There is certain to be plenty of discussion over the lessons of Jumo’s launch, short independent life, and prospective absorption into GOOD announced this week. While reflection is always useful, I think most of the lessons of Jumo were evident when it launched—though at that time, they were positioned as questions: How is Jumo different? How will it attract an audience? What problem is it solving? Why should anyone participate, given there are quite similar alternatives?
In the wake of the announcement of the intent to “combine forces,” I think the most interesting thing to consider, yet again, are questions. The questions are not about strategy but about forms, functions, policy, and societal value.
While the transaction has raised eyebrows because it involves a firm that was organized as a for-profit “acquiring” a firm that was organized as a nonprofit, the actual nature of the two organizations is far more complex. First, while GOOD is organized as a for-profit, reasonably informed sources I’ve spoken to indicate that it has never been profitable, though it apparently is getting close to breaking even (note: I do not have direct evidence of this, and this information could be wrong). If that’s true, then GOOD is a subsidized organization, just like Jumo. While Jumo is organized as a nonprofit, the funds that have subsidized it have presumably primarily gone to pay for the salaries of developers, designers, and coders, and for the promotion of the platform. Given that Jumo didn’t have much success attracting an audience or raising funds for nonprofits, you have to ask what societal value was delivered. It’s not clear to me how Jumo is different than a for-profit start-up that received venture capital but never reached profitability (other than that the venture capital was tax-free). For that matter, it’s worth asking which of the two organizations has received a greater amount of subsidy over its lifetime. I would guess that it’s GOOD, not Jumo.
So ask yourself this: What’s the difference between an unprofitable, subsidized for-profit with a social good mission and a nonprofit that hasn’t delivered much social good? The only answer that I can come up with is the US Tax Code and state corporation laws. That points to the increasingly urgent issue of addressing this country’s outdated legal structures. For more thoughts on this issue, I recommend taking a look at Rob Reich’s recent lecture, “The Promise and Peril of the New Social Economy,” for the graduating class at Stanford.
Those out-dated legal structures may throw a wrench in all the plans announced—and make it very strange that the announcement was made in such definitive language. As Stephanie Strom points out in her New York Times article on the announcement, “Two Groups That Help Nonprofits in a Merger,” according to the laws of the State of New York, where Jumo is incorporated, the state Attorney General must determine what the fair market value of Jumo is—and the acquisition is conditional on the price agreed exceeding that amount. Now, I have to admit I’m quite curious as to how one negotiates an acquisition when a third party gets to determine the price at a later date.
How the Attorney General will make that determination is of course very unclear. I doubt that AG’s office has much experience in determining fair market value of nonprofit organizations, especially those that have no physical assets. In fact, it’s a bit more complicated than that. Jumo has also made its IP open source, and its audience is quite small and falling, meaning it has questionable intangible assets. Again, given that there isn’t a “market” for Jumo—meaning it’s unlikely that there are other potential “buyers”—how exactly will the AG set a fair market value for an organization with no assets and a falling audience? A clear-eyed look at Jumo suggests that the rumored acquisition price of $0 isn’t particularly far-fetched. I find it hard to believe though, that the Attorney General’s office is going to be comfortable declaring Jumo—the result of millions of dollars of charitable contributions—to be $0, whether it’s accurate or not. So presumably the acquisition is not nearly as certain as the announcements have made it sound.
Which brings us yet again to the issue of our outdated legal structures. This certainly won’t be the last “acquisition” of a nonprofit by a for-profit, socially conscious organization (provided that the whole thing doesn’t blow up so badly everyone is scared off), and it shouldn’t be.
It really is time to get serious about how our policy environment affects—for good and ill—how social value is delivered.
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