Inheritors 1/3 - Funding

How is North Star funded? Grants, sponsorships, infrastructure - and the public and private North Star.

Filip Nowak · 5 min read

You might imagine the question I get the most when talking about what we're building: how is North Star funded?

It's not beautiful! It's a lot of hard work. The past 10 months since I quit my full-time have been focused on figuring this out. We don't yet have proper recurring revenue, and it was only recently that I started paying myself enough for rent and instant noodles. But now we have a few more months of runway to be able to figure this out.

Why a nonprofit

By default, communities are incorporated as nonprofits. And if they're not, you should probably wonder why...

But first, what even is a nonprofit? It's a company without owners. No shares, no shareholders, no dividends. It can make money - "nonprofit" doesn't mean "no revenue" - but every euro of profit has to flow back into the mission and towards supporting that mission.

This is why the structure fits communities so well:

• Less taxes
• Volunteers - a for-profit generally can't have people work for free, a nonprofit can
• Neutral ground, which in theory makes it easier to get sponsors
• By law there is no owner to funnel the value to
• Grants, many of which are only open to nonprofits
• There are no shares, it's easier for it to be a continuous effort, since nobody really owns it

What are the cons?

• There are no shares! No equity to sell, so classic external funding - the investor kind - is off the table (but there's a way!)
• The benefit is that I see my face on social media more often now (is it a benefit?)
• Governance slop (formal decision making, statutes, general assemblies - it gets worse with bigger non-profits, for us it's very centralized)
• Non-profit label influences the price - especially since most new non-profits are student initiatives - people expect free work and margins are low
• If you earn too much of wrong kind of revenue you'll get taxed like a normal company

What is the product?

Since funding isn't very clear. What is the product?

Well, the product is the community itself. And a community is built on trust. Aggressive monetization will kill it, and people can smell when you're in it for the money.

What we've found is that all business stems from community. All our deals happened because people simply find cool what we do, even though our "offerings" page doesn't really exist (we're fixing it!!).

But again, this isn't very sustainable. North Star shouldn't become a consultancy, and event sponsorships aren't very high margin. So of course we looked at how others did it: grants, sponsorships, infrastructure.

Grants

The most obvious way is public money, right? Grants are project-based initiatives, and I've heard "you should do European grants" more times than I can count. We've had some success with local grants, but only through the help of AI actually finding them and helping us through the process.

The grants space has a not-so-nice side too. Corporations have entire teams for grant writing and the distribution is not even. From experience, grants work from connections, not from submissions : )

Sponsorships

Sponsorships and partnerships! A topic where I feel like we genuinely could be doing better. I've also noticed it's simply better in richer countries, which makes sense. Caveat: this is just my experience - my circles, my environment, the way I approach things.

It is also a matter of the person on the other side. We've found people who, after one pitch, were so on board with the idea that things moved incredibly fast (you know who you are : ) ). In general, this is probably our biggest blocker from organizing more events - often the risk of finding sponsors is simply too much.

Infrastructure

The most interesting one. Some big communities have grown into infrastructure. AI Tinkerers has a hackathon platform where companies can run their initiatives. FR8 has a huge university, offering space, and has created a symbiotic relationship with VCs. HuggingFace (wait, it's a community??) is a great company built on open source, inherently community driven.

So, out of all the ways community-like initiatives fund themselves - what's the north star for your community? Different people will have different north stars!

Math has to math

Here's a bit of knowledge I don't share very often - the first few North Star event cost me around 5k, even though we had a few sponsors they were never enough to fully cover our costs. This is also why you see so many of these initiatives die. The amount of time to put into this is also a huge cost. It is all a numbers game, and of course - perseverance.

Why does this matter? As a director of a nonprofit, you're playing this balancing game of resources, as basically all startups do. The end goal is to have enough recurring revenue to sustain the base operations and take bigger and bigger leaps, while continuing to execute smaller hops.

If you have this goal, which is not that much actually, you realistically need enough revenue to sustain ~3 people full time. We're making do with less people and less time, but in an ideal world: say you'd be going for around 2k net, that's 4k brutto per person, so 3 x 4k = 12k monthly.

An event might yield around ~10k in the best case scenario, with the average being around ~5k. Lead time is around 3 months. You'd probably want to have everything ready a month before, you'd need to spend time on marketing (or pay for it), prepare catering (better pray that your venue doesn't have a catering contract!), story and content. And you don't want to mix events, just saying.

Something to keep in mind: this is a shot at a professional organization. There are lots of student ones that are just looking at net 0. Compare that to us: we were trying to commercialize these initiatives very hard, but the margin was quite low. Things got easier after an aha moment:

Events are not the business. Events are the distribution engine - the reason people know our name at all.

At ~5k average per event and 3 months of lead time, events alone will never cover 12k a month.

Right now we're having internal discussions around our first GTM role. The biggest question that we will have to first answer is what is the exact product we're trying to sell that scales beyond just sponsorships and events.

So you have to be creating something that's either:

• incredibly valuable, breaking the equation
• easy and repeatable, turning the resource cost down to barely anything
• or something decentralized, perhaps an ambassador system, which lots of initiatives are exploring

Public and private North Star

And so a side business needs to develop. Now we have a public and a private North Star.

The public North Star runs events, tells our story, and utilizes the nonprofit to its limits: volunteers with responsibility, sponsorships in kind and monetary, grants.

And it acts as distribution for the private North Star, which runs consulting (simple, fast), develops internal products (dog-fooding is very important), and strives to spin off for-profits that the nonprofit has a stake in. This lays out the "North Star Foundation" system, akin to Mozilla or Raspberry Pi, where the foundation fully owns the company.

I sometimes get comparisons to OpenAI. I like how Ilya Sutskever put it on the stand: "if there's no funding, there's no big computer." The nonprofit suddenly became incredibly successful, and to keep up with the race it had to raise money. And with raising money come expectations. In Mozilla and Raspberry Pi, the company funded the nonprofit. In OpenAI, the nonprofit needed the capital to be able to pursue the mission at all. You can imagine - there is no playbook for this.

The most promising path for North Star is to be creating spin offs - that can fund the mission. The public North Star builds trust and distribution. The product fuels the public North Star. And the public North Star operates no matter what, with governance of the spin-offs lying partly with the board of North Star.

This is the solution we have so far - of course it's easy to say "just make a successful spin off" and hope for the best.

I would hope that when more money starts going into the non-profit we can start sponsoring other initiatives and utilize this unique positioning we're in of a professional non-profit to uplift others who'd like to run something similar.

Building startups is difficult, and North Star is definitely not the most profitable way to be spending time. But nonetheless, there is meaning in the struggle.

And of course, who knows if this is right. There are no rules and no one knows what they're doing really.

To wrap up, 1/3 - I tried to write down the key paths I see to similiar initiatives really scaling, there is no free lunch - it is still hard work and something that you will most likely figure out only after talking to people and trying things out!

The next part will be about what it looks like running a brand new non-profit. Enjoy!