Knight Foundation May Require Paybacks by Startups

When the hyper-local platform EveryBlock.com was acquired by MSNBC.com in August for what was reportedly a “multi-million” pricetag, one aspect of the deal that piqued the curiosity of those of us with backgrounds in non-profit media was how the Knight Foundation, which had seeded EveryBlock with a $1.1 million grant, would justify its role in subsidizing what is now part of a for-profit company.

Knight’s initial response was that the sale validated the premise that it could help creative ventures get off the ground and into the private sector. A win-win.

And it is. But there also could be some potentially thorny issues raised if a not-for-profit should come to be viewed by the IRS as even indirectly subsidizing for-profit ventures. This is not a major concern, but the terms governing tax-exempt behavior — usually under 501 (c) 3 status — normally prohibit any kind of subsidy.

Today, Nestor Bailly reports on EditorsWeblog that the Knight Foundation is now rethinking the conditions it requires for grantees that evolve into for-profit (and therefore tax-paying) ventures.

We always hope that innovations Knight Foundation funds are supported by the marketplace,” said Gary Kebbel, Knight’s journalism program officer. But “(I)t’s a safe bet that grant agreements are going to change in the future.”

Kebbel indicated that grantees may be required to pay back a certain portion of their grants once a financial event like an acquisition takes place. “What we’re thinking about is creating another nonprofit that would receive that money, and that money would be either for the future development of open-source software…or it might be for community news,” said Kebbel.

To me, all of this sounds consistent with best practices in the non-profit world. And let’s be clear that, with so many startups going belly up over the past year, this is a nice kind of problem to have. With its strong journalistic background, the Knight Foundation is better positioned to recognize the most potentially useful (to media) technologies and projects than are most foundations currently being approached ny media organizations.

Related Bnet posts:

The Rise of the Non-Profit News Model
“There have been a lot of creative efforts to re-energize serious journalism lately, especially from the non-profit perspective, with the latest being a $5 million grant from a local philanthropist to set up a new Bay Area news bureau in San Francisco…”

Newspapers Lose Out As MSNBC.com Snaps Up EveryBlock
“This week, the beleaguered newspaper industry had what will eventually be known as its “EveryBlock moment…”