Friday, March 11, 2016
How Classy Is Helping Nonprofits To Attract and Retain Supporters
Story by Benjamin F. Kuo
What do you get when you combine a charitable pub crawl, the movie Anchorman, and a software developer randomly hired off Craigslist? In the case of San Diego's Classy (www.classy.org), you get an extremely popular piece of software-as-a-service to help you manage a nonprofit and its fundraising efforts. We talked with Scot Chisholm, CEO and co-founder of the software company, to hear about how the company came out of all three, and resulted in what is now a widely used software product that charities are helping to reach Millennials and others. Classy's software is used by over 2500 charities and other organizations, including such big names as Oxfam, Heifer International, TeachForAmerica, National Geographic, The World Food Programme, and many others.
What is Classy?
Scot Chisholm: Classy started as a fundraising application for nonprofit organization. But, what we're building now is a social impact platform. Not only is it a software-a-service to help organizations run their businesses more efficiently and effectively, but it also allows partners, such as third party developers, tap into the platform to give the best of breed software to nonprofit organizations.
How did you start the company?
Scot Chisholm: Actually, the organization started as a charitable pub crawl, for the cancer society here in San Diego. Myself and a few friends got involved, because my mom had cancer when I was growing up, and my roommates all had known people suffering from cancer. So, we created this bar crawl, where we could meet new people. We had to come up with a name for the pub crawl, and we happened to be sitting around talking about the pub crawl while Anchorman was in the background, and he said that catchy line, “Stay classy San Diego”. So we thought, why don't we name the pub crawl Classy. We never thought it would snowball into a legitimate company. We did that pub crawl, raised $1000 for the American Cancer Society, and figured out that giving $1000 to the organization was a little frustrating and clunky. That inspired us to move beyond the American Cancer Society, and instead to partner with smaller, grassroots organizations in San Diego. We ended up hosting dozens and dozens of fundraising events for millennials, to support those organizations. One of the things we did really well, was defining the tangible impact of supporting those events. People would come to our events, and do anything from cleaning a beach in San Diego, to restore a youth homeless shelter, to helping families directly impacted by cancer. That tangible part of it made what we did very attractive. Eventually, we got so big, we had thousands of people coming to our events. The biggest we had, was a 5,000 person music festival.
So how did this go from a pub crawl to a software company?
Scot Chisholm: The software came about, when we realized we had totally outgrown the system we were using to take registration for the events and to allow attendees to make donation, which was a combination of Evite, Paypal, and Myspace. So, we hired a guy off of Craiglist to build some software for us, and who eventually became our VP of Engineering. We built an alpha for our own fundraising events, and were not even thinking of selling it or giving it to nonprofits in the future. It was really just developed for our own needs. However, as we ran our events, our beneficiaries told us—what you have built is awesome, and they asked us if they could use it for their own campaigns and events. The light bulb went off, and we figured out, maybe we had stumbled into something awesome. We looked around, and decided to throw our hat into the ring, and went through the CONNECT incubator here, and raised a couple of hundred thousand dollars in seed funding, which enabled us to transition into a technology company in January of 2011.
Nonprofits are not known to have much money to spend on technology, how does that affect you as you approach them about what you can offer?
Scot Chisholm: There's a clear ROI case for a nonprofit, and it's similar to driving sales in a for-profit company. Our customers use this to raise more money, and we can make the case that investing in the product will get them X return. That makes it easier for us to have that conversation. Definitely, with nonprofits, ever penny counts, and they want every penny to go towards their impact and program, so it's very hard for them to generate revenue. I think we're actually helping to solve that problem. Nonprofits have a couple of big problems. One, is they have the large problem of attracting supporters, and number two, is they need to retain those supporters year over year. I think the industry stats are that something like 50 percent of supports don't join a second year, and something like sixty percent of their revenue from individual contributions churns every year. Imagine, running your own for profit company, if you had 60 percent churn every year. That would make it pretty tough to grow. To that end, Classy is looking to help nonprofits, by not only bringing in more supporters, but retaining those supporters over time, year over year, so that they can rely on that income stream. We tell them that story and give them examples after examples of that working, so it's really not about if it's too expensive or not, it's clear ROI to help them grow.
What was your background before you started the company?
Scot Chisholm: I was a mechanical and industrial engineer. I graduated from Umass Amherst in western Massachusetts, near Boston. I came out to San Diego, basically the day after I graduated, to meet up with friends and explore California. I got a job at Booz Allen Hamilton out of school, and did that for three years, doing Lean Six Sigma work and process work for Booz Allen. That's when I started Classy and our initial event. I didn't go full time and transition into this until it had evolved into a software company.
From your perspective, what can nonprofits to do better reach out Millennials?
Scot Chisholm: What we saw, and early insight doing events in San Diego, is you have to make the impact of what you do tangible. Millennials want to understand where their money is going, and the more an organization can make that end result tangible, the better both during and after the giving process. That's probably the umber one thing to do to keep Millennials. Charity Water has done this very well, because you can see where every dollar goes, and they show you with every well that they drill, they feel your money went to good use. You need to treat a $5 donation like a $5 million grant. Every single donor, no matter the size, wants to see transparency on where their dollars are going. That's really the ore to attracting Millennials. The other part, is you have to have a really great user experience when it comes to technology. Nothing turns a Millennial away more than a clunky, non responsive piece of software or website. Classy basically upgrades a nonprofit's website overnight, so that everything is mobile responsive, and it looks nice, and is visually appealing. It has a pretty dramatic effect on donations. To get Millennials in the door, the web experience and brand look-and-feel is massively important.
Can you talk briefly about your venture funding?
Scot Chisholm: We have raised $23M, $18M from our Series B, which we did in early to mid 2015. The lead was Mithril Capital, the investment firm of Peter Thiel, and the co-lead was Salesforce Ventures. Before that, we had raised around $5M fron angel investors. The reason we went to angels, is that here in Southern California, the network of VCs and even angels wasn't tremendous, especially for software. Around here, in areas like biotech, there is a really solid network, but not in software. So, the bottom line, we had to start with family and friends, and grew our network enough so we were able to raise money in chunks of $25,000 at a time, with our smallest investor putting in $7500 to get us going. Eventually, we connected with three different super angels, who invested $100,000 and $200,000 initially, and watched how we did as we hit milestones, and eventually invested more. We were really lucky, in that these guys were successful entrepreneurs themselves, and also had ties to philanthropy, and they helped us to take us to the next level, and put us in a position to attract the investment from Mithril.
Finally, what's next for you?
Scot Chisholm: As I alluded to earlier, we started pretty narrowly around peer to peer fundraising and crowdfunding for nonprofits. That's was kind of a niche, and we did well, and we became well known for our user friendliness, plus putting the organization's brand before ours. We then expanded to all-in-one fundraising, to not only handle buying event tickets, but also taking simple donations. All of that stuff is basically about creating revenues for those organizations. Our future is about rounding out our product and making sure we help our customer retain their donors over time. 60 percent of donors are lost every single year, and that's a massively, leaky bucket problem. It's the elephant in the room. We are making a product which handles both sides, both the revenue generation as well as the revenue retention. Looking beyond that, we are giving developers, partners, companies, and foundations insight into who is on the platform, and how to support them in different ways. We're allowing partners like ADP, or Gusto, or Zenefits to plug into classy, and allow their end users who are running payroll to incorporate charitable donations into their paychecks every month. We're allowing Shopify merchants to be able to add donations at checkout. We're empowering partners, whether they are developers or otherwise, to support the Classy network in various ways.