Fundraising Startup Classy Surpasses $1B Raised on Its Platform

Xconomy San Diego — 

It took six years for Classy, a software-as-a-service company that targets nonprofit organizations looking to fundraise online, to facilitate $500 million in donations.

But the next $500 million took just 14 months.

The San Diego-based startup announced the $1 billion milestone on Tuesday, citing the addition to its platform of ever-larger nonprofits—including the Salvation Army—as a major factor behind the growth. A broader shift in consumer behavior as people become ever more comfortable with online transactions also played a role, CEO Scot Chisholm said.

“The growth of online giving mirrors e-commerce,” he said. “It’s probably about five years behind, but it’s growing double digits every year.”

Chisholm launched the company in 2011 with Pat Walsh, Marshall Peden, and Joe Callahan—Classy’s chief impact officer, director of customer success, and vice president of design, respectively. (An earlier iteration, called StayClassy, was started in 2006 by Chisholm, Walsh, and Peden; it raised money in San Diego for charitable causes.)

Since then, more than 10 million donations from people in roughly 190 countries have been funneled through the platform, according to Classy.

The software startup has raised more than $48 million for itself over multiple venture financing rounds, including a $30 million Series C round in 2016.

More than 200 employees, including two new C-suite hires Classy announced in September, work out of its headquarters on the 13th floor of the DiamondView office tower adjacent to Petco Park.

San Diego, a hotbed of social enterprise, is also the birthplace of crowdfunding behemoth GoFundMe, one of the most well-known sites to which people turn when looking to raise funds for a good cause. Now based in Redwood City, CA, GoFundMe claims to have facilitated more than $5 billion in donations from 50 million donors since its start in 2010.

Although GoFundMe’s focus remains on individual campaigns, the company is also eyeing the nonprofit sector in which Classy has made its name. In January of 2017 GoFundMe acquired Detroit-based CrowdRise, which focused on fundraising for charities, other nonprofits, and major fundraising events.

Classy doesn’t compete in the consumer-facing crowdfunding sector. It’s a business-to-business company that provides “white-label” solutions to nonprofits, small and large. Its revenue stems from licensing fees, which vary depending on which of its products a nonprofit wants access to, and transaction fees, which run about 2 percent per transaction processed via the platform. Nonprofits use the site to design campaigns to reach potential donors, through methods including crowdfunding, peer-to-peer donations, fundraising events, and donation websites.

The company’s growth has been fueled in part by its advantageous position at the nexus of two trends: the growth of enterprise software-as-a-service (SaaS) and the increase in consumer comfort with online financial transactions.

A handful of San Diego-based SaaS startups have grown steadily in recent years, raising millions and hiring dozens of new employees. That’s in an atmosphere in which many tech companies are gently—or otherwise—encouraged by investors to relocate to the Bay Area, where much of the financing for such companies stems from.

The list of SaaS companies based locally includes Seismic, whose software is used to manage the online marketing materials used by sales reps in the field; CloudBeds, which offers hospitality management software; and Tealium, whose services include online advertising tag management and marketing.

Chisholm said Classy’s latest challenge has been a classic SaaS conundrum: how to scale up operations as it brings aboard clients vastly larger than those it initially served. Among its 4,000-odd clients, in addition to the Salvation Army, are Oxfam America, Shriners Hospitals for Children, and Heifer International.

“We had to mature as an organization to be able to not only provide a product that was enterprise ready, but also have the internal support systems and services to service an organization like that,” he said.

Many philanthropies are working to transition from the traditional system of offline donations, whether via cash or check, to the Web, where increasingly more potential donors conduct much of their everyday business. Digital transactions are becoming second nature to many consumers, and, according to a recent Fiserv study (NASDAQ: FISV), customers are becoming more comfortable with a tech company handling their financial services, such as transferring money to others (52 percent of about 3,000 surveyed, 14 percent higher than a year prior).

However, while people might feel better about moving money around online, philanthropies continue to struggle to convince them to give repeatedly.

A recent report from Classy, which analyzed the more than 2.5 million donations made over its platform in 2017, showed that donors who gave on a recurring basis were more than five times as “valuable” to a nonprofit as a one-time donor.

However, a separate study, which periodically compares anonymized year-over-year transaction data from a handful of firms that offer donation software (not including Classy), found that more than half of first-time donors in 2016 failed to contribute again in 2017. (The report’s lead sponsors are the Association of Fundraising Professionals and the Center on Nonprofits and Philanthropy at the Urban Institute.)

Even so, going forward Chisholm said he believes Classy—and its clients—are poised to benefit from yet another aspect of the zeitgeist: subscriptions. The company is encouraging the nonprofits that use its platform to focus more on encouraging recurring donations, and to position such giving as similar to other subscriptions consumers may be paying for periodically.

Classy said Tuesday it has set a goal of doubling the number of recurring donors on the platform by the time it hits the $2 billion mark, a milestone it anticipates reaching within the next 18 to 24 months. Five percent of donors that contributed to the $1 billion Classy has facilitated to date were recurring.