Fiscal Sponsors 101

This webinar covers how to unlock 501(c)3 status using a fiscal sponsor. Join us for a fireside chat on working with fiscal sponsors to accomplish impact focused work. This webinar is ideal for for-profit businesses and mission driven startups who are interested in accessing grant funding from foundations and other groups that typically work with nonprofits. OpenGrants CEO, Sedale Turbovsky, and expert consultant, Justin Brezhnev, unpack the world of fiscal sponsorship and the amazing impact and opportunity that a fiscal sponsor can unlock.

In This 1-Hour Session, We Covered:

  • What is a fiscal sponsor?
  • How to find the right fiscal sponsor for your company
  • The realities of working with a fiscal sponsor (logistics, tax implications, ect.)

About the Speakers

Sedale Turbovsky, Co-Founder & CEO, OpenGrants
Sedale Turbovsky is the CEO and co-founder of OpenGrants, a venture-backed startup focused on building modern infrastructure for funding. He has been an entrepreneur since childhood. After honing his leadership skills as an outdoor guide in his younger years, he started his professional career as an independent consultant focused on delivering data products and digital strategies to enterprise clients in South America. He is experienced in independent grant writing and public/private partnerships at the highest level, having worked directly with OpenGrants’ current strategic partner, Momentum.

Justin Brezhnev, Founder & ED, Hacker Fund

Justin (aka “Brezh”) has served as the “hacker cat” day-to-day since 2014 and wrote the playbook on fiscal sponsorship for hackers. After launching Hacktech and LA Hacks while at UCLA, he built the coaching program at Major League Hacking that now serves over 65,000 hackers internationally, and then became one of the top hackathon organizers in the world through his time at Hacker Fund. He is a member of the Association of Fundraising Professionals and Grant Professionals Association, has raised millions of dollars as fundraising counsel for social enterprises, and was listed on Forbes 30 under 30 for his work in education.

Brezhnev has been running his nonprofit Hacker Fund in Los Angeles since 2014, pairing high school and middle school students with mentors at more than 150 companies including Apple, Google and Microsoft to solve coding problems. He has organized hackathons and mobilized mentors to reach more than 50,000 students in all 50 states, and partnered with LA Tech, a Los Angeles nonprofit, to provide mentors for its initiative to get 1,000 students internships in tech.

Read the Transcription

Please note, this transcription is automatically generated and may contain some spelling and contextual errors.

Sedale Turbovsky: all right, everybody. Welcome to fiscal sponsors 1 0 1 here. Really excited to have y’all here. We have an awesome guest today, Justin Brezhnev. We are going to be talking about how you can access all kinds of capital for incredible projects and all the awesome work that you’re all doing using fiscal sponsors.

For those of you who are here to learn about fiscal sponsors, you’re in the right spot. For anyone else who is not in the right spot, this is a great place to be. My name is Sedale Turbovsky. I’m the c e o here and co-founder of OpenGrants. And as we let people roll in in the door, just a few housekeeping things.

For everyone’s safety and comfort. We have things pretty locked down in these webinars, so you will be able to submit questions through the q and a tool. And we’re very excited to hear your questions. After this discussion, we will be opening up the the time for q and a. And so we’ll be diving into all your questions at that point.

But do feel free to drop those questions in at any time during our discussion. Once again, my name is Sedale Turbovsky. I’m the c e o here and co-founder of OpenGrants. We have the easy way [00:01:00] to win grant funding, and today we have an incredible guest, Justin Brezhnev from Hacker Fund. But you have you have quite the resume, you have quite the the presence and you’ve done some really cool things in this space.

Justin, super excited. Thank you for being here and tell people a little bit about yourself and what you do and why you are an authority in this space as well.

Justin Brezhnev: Thank you for having me. I’m excited to be here because I think this is a subject that unlocks so much capital for folks, especially founders that wanna do good in the world and think, how do I, figure out ways to use the money that we’ve already paid taxes on oftentimes, and it’s locked away in different, the Great Lakes of grants.

And so I gotta say, I fell into this. I we started Hacker Fund by teaching kids how to program. We were going school to school. and raising money to do hackathons. And then kids started building all these kinds of cool projects and Microsoft says, Hey, we want to give this 17 year old a bunch of money to go and start their own hackathon.

And they say, Hey, [00:02:00] I’m 17. Where do I put it? And so we think, wait a minute, this must be a thing. fell into what? What is fiscal sponsorship? And it’s a whole space is, billions of dollars in capital that is managed by fiscal sponsors. Legal innovation, , a bunch of lawyers and accountants came together many years ago, decades ago, Adler and Colvin and some of the leading lawyers in the space came together and thought about how do we create ways to do fiscal sponsorship, right?

Which is essentially ways to use the tax exempt capital for the purposes that, can help our society move things forward. And I, as I’ve been doing it with Hacker Fund, I fell into also what is professional fund. and I am a professional fundraiser that is through and through what I am by my, career track record.

But I didn’t realize professional fundraising was a career until rather recently. For many years of filing our nine 90 s for Hacker Fund, [00:03:00] I thought a professional fundraiser was an event. It’s actually a human, it’s the impact profession, and it’s pretty awesome because professional fundraisers are the folks.

Work with fiscal sponsors and their projects to go out and raise the amazing money, and now looking back, there was a, a foundation or a 5 0 1 that was working to get my family here, as refugees from the Soviet Union. And there was professional fundraisers like me that were writing the grants.

And now I, full circle, realizing where I am in the world, . So it is exciting to be doing what I’m doing. To be, at Hacker Fund doing fiscal sponsorship for folks who wanna do good.

Sedale Turbovsky: That’s amazing. I think, one of the things that I think is really exciting and for everyone who’s, on the, on the webinar listening, I’m gonna definitely want to dive into this, which is, you mentioned like there’s all this money, billions being managed by fiscal sponsors and alongside that, there’s people like Microsoft, but there’s also people like Schmidt Futures, there’s family officers, all these groups that deploy capital.

And I think frequently we think about. , grant funding as being [00:04:00] restricted to nonprofits, which is not true. However, there’s a lot of funding that is, really like the vehicle they’re looking for is to drop it into a nonprofit. And there’s a lot of reasons that you might use a fiscal sponsor, but let’s go, on a really, like a first principles basis.

Cuz when I always tell people I’m like, fiscal sponsor is a way to rent a 5 0 1 status. Which I don’t know if that’s actually a good description of it or not. So I’d love to hear from you like what’s like the definite, what is a fiscal sponsor?

Justin Brezhnev: Absolutely. Absolutely. In this country I’ve realized there’s only two kinds of entities and, using the term mis using the term n nonprofit is actually a little bit misleading and not the best way to describe what the organization does because, A lot of really good nonprofits should be making a profit if they are successfully managing themselves so that they could continue, doing good work.

There’s only two kinds of orgs. You’re either taxable or you’re tax exempt, and the government has, deemed. I believe it’s eight different tax exemptions, right? Charitable, educational, scientific, literary, et cetera, et cetera, right? Helping animals [00:05:00] those are the activities that if you do them in this country, in the United States, if you’re an entity doing them, you can win tax exempt capital.

You have to be tax exempt to do to win that money. And if you go to the taxable route, you go. Create Delaware C Corporation and you go and raise the money from Y Combinator and Techstars and then go out and try to raise a series A go that route. That’s a, that’s if you’re going the tactical route, but most folks don’t realize that as a founder, you don’t have to choose one or the other.

Through the powers of fiscal sponsorship, you can be a organization that is, incorporated to be a commercial enterprise, but you happen to want to do a project that does good in the world, right? And there is this tax exempt capital that is out there given by some government entity or a foundation that is incorporat.

Like a VC is incorporated to maximize the LP return. A foundation is incorporated to give out charitable capital because the founder of that org, or the [00:06:00] corporation that is founded that org needs the tax write up and they need to get rid of the money, and they have allocated it there. So by not bidding on that money, you’re actually leaving money on.

So an example of this is, hacker Fund, for example. We bid on grants all the time and, for our projects that bid through us. An example is the Honda Foundation and the Honda Corporation. Two of the two complete separate entities. One is taxable, one’s tax exempt. Both have pools of capital, and you could have bid on either one.

Both and we’ve bid on both and it because it’s two separate pools of capital. The one’s making a decision based on, the corporate goals that are corporate philanthropy. Maybe they’re trying to do a sponsorship or they’re trying to allocate money because it’s meeting certain goals that are in this entity, but then there’s a completely separate entity, the Honda Foundation, that is trying to grant out X amount of money for you to do good in the.

For a completely different set of goals, or maybe they’re related, but one are taxable goals, one are tax exempt [00:07:00] goals, and it’s just realizing that you as a. As an organization in this country are able to bid on all kinds of money and grants are not restricted to only 5 0 1 Yes, the grants that are for 5 0 1 three s are restricted for them.

And you’ll see this, there’s America’s seed fund. If you’re a technology company and you’re out there, doing some kind of research and there’s s research and because S P I. You can bid on that and you can be a commercial enterprise and the government wants you to be a commercial enterprise.

They ask you in the application, how will you make money , and so this is a beautiful thing and I’m glad that we could demystify the angles here, to see that, any organization could go after non-dilutive capital. It’s just about how you pitch, what you’re, And instead of, saying you are an organization that is trying to raise a million dollars because you just wanna raise a million dollars and have your equity shareholder value increase you are raising a million dollars cuz you wanna go see save the manatees.

Yeah. And your technology happens to do that.

Sedale Turbovsky: Exactly, and this is we, I come from working in, in climate quite a bit [00:08:00] and we’ve, had all these discussions and obviously climate’s not the only space you could be saving the manatees or, helping refugees what have you.

But there’s so many incredible tech companies we come across who are having these discussions. And one of the things that always drove me bonkers is I had, like founders would roll up and they’d say, Hey, , we’re doing all this cool thing, all these cool things, and we’re also doing this impact thing.

Should we just start a nonprofit? I’m like, no please don’t do that . That’s such a bad idea. And it’s so much work. I’m like, why would you do that when you know you have these great fiscal sponsor partners? And I think, one of the reasons I love Hacker Fund, of course is your kinda like tech impact focus.

But there’s other fiscal sponsors. Can you talk a bit about. What’s the right kind of fiscal sponsor? How do you choose a fiscal sponsor? Should everyone use the same one? What’s the calculus that founders should be making if they’re looking to access grant money for impact?

Justin Brezhnev: Absolutely. So it, it really depends on what kind of organization are you? Or if you even had an organization. When we started fiscal sponsorship, we were doing what’s called comprehensive fiscal sponsor. And comprehensive fiscal sponsorship specifically [00:09:00] is when you know folks come to you and they’re like, I don’t have an entity.

I haven’t incorporated anything, but I wanna do good in the world. And we’re like, okay, you’re a 17 year old wine or do a hackathon for your school and Microsoft is giving you money, you definitely can’t receive it. That makes sense. And there’s organizations like community Partner. Here in Los Angeles that specializes in that kind of fiscal sponsorship.

You don’t necessarily have an entity. And instead of doing all the incorporation paperwork, when you’re running a tax exempt org, it’s like running two organizations all at once. You have to maintain tax exempt status, which is its own beast, and then you have to actually do the program work of being in the trenches and helping society.

So those two are, you set yourself up for having to run your own organiz. So that’s why fiscal sponsorship is a this contractual relationship. It’s interesting you said it’s kinda like renting a fiscal sponsorship. In, in theory it looks like that because you are paying a fee to use the infrastructure that this entity is tax exempt entity is constantly keeping up to [00:10:00] date.

The piping is great, so you pump your water through it, but they take a fee. And depending on what kind of fiscal sponsorship they do, if it’s comprehensive, meaning you don’t have an entity and they’re legally liable for every move that you make, they’re gonna charge a higher fee. This is also the case when you see universities sponsoring the research.

They’re a fiscal sponsor for the research, and you’re wondering how all this is working. They take a percentage for their. , this is why we are also Hacker Funds Incorporated for research purposes. Technology research right now, especially in the artificial intelligence space folks are trying to figure out what are we doing with track D right now,

And so they wanna win some grants, right? And that can underwr and that can, through us, they can get some tax exempt dollars to underwrite the research that their company might be able to do. So that’s an example of the kind of fiscal sponsorship where, you don’t have an. But there’s six different types of fiscal sponsorship.

There’s six ways to do it, right? This is the book by . This is like the Bible for fiscal sponsorship. When I fell into fiscal sponsorship, I saw, I found this book, and then I went to a conference [00:11:00] for the National Network of fiscal sponsors. Met our hacker fund board chair, and I was like, oh my lord, this.

the place to be because money is just moving from government agency to entity and the fiscal sponsor, what it does is it legitimizes the structure. , it makes sense for the project that says, Hey, I wanna do this to poten. Like it’s almost like an the, like how an angel bets on a startup and says, Hey, let’s see if this is gonna be something cool because, if Y Combinator stamps this, you’d think that, okay, it’s probably gonna be something dope , in five years, the same way a fiscal sponsor stamps you and says, Hey, they’re gonna be tax compliance.

So if this government agency wires you a hundred Gs, they’re not gonna mismanage the funds because we’re the ones. Helping them manage this. And that’s one of the ways that’s model what’s called model A comprehensiveness, model A, B, C, all the way. A famous Model L is burning man, I’m into that, but a burning man Ha is a, is a, uses fiscal sponsorship.

So for the folks of the call that are stoked by Burning Man is all kinds of legal [00:12:00] nuances for why they use that. Happy to answer that at a future date. It’s in the book that I just showed. But the kind of fiscal sponsorship that I think is relevant to the folks here is. Called pre-approved grant fiscal sponsorship, and that’s model C.

So that’s when an entity exists and wants to do some kind of good in the world, some kind of charitable activities, some educational, scientific activities that fit within the rules of the IRS to be tax exempt. And so they sign a contract with the fiscal sponsor and through the fiscal sponsor, they have a restricted fund to which they can raise its money and they.

request that money. We as Hacker Fund pre-approve a project that you’re trying to do, a program, a list of activities with the budget attached to it. We pre-approve you to go out and receive grant funding and we give you our 5 0 1 to raise the funds. So when you apply for a grant to the government agency or the foundation who says, You need a 5 0 1 to apply, right?

You say, [00:13:00] Hey, we’re fiscally sponsored by Hacker Fund, or a other fiscal sponsor, like Fractured Atlas, which is the hack, which, was our biggest inspiration. They are, a fiscal sponsor for artists and you know how we fiscally sponsor technologists who want to do good in the world.

They, allow artists to provide amazing you. Output without having to worry about the output paperwork. It’s like they can fo focus on their installation and the art the same way that our hackers can focus on building whatever it is they’re building. No one has to file the paperwork except for us.

We seem to be That’s right. We love it. And that’s why we are what we are. And that’s, the relationship that is. I love that.

Sedale Turbovsky: Yeah. I think, it’s so cool. We talk a lot in these webinars about how founders could get more tactical about the capital they’re using and helping them be very strategic.

And I think, fiscal sponsors are an incredible strategic partner. And so to like. Rollback or maybe present a sort of TLDR on all of that is to say that if you have something strategic that you’re off to achieve and you have identified, or maybe you haven’t [00:14:00] quite identified, a grant, grant funding for it you can approach a fiscal sponsor who is aligned in that space.

And it sounds like you, you mentioned y’all. And you mentioned fractured Atlas. And they have these specific focuses, right? Like they have art. And I know, we work a bit with tides. The focus is on a different space, right? It’s there’s this whole ecosystem and it’s, there’s even a national conference apparently about fiscal sponsors that didn’t know about.

But if this is a really cool tool, For founders. And I do encourage you if you’re on the, if you’re on the line and you’re, you have more questions about this, please do use the q and a to an, throw any questions our way about fiscal sponsors. But you did talk about there’s an ecosystem.

There’s a lot of these folks out there.

Justin Brezhnev: Yeah. If you wanted to go and literally you’re like, I wanna do a documentary film. There’s a fiscal sponsor that specializes in. And that’s why we chose our niche. We were like, there’s no fiscal sponsor that’s really focused on hackathons and helping folks, contribute to open source and technology.

And we became the fiscal sponsor for hackers. Folks are from community partners are like, [00:15:00] This is very tech heavy hacker fund, right? When we see different projects that don’t fit our, mission, why we’re incorporated, that’s the whole thing is like they the fiscal sponsor has to find a project and can only fiscally sponsor a project that matches its mission, that it’s legally incorporated to do.

And that’s the legal innovation. It’s a lawyer, like, how do we make the code make sense so that it just aligns and the money just flows and the paperwork is.

Sedale Turbovsky: I imagine there’s also a risk component to that, right? Like you wouldn’t wanna take on a project that you don’t understand.

Justin Brezhnev: Exactly. Exactly. And that’s cuz we don’t know what we don’t know. And that we’re specialists and we build our executive committee that approves the projects with folks that can ask the right questions. And can really kick the tires to know that, we’re not sponsoring a lemon here that’s gonna potentially, get our fiscal sponsor.

Sorry, that’s gonna get our 5 0 1 jeopardize, the entire pyramid of mid falls.

Sedale Turbovsky: So let’s talk a little bit about, before we get into risk and how maybe to like best approach a fiscal sponsor to come on board and work with you. I do wanna touch base on, I imagine and [00:16:00] maybe this isn’t true, but I’ve found that in many industries you’ll have service providers that are good.

And there’s service providers that are bad and there are like red flags and things that you should avoid. Are there any any notes that you have for folks who are looking for a fiscal sponsor partner and that for the audience, we will post the links to the book as well as to the fiscal sponsor directory.

Are there any red flags as you’re like having discussions or trying to find the right partner and the red flags that people should look for, that maybe they should go another way if they see that pop up in, in a fiscal sponsors language or agreements?

Justin Brezhnev: Sure. I think the first red flag is if they’re not a member of the National Network of Fiscal sponsors and they clearly are not attending a lot of the meetings that are like talking about compliance and how do we navigate the space.

So I could tell you that much is if they’re not a member and they’re not in the directory, you should start scratching your head and thinking why? Or if they haven’t, you, Figured something out because this is where, we as an expert in the space, this is where we gather our knowledge from. This is where the folks that are, part of, a lot [00:17:00] of the committees that are on the irs charitable trust committees that, that, that are, guiding the.

The compliance thought. These are the folks that are showing up at the conferences and this is where, our attorneys, Neil Law Group and the other folks from Mather and Colvin, this is where they go. And they’re the ones that wrote the book. , if you’re not, if you don’t reference the book in, in any way when you’re, if they don’t the fiscal spots, it doesn’t reference the book in some way, that’s a red flag.

I think that, a lot of times, Tax exempt orgs think that fiscal sponsorship is something that it’s very easy to do just because they have a 5 0 1. Maybe you might find an organization that a founder in the space that says, oh, I have a 5 0 1. Maybe we could just be your fiscal sponsor, run from that because they are not, as a consultant also as separately from Hacker Fund, I have set up fiscal sponsors to run properly and have the safeguards and controls and a lot of that is, Having lots of meetings with lawyers and accountants and making sure that you have the right paperwork in, in place.

Anything this country can be accomplished by filing the right paperwork, but [00:18:00] you gotta know the paperwork in you file backwards and forward that you could offer that service. I think also domain expertise so that folks can, you can feel safe in a fiscal sponsor’s home because you are joining a home, a portfolio.

There are other fiscal sponsor fiscal sponsorees in that fiscal sponsor home and it’s important to, have cross pollination and in hacker fund. . It’s amazing here because a lot of our projects can help each other and they’re all in the technology space because de facto they have to be because we are a hacker fund.

I think that’s an important thing. When you do choose a home. In terms of compliance I think it’s wise for you to, search their website and see what other projects they’ve fiscally sponsored in the past and what kinds of success and track records they’ve had and what kind of funding they’ve dealt with, what kind of things they’ve bid on.

If you’re a fiscal spon, if you’re a project that’s gonna potentially bid for a grant from the Department of Energy, Department of Labor, you better hope that fiscal [00:19:00] sponsor has dealt with the paperwork for that so that they’re not trying to build the parachute or the plate on the way down.

Whichever one you’re building on the way down, it makes it jeopardizes the entire legitimacy of your project that may, may actually be more legitimate than the fiscal sponsor itself. And that is terrifying. .

Sedale Turbovsky: Yes. No, a hundred percent. And I think, it is fair to note that. There, there are, just in grant funding inherently there are a host of like compliance and regulatory things that we’ve talked about before.

But those are things you wanna be aware of and if you’re gonna work with a fiscal sponsor it, it further it adds a level of complexity, like a layer. It’s an additional relationship and it is a really cool tool, but it also adds this layer of complexity. And so we wanna talk a little bit.

Like how you bring that up out, like a lot of.

To like kinda present them, see they’ll, work with you. I’ve [00:20:00] seen others who just are a little more open and accessible, but, what are your, what kind of things should a founder be bringing to the table? Do you just call up a fiscal sponsor and say, Hey, we’re doing this thing let’s make it happen.

Is it, what things should you have prepared when you’re, reaching out and trying to build that relationship initially?

Justin Brezhnev: I would say that applying for a fiscal sponsor is very similar to applying for a grant because they’re going to ask you the same questions. And if you prepare to apply for a fiscal sponsor the same way you apply for a grant, for folks here who haven’t applied for a grant, it’s like a catch 22.

How do I apply at all? ? Yeah. So let me to boil it down. I would say that the most important thing to have. Is this mindset of you’re approaching it not like a startup founder where you’re having a return you’re a startup founder, but not like a startup founder creating a taxable entity where you have to provide a return to shareholders.

Let me qualify that. You have to look at it like a social scientist. And you look at what you’re doing as a cert, a set of outcomes, and you have to measure for them in a very particular way. And if. Can say that we are this [00:21:00] organization, Corporation that it, has raised a bunch of capital to do this.

But we want to do this specific good in the world that has this budget expectation attached to it, this budget narrative, right? We need $600,000 to do this over the span of two years to deploy these software engineers to be able to build out these features, to roll it out for this group of people in this impact zone, right?

And then you measure all of that over the span. A year or two and you check back in and say, this is how the dollars are spent. This is the outcome that we achieved. This is the methodology. Here’s how we were successful, here’s how we weren’t successful. And so you approach it with the sci, approach it with the scientific method, and you create the scientific method lens for your capital.

And I think. is, how to, really approach fiscal sponsorship in a way where you know, it’s accessible to founders and they can understand what you’re actually doing. You’re if you raise capital, you have to spend that capital, equity raised, equity financing, right?

That money’s gonna run out too, right? [00:22:00] So if you can raise grant money, to extend your runway of non-dilutive capital because you commit to these goals, these outcomes, when you’re trying. Do something in the world where your technology that you’re building happens to apply, right? You’re building a piece of software and you’re like, wait, what?

This tool that I built could actually help more people get registered to vote. The government’s trying to do that. , they have money. There’s foundations trying to allocate money to help people to do that, and you just built this. But if you tie, this lens of a scientific method where you’re gonna have a measurable.

Through the outputs, in this community and a set of people, not necessarily we wanna raise a million dollars so that we have a return of 10 million. It’s we want to use a million so that we could serve this group or create this kind of a delta in this environment.

Sedale Turbovsky: Yeah, no, I love that and I, we talk.

[00:23:00] Throughout this process of fundraising on both sides, it’s all about incentives, alignment, right? And the incentives in the impact space are just a different set than what you’re gonna find from investors. It’s exactly what you’re saying. It’s we want to tell a story with, to our LPs about, returns and.

and capital and revenue. But we wanna tell a story over here about, voters registered or carbon captured or, for, and I think one, I mentioned this earlier, but one of the really exciting things and why I was excited to kick off the year with this discussion with you, Justin, is there are.

Just so there’s so much money coming down from the government for climate tech and for mobility and economic development. If you’re doing anything in those spaces, housing, like just across the board, it is, it’s incredible the opportunities that are being presented and we had this kind of double effect that the other thing that’s happening right now that we’re seeing, , there’s a discussion that like, there might be a recession and I, I don’t know I’m not an [00:24:00] economist.

I don’t, I don’t know. I’m, we’ll see what happens. But it does seem like this is a great resource if you happen to be raising capital and you’re having a hard time as a founder, but you you’re creating an impact in the world on top of, building cool tech. This is a great place because it’s, it is under accessed.

There’s a lot of there’s a lot of people who leave money on the. And as you get savvy as a founder and continue innovate around your capital stack, this is an incredible opportunity. So I’m really excited to unpack a bit more here. But, we’ve talked about what fiscal sponsorship is and what you can accomplish with it.

Once again, please, if you do have any questions, throw those in the q and And we’ll start getting to those by the way really shortly here. But the other aspect of this that I just wondered if you had some insights into is like, when, like what kind of risk should the founders be managing on their side?

Any like kind of pitfalls or thoughts on that front of what kind of risk does this present to your company? What sort of things should founders be managing for on their side of the equation?

Justin Brezhnev: Absolutely. Absolutely. Just [00:25:00] to before, before we hop into this, I just wanna just wrap up the thought about the government capital that’s out there.

The Chips and Signs Act, the Inflation Reduction Act. If you read the bills, if you read the bills and you saw how much is allocated, You can bid on those grants and it is bonkers because some of it’s restricted to 5 0 1 some of it isn’t. Separately, you should find yourself a good grant professional who can help you apply for all of the buffet

It’s like filet next to the Danka salmon you’ve seen . It’s. I definitely think that there is beautiful opportunities for folks there and it’s all, it’s capital that you’ve already paid taxes on. If you pay your taxes because it’s been allocated years ago, , that now is getting rolled out.

That’s how the government works. If you’re bidding on money now, applications now is for the rollout in a year from now. Your votes and your dollars are now right there in this pool of capital. So it’s it’s just [00:26:00] sad if you don’t try to bid on that money that you already paid for.

Remind me the question that we’re hopping into right now.

Sedale Turbovsky: Just like any any risk management that founders should be doing on their side, like what’s their exposure to their company working with a fiscal sponsor? Absolutely.

Justin Brezhnev: Biggest exposure for you is the co-mingling of funds.

So you have to understand that you are receiving, as I mentioned, there’s two kinds of cap. There’s two kinds of money taxable and tax exempt you are receiving both in this situation because you are creating a contractual relationship and that tax exempt capital has. You can’t just go and go to The Bahamas on, government’s money and misallocated, and now you know, the fiscal sponsor’s gonna look at you and say, Hey, we have this variance power and we’re gonna cut it.

So that the irs, when they come looking at us saying, what did you do? We’re like we’re doing our best. They just have to, they’re misusing the funds. So I think the most important thing for you, as a, as an organization that. For you the folks that are here on the call that, that have an entity that has commitments to shareholders, right?

[00:27:00] It’s the separation of church and state here, and understanding that, you have two kinds of capital. You cannot commingle them. You create separate bank accounts. Proper reporting. Where you can, and as a founder is you think that, you gotta move fast and break things and you can just ship it.

That doesn’t, that, that works with software because you can iterate, but that doesn’t work with legal code because if you’re just shipping documents and thinking that you can just legal zoom your way through fiscal sponsor. You will fall into so many nightmares of potential misuses of capital that, it’s just not advantageous for you to even explore this route.

This is for the founders that, wanna play by a specific playbook that if you know how to jump, you will jump through the hoops and win the money. It’s just knowing that like you have. Like people complain. Oh, so much paperwork. You want the million dollars and not have to pay taxes on it like that.

That’s what you have to be able to walk through. And the fiscal [00:28:00] sponsor, lowers that activation energy. It makes it a fun experience, and doesn’t make it as brutal. And we demystify all this nightmare of paperwork, and ensure that. When the government calls and says, Hey, we have all these forms you have to fill out, the founder doesn’t feel like, wait a minute, what did I sign up for?

Managing the government capitalist its own business too. , that’s why. , this sponsor exists. You We’re here with you as throughout the whole life cycle because the life cycle doesn’t end when you receive the money. It’s when you report on what you did with the money . That’s the step that I think founders miss, is the compliance step is being set up to not only the grant funding ready to apply, but grant funding ready once you receive it and be compliant and as a sponsoree as well.

I think this understanding that the founder has to have strong relationship with the fiscal sponsor because it’s beyond just like them buying shares in your company. And, we’re down to receive an email newsletter and say, Hey, this is how we did . This is our growth curve . [00:29:00] But this is the, this is a tax exempt status that.

Bet on your organization and we don’t bet on it on a return. But betting on the fact that you’re gonna use it compliantly to do good in the world. So it’s a different kind of a bet. So the expectation from the founders is that they take it seriously, they , and fiscal sponsors have different ways of charging.

We’re a fiscal sponsor that’s, for the Europeans in in the house. No cure, no. It’s, we take a fee when you bring in the money . That’s a privilege to be a fiscal spa seed because you are deemed tax exempt by an org.

Sedale Turbovsky: That’s awesome. Yeah. Thank you for that. I think, on the subject of the , the non-dilutive money and all the hoops I was just at a conference and there was a d OE official who was, he is answering questions about this v there’s a very long significant application process for one of their programs.

But you are asking you’re accessing a hundred million a hundred. Million dollars and someone was complaining. They were like, it takes 200 hours. He’s yes, but it’s a hundred million dollars.

Justin Brezhnev: There was a grant I saw yesterday from the California, I believe it was like the State Department forget which agency it was, and there was like $18 million [00:30:00] grant.

That’s like a series A. This is an $18 million grant. That did not cost you any percentage of your company, no shares. It just cost you the paperwork. That a fiscal sponsor can help you with. And you just got 18 million to go and do everything that you wanted to do, , and you’re like, why am I, why are you complaining when you’re standing in line?

And that’s, you know, as a fiscal sponsor, we try to, be the coach and it’s like you gotta do 15 more pushups. You got this.

Sedale Turbovsky: Yep, exactly. No, I love this. There’s some great there’s some great questions in here in the qa. I’d love to dive into these for a bit and then we can circle back if there’s, if we run out and, for those on the for those on the line listening.

Thank you so much for being here, and please do drop in some questions. But I’m gonna just we’ll just tackle these in no particular order, but. One of the questions, does personal credit affect grants? I, generally speaking, it does not in my experience. And Justin’s also saying no here.

Justin Brezhnev: Depends on what kind of grant you’re applying for. Maybe it’s a grant for folks who are trying to rebuild their [00:31:00] credit so that credit score actually will apply because you’ll have with all grants, it really depends how you, how they cut the cake for what their qualifications are.

But it really depends..

Sedale Turbovsky: Good answer. Justin, this is a great one for you because it’s about do you have a website that people can visit? Like how do folks get in touch with with you?

Justin Brezhnev: Absolutely. is our website.

I just throw it through it in the chat. Hopefully folks can see it. If not you could probably share it afterwards. But hacker. Check us out. That is how we can help. And also, if you’re interested in seeing other fiscal sponsors and what they do, the fiscal sponsorship directory I believe somebody may have posted it in the chat as well.

So I would definitely say take a peek at that directory. You’re gonna be in good hands, .

Sedale Turbovsky: Yes. Awesome. And I’ll throw this in the chat for everyone. Let’s see here. Yeah, and we will we will email out all of this stuff to folks as well. So please do. Keep an eye out for that after this webinar we’ll email out all these links and resources.

So question, like a very specific question here. And I think [00:32:00] this applies though from a first principles basis. So there’s a company, they’re testing a carbon capture technology and they would like to know like, how do they proceed with fiscal sponsorship? So can we talk, can you talk through like kind of steps logistics wise?

So I’m a startup, I’m working on this. What’s the first thing I do to go find a fiscal sponsor? And then how do I move that relationship forward to, potentially actual sponsorship?

Justin Brezhnev: Absolutely. So I would say that the first step is to dissect like we’re, you know what you are doing.

And think, okay, what here is grant fundable, right? How do we wanna cut the cake? Who are we serving? How are we doing? , are there grants that are trying to achieve outcomes where we are the best method and the best scientists in the room because the grant funders want to fund the best scientists in the room because they, when I say scientists, it’s just like people approaching their solution from a scientific perspective.

Like you could be engineering something that’s not related to science , right? But you are approaching it like a sci like a scientist, where you are [00:33:00] measuring outcomes. I think the first step when you’re applying is to figure out, or when you’re looking for a fiscal sponsors to first figure out what is fiscally, is what’s grant fundable in your project, what could you use Non-dilutive capital.

To fund that has a charitable, educational, scientific, literary purpose that fits, what the IRS says is a tax exempt activity because that is gonna be the argument you’re gonna have to make to the fiscal sponsor for why they should fiscally sponsor you for these set of activities. So if you are, building a piece of technology, And, you’re trying to serve, a community in South LA for example, and you want to apply for a grant from the California Community Foundation that is specifically for helping disadvantaged youth in a community that hasn’t gotten access to different resources.

You then figure out like, how much does it cost to deploy our technology to this group of people? Or how much does it cost to create something that makes it more accessible? What is the grant fundable thing? Is it a capacity building service that we’re doing? Are we increasing the [00:34:00] capacity of the humans in the area?

Are we improving a building right, with our technology and making it safer? What is that cost to create that? , you’re not thinking about it from a return aspect, you’re thinking of it from an output standpoint because the organization that has funding wants to see the output. So then you would approach, the fiscal sponsor in the directory and say, Hey, this is my project.

are this entity and we want to deploy our technology or build a piece of technology that does this. It takes a million dollars for us to do. And it’s gonna, we our prospective budget, you don’t have to have the money already raised to go to a fiscal sponsor.

That’s the beautiful thing, is you tell them, what do you want to achieve in the world? Our business as a fiscal sponsor is to find change makers and say, Hey, instead of building tinder for dogs, you could build Tinder for homeless shelter dogs. And you go and try to save the world here,

And that is what our vested interest is. That’s where we get our 10 to 15% is seeing you succeed, . When you go to a fiscal sponsor, they want you to dream big , what’s the [00:35:00] scale of your dreams, right? And your company and go to your team and say, Hey, this is what we need the money to do.

And when you bid on, when you go to a fiscal sponsor and you apply and tell ’em how much money you wanna attach to that. , they’re going to assess you. Can you accomplish it? , are you the best scientist in the room to accomplish this set of, objectives? And that’s the same lens that a granter is gonna look at, or from a foundation at the private level, or the foundation at the, government level.

They’re gonna have a set of criteria, the way that you have a five paragraph essay in your English class and your English teacher is like, is this a five or a four or 3, 2, 1, , right? And then you have multiple graders that are humans just like us, making a decision of whether this is, whether your organization is the best group of people to accomplish the outcomes that they wanna.

And I think that when you’re preparing to find a fiscal sponsor, when you find one in the directory, it’s mission alignment first and foremost. Because you want a fiscal sponsor to understand what it is you’re trying to achieve. That’s why hackers come [00:36:00] to us. Technologists come to us, we understand.

What they’re trying to achieve here. They’re like, we need to order stuff. We need electronics to come here. Now , we’re like, we get it. Ships and Science Act understood. We need to go make some orders. We’re gonna, you need storage units. I understand. For us, hacking it’s fascinating because many years ago it’s people would.

organizations that we work with, school districts, hacker Fund. Are you from terrorist organization? Now they’re like, hacker Fund. Teach our children how to code. Teach them how to hack, please. We understand. It’s about having that rapport with your fiscal sponsor also , because you are, joining a family.

It’s like having investors on your cap table that are more than just investors. They’re with you every step of the way and the life cycle of your tax exempt project, and that’s how you got to look at it constantly is we are an entity that’s doing a tax exempt project. And we have, to make sure that we stick to that project.

And that, in this example for the question is if you are, [00:37:00] trying to do anything with, reduction of some kind of an element in the ecosystem you, how do you measure it? And the funders are going to want to know more than, here’s how many dollars we buy brought into the company because of your dollars.

No. It’s can you actually show us that you. In the environment, what you said you do and how do you measure and if you are successful, awesome. And if you weren’t successful, that doesn’t mean that we’re not gonna fund you next year. It means that can you tell us why you weren’t successful so you could fix it , so that if we give you maybe a little bit more money, you can achieve it.

And so that’s the approach to take I think for founders when they’re app, when they’re looking at their projects, of looking at their companies and thinking, what here is potentially a fiscally sponsored project.

Sedale Turbovsky: That’s awesome. No great outline of the logistical and and also the mental approach to bringing that partner on.

And I think it is important as I been mentioned a few times, I just wanna pi like underline. This is your fiscal sponsor is a partner. They’re going to be, helping you e execute on the strategic thing. As Justin mentioned, you [00:38:00] don’t need to have a grant identified.

To approach them. You just need to have the project like, more and more.

Justin Brezhnev: So helps. It helps to have a great identified one, what is out there for you. And two you came to play. That’s awesome. We’re like, all right, they’re already bringing their first potential kill. Let’s go.

Sedale Turbovsky: Couple of couple of questions around cost structure and how that gets paid out. So there’s two questions here that I think are nice, like related themes. One is can a fiscal sponsor be paid for be paid from the grant award? And can you share how much founders should expect to pay a fiscal sponsor?

Justin Brezhnev: So a fiscal sponsor is not necessarily paid from the grant award because the award is restricted to what you have to do. , but the fiscal sponsor by nature has to manage that money. So when it goes to the books of the fiscal sponsor, there is a management fee. And oftentimes, this is not something you get me like by, [00:39:00] if the application is asking for a fiscal sponsor, potentially, and then the dropdown menu, they’re gonna say oh, when you’re applying for grants like you.

Are you a standalone 5 0 1 Do you have a fiscal sponsor? Oftentimes that’ll be a box. If they’re asking that question, they know that a fiscal sponsor is taking a fee. You normally, the grant funding itself the fee for the fiscal sponsor is built in, so it’s if you win a million dollars, you know the fiscal sponsor takes 10.

For example, and that is their fee. But on the books, when they’re, turning around to the irs, turning around to the funder, they show how the money came in. But when you are, when you’re raising like a million dollars for your project, you know that funding that’s coming in, you have, container.

And from that container, the fiscal sponsor takes its fee. So if there’s a grant that might be restricted completely and they say no fiscal sponsor and which I have not seen, but I have heard all kinds of wild things covered. It does, happen. I’ve seen those every [00:40:00] once in a while.

There’s some, it’s so nuanced like we’ve had to literally explain what fiscal sponsorship is to foundations, but it’s it’s rare, but it happens. And that’s why there is a national network of fiscal sponsor.

That’s why I mentioned earlier, like if your fiscal sponsor’s not part of the network, they probably haven’t experienced, but we’re talking about right now , which is that compost compliance, nightmare. . And so I think that there is, there’s this expectation where, when you are raising, when you’re raising funding, there is this container that, the fiscal sponsor draws its fee from.

And you are, getting a budget approved. So you know that capital that’s left there after the fiscal sponsor takes its fees. Say it’s, 10% of a million dollars, that 900 Gs, , you have to raise that 900 Gs for whatever project it is. If you’ve paid off your fee already, from other capital coming in.

The, it’s, how it works is the money is made. It’s like a transaction fee. It’s like Stripe, right? So it’s like we as the fiscal sponsor, are allowed to do this because we, that’s why we have to approve you as a [00:41:00] project that’s on our books because we’re the tax ID number that is.

When you are applying for the grant, right? And so when the a hundred thousand dollars comes in, it comes in into our books, and then you request it. So that’s why we pre-approve you for potentially receiving a grant because you haven’t won them necessarily yet. When you say, we wanna help, refugees from this country, awesome, , how much is it gonna cost you to do that?

And if you raise the money we take with a hacker fund or a fiscal sponsor of this nature takes it, right? And that you go out and go do the good in the world. There’s a fee. Fees can vary depending on the size of the fiscal sponsor, what they offer. I’ve seen things as low as 7% as high as like what universities do, which is in the high double digits.

Yeah. , I’ve, stand what I’ve seen consistently across the board is some actually, I’ll have more data for you once the national network of fiscal sponsor field scan is done. We’re so where organization takes it seriously. We have a scientific study field scan that we are all a part [00:42:00] of to understand, what the dynamics of fiscal sponsorship is.

But I’ve seen like you. Model A when you don’t have an entity, could be something like 12 to 15% because they’re managing also your payroll and all their books and legal liabilities, everything is shared. Something like pre-approved grant fiscal sponsorship, it could be like seven to 10% where they’re just regranting the money.

And so it really depends on what they’re doing for you. At Hacker Fund, we are a lot more hands-on because it’s technology and, we deploy volunteers who can help you with your code, and we also help you with some, grant support services and figure out how to actually write your grants because I, as a professional fundraiser and our board chair.

Grant teams that have, bid on big government grants, we want, we, we can offer that capacity building service, and help you, in your corner. Some fiscal sponsors are, charge their fee and all they do is accounting and make sure you’re compliant and it’s up to you to go out and raise the money.

They, you have a dashboard log in. You’re good to go off the races, but we are a [00:43:00] little more hands on. We’re, we’re the roll up your sleeves fiscal sponsor. We take it a little more seriously. We’re like the angel , that comes in, is we wanna see this become apple , good apple for have a more tax exempt focus of saving the manatees and helping the veterans.

Sedale Turbovsky: That’s beautiful. No I love this space so much, and I think, unfortunately, or fortunately, there’s just so much, there’s so much nuance to it because it does require all these approaches require a bit of nuance and strategic planning. We have about nine minutes left, so I’m gonna go lightning round through some of this.

Let’s go with oh, there’s a great question here. Does the founder own the tech product that is produced, with that fiscal sponsor relationship? I think the better question is is there any risk for like your IP though? So say you’re getting a grant to go do some, something really innovative.

Do you see fiscal sponsors taking any rights to the ip other things like that?

Justin Brezhnev: So this is an amazing question and this is why we at Hacker Fund are what we are at Hacker Fund, is to figure out this kind of a nuance for the folks that apply, [00:44:00] especially technologists, because you’re building an asset that has a lot of things attached to it, right?

A lot of legal actions that are attached to, the ip, right? And it is a contractual relationship when you have no entity and that entity is, you have no entity in your’re apply. A fiscal sponsor. The fiscal sponsor is your entity. That’s your legal entity, right? So you don’t have any container to house those IP rights.

And that’s the risk also. It’s misuse of IP and you get sued. The fiscal sponsor gets. Because it’s like there is no entity with the pre-approved grant relationship, model C, and full disclosure, not an attorney. That’s not legal advice. Definitely find an attorney.

Hopefully in two years I’ll be an attorney. I am studying tax law, right? And I’ll be attorney for years as an apprentice. Hopefully one day I will be able to explain this and say, Hey, I’m Justin Brezhnevr Esquire. But until then, find yourself an attorney. Happy to refer you to some awesome folks who can explain this specific nuance.

But it is in the contractual relationship in it is. Nuance is housed [00:45:00] oftentimes of how to handle the IP is housed within the contract that you make with the fiscal sponsor. Maybe the fiscal sponsor wants to have some kind of rights. Maybe it’s o but the thing is the capital is used to create something that is for a charitable, educational, scientific purpose.

So you have to look at that and understand that you are creating something that is, has restrictions around it. You. And the legal nuances of what the output of that is, has to be considered very carefully so that you don’t potentially create something using tax exempt dollars. That creates a private benefit for you as the founder, right?

And you. That’s why the commingling is very necessary to look at specifically in your business, what is Grant fundable? How do you separate. So that you can do it in such a way where you don’t jeopardize your rights to other parts of the technology or what have you, so that you don’t accidentally, by accepting a grant to do some kind of a feature, you [00:46:00] now jeopardize your the rights you have to the entire.

Piece of technology you’ve built. That’s not to say that you shouldn’t use fiscal sponsorship and then if fiscal sponsors are out to get your technology rights, no, that’s not what it is. We just, we want you to understand that what the grant funders are expecting when you are building a piece of technology and what that looks like in the world.

And I would say that this is a very specific legal nuance, but there is, A, a pathway where you could create awesome technology, still have rights to it, and it does good in the world. And that is what the fiscal sponsor would be. The amazing attorneys will help you do. And that’s another red flag.

If they don’t have good attorneys and they don’t reference some of the Yeah. Big gangsters who are, if if they’re like, referencing attorneys. Don’t have other fiscal sponsors on their bench, . You’re like are you sure they can help us with this nuance? That’s why we as the, the attorneys that consult us in how to help you as the technology founder, they’re also consulting the fractured atlas of the world and explaining to them, how does you know if somebody, a [00:47:00] burning man wants to do an installation?

I built this , how does this work? It’s what rights do I have? And these are great questions to have, but this sponsor walks through that with you. And there’s a a level of unders of having to understand w what are IP rights? And, as you enter the space of tax exempt capital, you start realizing what’s attached.

Sedale Turbovsky: Thank you so much. We have just a few minutes left. There’s some really cool questions here and I wish we could get to them all. I wanna have you tackle one more that is I think really relevant for startups based in the eu. And this can be for, startup based outside of the us.

Is it valid to look for fiscal sponsorship based in the US or would you need to look for EU based sponsors? And I think, a couple things to unpack real quick here, but one is that like the tax code in other countries is different. And so that relationship would b by nature be different.

But I would love to know your thoughts on that. Can you go after, government grants in the US using a fiscal sponsor.

Justin Brezhnev: The fiscal sponsor is as you said, based here. So that is one of the [00:48:00] biggest benefits of having fiscal sponsorship. There’s a lot of folks that come to us from Hacker Fund, in their Hacker Fund community.

They’re volunteers, but they’re like, we wanna do international projects. And we’re like, great, what do you wanna do? Awesome. There’s fiscal sponsors that are specifically set up to provide support for international projects, and you. At Hacker Fund, that’s not something that we have done a lot of.

Because like with the nuances of different countries. But we, there, we know fiscal sponsors that are like specialists in like refugee support, right? And deploying activism and like the big high level of here’s what we need to do when paperwork needs to get sent, right? Those are the nuances of, dealing with different government offices in different countries.

There’s fiscal sponsors that can help with that. So I would say it’s about finding the right relationship. But the opportunity for you if you are from another country or this is a way for you to have a base here in the United States because the fiscal sponsor is registered and sono.

Another thing is, fiscal sponsors have to get registered in different states [00:49:00] through for different places to raise money, right? They have to join the attorney general charitable solicitation, all that. They have to be c. If you, through their infrastructure, in the United States you can do it, you can do a different in the states, within the United States, right?

It’s about having a presence here and the fiscal sponsor helps you.

Sedale Turbovsky: Thank you so much for being here. We will get out other answers to questions that we weren’t able to get to. We will send an email out of this recording with also links to all the resources. So thank you all for joining us today, Justin.

Any any final calls to action for the community here for the folks on the line? Parting words?

Justin Brezhnev: Parting words, anything in this country could be accomplished by filing the right paperwork with the right department on. And go to the fiscal sponsorship directory. Find yourself an organization that’s been around for more than five years and help them file your paperwork.

Sedale Turbovsky: Awesome. I love it. Thank you so much. Love that. Thank you all for being here and [00:50:00] stay tuned. We’ll be sending out follow ups to everyone who registered. We’ll be sending out the recording and we’ll be sending out some connection information to Justin as well. So thank you all once again and we’ll see ya.