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Patsy Kraeger, Ph.D.
This blog post is second in a two part series on Foundation Supported Social Enterprises. Click here to read part one.
Why did they do this?
The Nick Simons Foundation did not have a large staff. The foundation opened in 2005 when Nick Simons, a great lover and visitor of Nepal died. Nick Simons was keenly aware of the medical needs in high altitude low income countries such as Nepal. The family foundation members were interested in funding the development of a unique anesthesia machine that neither requires electricity nor compressed oxygen to function.
This device would be invaluable for infrastructure-weak health systems in low income countries that often suffer from energy shortages or no energy access at all. They wanted to be closely involved with the venture and they want to commercially market and sell the product- a product with a social benefit. They recognized in order to be successful that they need an income stream and they did not want to become a fundraising foundation. Instead they thought of operating a social enterprise. They formed Gradian Health Systems.
“For us at Gradian, this structure has worked terrifically – as a start-up social enterprise we are able to pursue non-profitable objectives with a steady, reliable source of funding (who gets to say that?!). As a new entity, our structure reduces (or eliminates altogether) the need to spend time and resources on fundraising and financial reporting, which allows us to focus on operations. We have also been able to piggyback on the foundation’s existing hard infrastructure (such as office space and technology) and soft infrastructure (such as tacit knowledge and mentors)”.
Foundation Leadership’s Decision Point: Fiscal Ease
The Foundation considered how complicated it would be to create a new venture and the reporting on the IRS Form 990. It turns out that it was not so complicated after they consulted the appropriate legal, tax and accounting professional. Because the foundation was further an exempt purpose through program related investment in a for-profit company they found that they could roll up that tax return into the Foundation’s 990.