Open Questions For Future ACX Grants Rounds
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Related to: ACX Grants 1-3 Year Updates
1: Should we give money to forprofit companies with charitable aims?
Arguments for yes: Forprofit companies are powerful way to align incentives and multiply available funding, and can produce impressive charitable results. Some of our best past grants have been in this category.
Arguments for no: Forprofit companies already have a VC ecosystem to help fund them. ACX Grants maintains relationships with several VCs and sends them promising applicants. Either those VCs will fund these companies (in which case our help isn’t required), or they will turn them down (and since they’re the experts, we should be skeptical that their rejects really deserve funding).
Counterargument: Maybe there are some companies that fail to reach a funding bar from a purely financial perspective, but clear the bar once their charitable effects are priced in.
2: If we give forprofit companies money, should we donate or invest?
Arguments for investing: If we invested, they might succeed, and then we would get money. We could spend this money to future ACX Grants rounds, making the program self-sustaining without threatening our nonprofit status.
Arguments for donating: Investing would force us to become more of a formal, carefully-structured nonprofit. We would need to bring in some level of VC expertise and potentially have a plan in case someone tried to backstab us to get more shares at our expense. We would have to convince funders that we were operating above-board and planned to apply any profits towards our charitable mission, which would require some backup plan in case ACX Grants ceased to operate. All of this would require legal work. Manifund do most of it for us, but this would be placing a large burden on them. There’s some risk that once we have a portfolio of companies, we’ll have conflicts of interest that make it hard for us to donate to competitors, or encourage us to donate to complementary services.
3: What happens if a nonprofit research organization that we donate to later decides to become a forprofit company?
No further actions: Feels kind of like we’re being chumps here. Anyone who funds them after the transition will get shares in the company and the potential to make lots of money, but because we funded them before the transition we get nothing.
Ask them for equity: This is legally dicey - although we can informally notice that a research organization is now a forprofit startup with the same team and goals, this has no legal force, and there’s no real way to sign a contract guaranteeing us future equity in a company that doesn’t exist yet. If a startup decides not to give us equity, we don’t have the time or legal muscle to pursue. I’m uncomfortable making an unenforced gentlemen’s agreement that people can get lots of money for breaking. This also has the same disadvantages of overall investment strategy mentioned above.
4: How to handle applicants who want prestige / our “seal of approval”, but not money? This is a reasonable request: several grantees said in their feedback form that getting recognized and signal-boosted was more helpful to them than the cash. But it’s a hard grantmaking problem - since this has zero direct cost, a cost-benefit analysis will always favor giving this to everyone. But if we give it to everyone, it loses its signal value!
Offer some limited number of nonfinancial grants: Maybe a number of extra nonfinancial grants equal to 10% of the total. But this limits us if there are many good applicants in this category.
Offer nonfinancial grants if they would clear our bar for some level of funding: For example, $10,000 is a small-to-medium ACX Grant, so maybe if we would give them $10,000, we should also be willing to give a seal of approval. But this would ironically mean it’s easier to get a grant for $5,000 than for $0.
5: How to handle last year’s impact market grants? We said that we would retroactively judge them by the same standards as our prospective applicants. But thinking about it more, this is meaningless/underspecified - they will have a track record of success we need to judge.
Just wing it: Ask our team of expert evaluators how much they think the outcome is worth.
Some sort of complicated web of lies: Try to blind our expert evaluators into thinking this is actually some new charity and see if they approve or deny it at various funding levels. I’m having trouble thinking of how this would work, although it seems closest to the spirit of what we suggested.
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