Non-profit status can be a great thing if your intention is strictly to help people out. (Being non-profit isn’t as much fun when you are trying to make a profit.) Of course even non-profit organizations need to make an income of some kind, after all it cost money just to keep the office lights on.
It is usually a characteristic of non-profits that any revenue they generate is used to further their goals rather than redistributed as profits or dividends. Which is a complete opposite of the goals of venture capitalists. A venture capitalist will invest in a high risk start-up company hoping that it will take-off and he will see great returns on his investment. So investing in a Not-for-profit that is going to funnel its revenue into its services doesn’t make sense.
As profitable as the online market place, there are still plenty of people around who simply want to do nice things for nice people. This was the result of an experience that Casey Fenton had when he scored a cheap ticket to Iceland. The trip sounded like it could be an adventure, but he didn’t know anyone in Reykjavik, so he sent an open email to 1500 students looking for help. He got several invitations to not only crash on people’s sofas, but offers of dinner and guided tours of “the real Reykjavik”. The experience was such a good one that when Fenton returned home to the Bay Area he started CouchSurfing.com, as service to help other travelers hook up with people with a couch they could stay on.
For those traveling on a budget, finding a place to stay can be better than finding a free Verizon wireless promo code. The hosts make out as well by gaining an appreciative new friend and getting a chance to learn about their culture. Couch Surfing took off and helped a lot of travelers, but earlier this year they lost their tax-free non-profit status. It wasn’t that they were making way too much money or that they had violated their status in the face of their success. Apparently the IRS was looking at their application for non-profit status, and couldn’t find a classification for their service, so decided to deny their non-profit status.
Suddenly CouchSurfing.com found they had to make a profit or close down! Fortunately venture capitalists stepped in, and the organization was able to find one that was compatible with their goals. But now they are obligated to actually make a profit. Hopefully they will be able to while maintaining their helpful and hopeful ideals.