Using the L3C Organizational Model

This past week I realized that I really could have used the L3C model in each of my professional leadership positions, and that in doing so, i would have alleviated pressure on the annual balance sheet.  I must admit to feeling a bit “slow” when I realized this, as I have been asked countless times if the L3C has any real use in the arts and culture sector.

The realization is that I could have created any number of subsidiary entities with the L3C structure.  As is typical of any large not-for-profit organization, there are numerous low-profit ideas for ventures that emerge from co-workers, board members and audience.  Normally these ideas are discarded because the start-up costs outweigh any predicted profit.  When these ideas are pursued, start-up costs are borne by the organization’s endowment, or annual budget, or a combination of both.  The result of this is increased pressure on the annual budget, or a weakening of the organization’s capacity to deliver its mission.

With the L3C, a subsidiary organization can be formed and can seek investment from individuals, perhaps most especially board members who are already “invested” in the mission of the mother organization.  If the capital needs of the venture are large, some foundations could be approached to provide PRI”s.  Regardless of the mix of investments, the cash in would be all new cash, and the risk would be walled off from the mother organization.  And, profits from the new venture would flow back, increasing capacity. 

Perhaps also important (as I have learned from my study of entrepreneurship), the new venture, in order to attract investment, would have to produce a full business plan, one that demonstrates feasibility, potential market, etc., etc.  It would require not-for-profit leaders to acquire an essential skill set (one rarely taught in coursework for developing not-for-profit leaders).