Rethinking the “A” in Nonprofit M&A: ‘Model A’ Fiscal Sponsorship as a more Equitable Version of an Acquisition
During times of crisis and uncertainty there are inevitably calls for nonprofit mergers and acquisitions. In the midst of the current and profoundly worrisome shitstorm, these calls - mostly from funders and the professional advisors generating revenues by supporting M&A - have reached a fever pitch. And when people talk about program acquisitions, the conversation almost always centers on a very conventional understanding of the model i.e. one entity absorbing some or all of the assets of another while consolidating control with a resulting unified brand and control structure. In this framing, “acquisition” means ownership transfer, financial leverage, and integration into a parent organization's strategic vision. What typically results is the culture and brand of the acquired organization dissolves, with most if not all its governors and sometimes leaders stepping away as the organization is subsumed into a now larger organization.
This loss of identity, organizational culture, stakeholders, and local agency is assumed to be collateral damage from a successful acquisition. But in many instances, fear of losing some of these special pieces that collectively contribute to the “sole” of an organization scares folks away from the table. In other cases, the combination proceeds but ultimately falls apart. It doesn’t have to be this way.
There’s an alternative, or more accurately, a “have your cake and eat it too” variation of acquisition in the nonprofit sector that deserves a bigger seat at the same table: Model A fiscal sponsorship. While not conventionally viewed as such, ‘Model A’ fiscal sponsorship relationships that involve the sponsor taking on the programs of a struggling ally 501(c)(3) can best be understood as a form of equitable acquisition—a structure that brings the benefits of integration while avoiding many of the extractive dynamics and cultural subjugation of traditional acquisitions.
How ‘Model A’ Fits Into the Acquisition Framework
At its core, an acquisition involves one entity taking ownership and responsibility for the assets, most or all liabilities, and operations of another. This is exactly what happens in many ‘Model A’ fiscal sponsorship relationships when the project was either a program housed at another nonprofit or was itself a 501(c)(3). Here, the organization serving as the fiscal sponsor acquires full legal and fiduciary responsibility for the project or program being spun out of the other nonprofit.
From a legal standpoint, this is an acquisition plain and simple:
The “surviving” entity assumes responsibility for the assets and liabilities of the programs of another entity.
It’s the legal employer of staff of the acquired entity.
Its insurance and risk management policies cover the activities of the fiscally sponsored project.
The project is subject to fiduciary control and applicable policies and procedures of the sponsor.
The sponsor holds and manages the project’s funds and reports all financial activity in its own tax filings.
What makes it ‘Model A’ fiscal sponsorship is how the relationship between the 501(c)(3) serving as the fiscal sponsor and the Project is defined. Conventional acquisitions often strip identity and autonomy from the acquired organization. Control shifts entirely to the parent entity, and the deal is primarily judged on financial metrics and less on mission and cultural alignment. ‘Model A’ fiscal sponsorship, by contrast, while an acquisition, is designed to preserve mission integrity and program identity while offering projects stronger infrastructure; a kind of “have your cake and eat it too” approach.
Here’s how ‘Model A’ offers an equitable variation to a conventional acquisition:
Project-level Governance. The project (i.e. all the stuff being acquired) has an advisory board or similar body operating as the functional equivalent of a formal board of directors, albeit without the fiduciary duties which are held by the fiscal sponsor. This frees this advisory body to focus on strategy, resource development, and how to best support the leadership staffing the project.
Balanced Decision Making. The project leadership is empowered to make strategic and tactical decisions related to the project and the sponsor will support those decisions so long as they do not violate any laws or subject the sponsor to undue risk.
Mission-led integration. Instead of erasing the acquired entity’s identity, the sponsor foregrounds and protects it. The project retains its brand, community relationships, and program strategies.
Infrastructure without Extraction. Back-office infrastructure - finance, HR, compliance—are provided as part of the sponsorship relationship. The project doesn’t get stripped for parts or used however the parent dictates; it gains capacity to focus on mission while retaining agency.
Exit flexibility. ‘Model A’ fiscal sponsorship relationships can be, but are not necessarily permanent. The project may ultimately decide to exit the relationship at which point, the sponsor will support its transition to a different home; whether an existing nonprofit or a new (or reactivated dormant) nonprofit. This is an important but under-appreciated distinction. Unlike run of the mill M&A, here the leaders closest to the work remain empowered to chart the future destiny of the program even if that means packing up and moving everything to a new EIN.
Why This Matters Now (more than ever).
The nonprofit sector is facing extreme pressures and existential crises we are all too well aware of. The lay of the land is evolving rapidly but we can assume that many, perhaps hundreds of thousands of nonprofits will not survive the coming months and years. The use of acquisitions will doubtlessly determine if many of their important mission-critical programs survive. The type of acquisition strategy deployed (conventional vs ‘Model A’ fiscal sponsorship) will determine how these programs live on. Traditional nonprofit M&A is one response, but they can be heavy-handed and slow-moving. ‘Model A’ fiscal sponsorship provides a faster, lower-cost, and mission-aligned way to support and sustain charitable activity.
If we expand our definition of “acquisition” to include Model A, we open up more equitable pathways for growth and sustainability:
Small and medium sized nonprofits gain stability by ditching (or hibernating) their EIN without losing their agency and accountability at the local level.
Nonprofits stepping up as fiscal sponsors engage more deeply and impactfully with their ecosystem without dominating it. In the process they can grow their own back office teams.
Funders supporting the ‘Model A’ variation of acquisition get to live their espoused values of being responsive to the needs and wants of their grantees.
Communities benefit from continuity of service and local power rather than disruption.
So Let’s Reframe the Conversation.
It’s time to bring ‘Model A’ fiscal sponsorship into the M&A lexicon. Fiscal Sponsorship is not some legal backwater relevant only to brand new nonprofits experimenting around, but is a tried and true nonprofit “capacity bringing” solution warranting serious consideration as acquisition strategy that centers sustainability and equity.