Can Silicon Valley teach nonprofits how to save the world?


Y Combinator's 2011 startup school conference. (Robert Scoble)

At 15, Vineet Singal was morbidly obese. He'd been diagnosed with prediabetes. The struggle with his weight cast a long shadow over an otherwise promising future. These days, however, Singal is among the leading entrepreneurs in health care. The Indian-born immigrant shed 100 pounds studying biology at Stanford University. When he graduated, the Mayo Clinic tried to woo him to medical school with a full scholarship.

He turned it down. Instead, Singal launched a tech startup.

The startup, CareMessage, is part of a new crop of organizations emerging in Silicon Valley. They're a cross between the normal fare in the Bay area — ambitious tech companies with plans for meteoric growth — and companies more closely associated with policy wonks: mission-driven nonprofits with a social agenda. The aim is to do good while doing well.

At the heart of this movement is the startup accelerator Y Combinator. Better known as the launchpad for for-profit ventures like reddit and Dropbox, Y Combinator has begun to pour its resources into people who care less about making money than about spending it — on public health, microlending and education. In March, Y Combinator — or YC, as insiders call it — graduated its first-ever class of nonprofits, a group of six that includes Singal's CareMessage. The others include CodeNow, which teaches low-income kids how to write programming, and Noora Health, which offers health training to the family members of poor hospital patients in India.

These outfits aim to blend the do-gooder mentality of a charitable organization with the nimbleness of a corporate startup. It's a model YC thinks it's figured out how to replicate, leaning on its experience in incubating for-profit companies. In the long run, the accelerator that gave us Airbnb — a company now famous for challenging orthodoxy — has ambitions of shaking up the entire nonprofit sector, which it regards as cumbersome and inefficient.

But at a time when Americans are growing increasingly distrustful of Silicon Valley's swagger, the more relevant question may be what engaging nonprofits may hold for a tech industry that's reached an uncertain adolescence.

Connections and consulting

Entrepreneurs covet Y Combinator's unique mix of money, talent and connections. Those lucky enough to be culled from YC's application process take a three-month crash course in startup management, with intimate workshops and weekly dinners with tech leaders. Nonprofits fill out a different application form from their for-profit peers, but the experience is much the same.  Few nonprofits realize how much they could gain from such a structured program, Y Combinator officials say.

"They see that there are huge inefficiencies in the nonprofit space," said Edith Elliott, whose nonprofit, Noora Health, is among the several that just graduated from YC's three-month program. "Giving social entrepreneurs a platform and a stage and to be in the same arena as those who are developing the next big tech product is incredibly brilliant."

Every Tuesday night, YC startups gather for a three-hour consulting session with the accelerator's partners before sitting down to a private dinner with other entrepreneurs or investor. These informal gatherings can create lasting connections. One night, the angel investor Ron Conway showed up to speak.

"I went up to him and started talking, telling him 'This is what we're trying to do,' " said Singal. "He asked one of his associates to make a note that these are the five people you need to talk to in the San Francisco public health department and a few other places. And then a week later, we had five different introductions in our inbox."

A nonprofit for a new age?

The idea of a socially driven organization that relies on the power of its own business model to survive, rather than on donations, is hardly new. CareMessage and Noora Health are trying to replicate the model. By selling their products and services to wealthy hospitals and giving them away for free or at cost to the needy, the companies believe they can soon start pulling in enough revenue each year to become self-sufficient.

To help get them started, both are raising what they've called a "philanthropic round" of seed funding from investors. It's reminiscent of the path that many for-profit startups take, raising funds over time in several successive rounds. The difference, of course, is that CareMessage and Noora Health don't anticipate raising any more money after they complete their philanthropic rounds early this summer. CareMessage, for instance, is seeking $2 million and hopes never to have to raise funds again. And in that respect, it also differs from traditional nonprofits that fundraise 365 days a year.


A startup meetup in Atlanta. (Tim Dorr)

Y Combinator believes that weaning nonprofits off of constant fundraising will help make them leaner and more efficient. The word that YC partner Kevin Hale throws around is "sustainable."

"For many nonprofits," said Hale, "the way they look at things, the money they have — they're extremely conservative about it. They have that money as a result of hard work. Every dollar should be maximized as much as possible."

The consequence of that penny-pinching, he said, is that "it's slow and frustrating for people to innovate in the nonprofit sector."

A nonprofit that makes its own money, on the other hand, won't be at the mercy of the fundraising process. If more nonprofits adopted this approach, the reasoning goes, they could spend less on overhead and more on the core mission. And that would be good for the sector as a whole, as underperforming nonprofits get flushed out of the system instead of surviving indefinitely on donations from individuals who don't realize their funds are being misspent. It's easy to see why this idea is so appealing to tech types: Applied liberally, it could transform the sector and lead to the things Silicon Valley loves most: speed and disruption — on a massive scale.

Reaching scale

It's hard to understate the ambitiousness of YC's argument. The most powerful nonprofits today — Human Rights Watch, the Humane Society, the Red Cross — are ones that emerged over years, even decades, through the careful husbanding of resources. YC's commercial nonprofits are convinced they can scale far more quickly than that.

"What we're trying to do is reach the entire world," said Singal. "Millions if not billions of people can use CareMessage."


"The Lean Startup" bills itself as a bible of sorts for startup entrepreneurs. (Betsy Weber)

But some argue that Y Combinator's Silicon Valley perspective comes with some important blind spots. Nonprofit management scholars say that fundraising serves an important purpose, and it's not just about the money. It's a way of activating people. Every time NPR does a pledge drive, they remind you about all the great programming they make possible that enriches your commute, or gives you something to talk about with friends, or gets you thinking differently about an issue. For that week, maybe you become a little more connected with people in your town — or with people living on the other coast. Culturally, socially and yes, economically, fundraising is a crucial way that nonprofits stay connected with their supporters. More importantly, it's a way to connect people with issues — and each other.

"You run the risk of no longer having your ear to the ground and paying close attention to what's happening" if you don't fundraise, said Erna Gelles, an associate professor in nonprofit management at Portland State University. "The lion's share of the money nonprofits use comes from individual donors and small donations."

What nonprofits can teach the tech industry

Even as YC proposes to impart its wisdom to the nonprofit sector, the public is having a gradual falling-out with Silicon Valley. Part of what we're seeing is a reaction to rising inequality most visibly demonstrated in the rise of Bay Area housing prices and the fleets of private buses shuttling tech workers around. Then there's the critique about the tech industry's male-dominated culture, which has spilled over into outright sexism on occasion. Economically, a string of ever more expensive acquisitions by tech companies makes it hard not to wonder if we're in the midst of another bubble — and when we'll tire of all the startups that would be totally unremarkable if it weren't for the people buying them up.

YC partner Hale doesn't deny that part of the incubator's foray into nonprofits was motivated by the backlash.

"We're starting to see some hints of people really frustrated by technology companies out here," he said, "and I think looking at nonprofits and thinking differently and pushing the values of people starting stuff — there's opportunities to find those people and nurture their ideas. I think there can be a lot more of that."

A lot more of what, exactly? Perhaps humility, along with an acknowledgement that there are bigger problems to solve than where the next big dating app will come from. Companies like Google or SpaceX — and increasingly, Facebook — that pledge themselves to "moonshot projects" offer their own kind of corrective to the perspective problem, but easily perpetuate the narrative that Silicon Valley is leading us to some kind of techno-utopia.

It's unclear whether Y Combinator's engagement with nonprofits offers more of the same, or if this is the start of a gentler, kinder tech industry.

"As with any beta release, it depends on what they do next," said the Stanford political philosopher and Boston Review editor Joshua Cohen, who's critiqued Silicon Valley culture before. "This is the first time out for them. They're trying to do something a little different and whether it results in them spreading themselves too thin and leading to a loss of focus, or they learn something from diversification that strengthens the other core activities — it's just premature."

But people involved in the traditional nonprofit sector agree that YC and Silicon Valley stand to be shaped by nonprofits in important ways. For instance, tech companies intuitively grasp the notion of market opportunities, but they're not all that concerned about market failures. When a nonprofit has to get involved someplace, it's usually because commercial incentives don't line up to fix the problem, and the government either lacks the capital or the political will to intervene.

Many nonprofits fill the gaps left by the public and private sectors. Perhaps someday, their proliferation in Silicon Valley and elsewhere (aided by tech-focused organizations like YC) might compel more of their for-profit peers to tackle the country's least lucrative problems.

Then there are the soft, touchy-feely human interactions that don't fit neatly into the computer models of software engineers.

"The most successful organizations I know make sure their boards aren't just meeting once a month in a boardroom to talk about what they can do," said Gelles. "They make sure their board members get engaged with the services and the community so they see the poverty and need and complexity. Those people are in a position to be much more creative."

That recommendation offers a contrast to the walled-garden approach that some in Silicon Valley have embraced — whether it's in the buses filled with Googlers or a futuristic Apple headquarters that ensures employees never have to leave to get creature comforts.

Or maybe, defying YC's interest in speeding up innovation, nonprofits might convince the rest of the tech industry to slow down a bit. Real change, nonprofit workers say, happens over time with shifts in culture. You can't rush it — a mentality that probably explains why California tech-heads get so impatient with the nonprofit sector sometimes.

It's taken some three decades for Silicon Valley to discover the commercial nonprofit. Maybe the researchers have a point, after all.

Brian Fung covers technology for The Washington Post.
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