriate systems, often their current setup doesn’t allow a clear picture of the funds that belong to the fiscal sponsor, versus the portfolio of the funds managed on behalf of the projects.

Resource-stretched nonprofits often lack the capacity to deeply research the market. But even those who do their research can get caught out: subscription costs may spike unexpectedly once a nonprofit has migrated to the system and is reliant on it, says Petkeviciute, who has seen this happen.

In this squeezed environment, some, like Petkeviciute’s colleague Thaddeus Squire, are calling for a different approach. 

“Nonprofit or open-source solutions should be more widely available, so that the for-profit tech industry is not adding undue cost onto the sector,” says Squire. “Absent a nonprofit solution, more for-profit tech firms need to do what Salesforce used to do: donate licenses or offer them substantially below market to nonprofits.”  

Searching for solutions in an evolving industry

There are signs that this hope is becoming a reality – if only because the market demands it. Nathan Hewitt chose Open Collective for the Raft Foundation’s backend, pointing out that though it was previously VC-funded, it recently became a community-governed nonprofit.

“I’m a big believer in the commoning of everything, and that includes technology,” says Hewitt. “My hope for any of these [tech providers] is that they can chart a path to collective ownership down the line.” 

Meanwhile, Amanda LeFleur of NOPI has moved past her experience with Ribbon and is now slowly trying Mazlo, another fintech startup that promises to “empower nonprofits with the technology to maximize their ability to do good” – moving projects there one at a time and only if they’re ready. So far, LaFleur is happy with how it’s working. And she’s reassured by the involvement of experienced people in the company.

Among them is Andrew Schulman, the founder of Schulman Consulting, which hosts an online community for fiscal sponsor professionals. He had previously been approached by more than a dozen tech companies “who believed they had a fully-baked product that would solve some set of issues for the fiscal sponsorship sector – often before they’d spoken to a single fiscal sponsor,” he says.

Mazlo was the first company he felt comfortable with, in part because its founder has worked at nonprofits and has led a fiscally sponsored project, says Schulman, who also highlights the company’s customer-centric approach. 

But many fiscal sponsors are still searching for solutions. Among 86 fiscal sponsors polled by Social Impact Commons in 2023, almost half said they did not have adequate technology resources to support their projects.

And Petkeviciute warns that there is no perfect service. She advises fiscal sponsors to identify what they want to fix, in what order of priority, and then figure out which technologies could work for them. Find out what the product does not offer – because no one product can do everything, she points out – and consider what advantages you will lose by switching to a new system.

She also cautions against all-in-one solutions, which may require effort to set up and be complicated to leave. In fact, she is doubtful that all-in-one providers can ever handle all the needs of a fiscal sponsor, except small and early-stage ones: “Why would tech startups advertise that one solution could be the savior and address all functions of the most operationally complex nonprofits, when most often simpler nonprofits need multiple solutions to complete their operational needs?”

LaFleur’s advice is, above all, to talk to peers and existing clients of any platform under consideration. “Do your research on the leadership and who's actually involved,” she says.