 First
Person: Q&A
With Bill Strathmann, CEO, Network for Good
Annual Revenue (2005): $3,354,497 total, of which $1,867,274 is
earned income (55%).
Social Return (2005): $32 million distributed to charities yielding
a 1:10 ratio of operating expense to dollars distributed.
Years of Operations: Almost five. Network for Good was founded on
November 19, 2001, and will have distributed $100 million dollars by
the end of this year.
Venture: Fundraising services for nonprofits and individual donors.
How was the venture capitalized initially?
Network for Good was launched in 2001.with multi-year founding
grants from AOL and Cisco, as well as in-kind support from Yahoo!,
which financed the first three years of operations and the
development of the organization’s online donation services. In 2003,
these funds were supplemented with a modest 3 percent per donation
fee to cover transaction costs for credit card processing. Also at
this time we began to diversify our funding base to include
foundations and individuals. In 2004 we acquired Direct Help, a
competitor that offered a more robust product to a smaller audience
of nonprofits; the acquisition enabled us to add fee-based
offerings. A merger with Groundspring in 2005 furthered this
strategy. Customers now have access to customized donation pages and
mass e-mail services and soon will have donor management
capabilities. We receive on average $25 per month per customer for
these products. This strategy allows us to serve more nonprofits and
enable them to increase their fundraising more efficiently; it also
serves our bottom line because, in the near future, we will be able
to offer more services at a higher price.
How much capital are you currently trying to raise and for what
purpose?
Network for Good is seeking $2 million in growth capital. We have
7,500 nonprofits; 5,000 of which use the free service and 2,500 of
which pay for the enhanced services. Customer growth has been
explosive. On average, 180 new customers sign up each month. That
said, we are pushing for faster growth and hope to serve 300 new
nonprofits every month by 2007. Also, grants for capacity-building
intermediaries like Network for Good are waning; fewer and fewer
philanthropic dollars support information technology.
Our strategy is to drive earned income growth as fast as possible.
We want to double our growth rate so that five years from now, we
will be serving 25,000 nonprofits a year. Financing is needed to
bridge the gap between expenses and revenues during this growth
stage. In addition, funds will be used to support customer
acquisition and new product development.
What is your capitalization strategy?
We are seeking a combination of traditional grants, debt, and
equity-like instruments. We hope to finalize loans by the fall of
2006. Then we’ll turn our focus to equity investments more
significantly in early 2007.
Our equity strategy is nontraditional. Essentially, it is a
combination of dividend, program-related investment, and
donor-advised fund models. Investors will generate a return by
receiving a percentage of Network for Good’s revenue. However, these
funds will be redistributed to nonprofits of the investors’
choice—that way, returns from dollars “invested” in Network for Good
ultimately remain as charitable contributions.
In raising capital, what has been your biggest success to date?
We have been successful in building long-term relationships with our
donors and investors. Those relationships are very important, even
when there isn’t a current opportunity to take advantage of. For
example, we received strong support from the Kellogg Foundation for
a number of years. When the grant came to an end, we continued to
maintain a relationship with our program officer. When Katrina hit
and new dollars became available, our program officer turned to us
as a trusted resource. We received a $1.4 million grant to support
our role in facilitating in disaster relief efforts.
Your biggest mistake?
Not charging for our services. When we launched in 2001, we were not
deducting money to cover the cost of credit card transaction fees.
We spent $500,000 subsidizing credit card companies’ fees. In
addition to instituting a 3 percent service fee for all donations,
we also began asking donors to support our services. When a donor
gives to a favorite nonprofit, we ask her to make a nominal,
optional donation to Network for Good. About 30 percent of donors
elect to do so. This turned out to be a great way to leverage our
mission while generating some revenue to cover a portion of our
costs.
What advice do you have for others undertaking similar initiatives?
First, regardless of your situation, having a business and
entrepreneurial focus goes a long way to driving a higher percentage
of earned income. Second, you can’t be in a hurry to raise money.
You need to have patience and a long-term perspective. Finally,
placing a priority on relationships with investors really pays
off—knowing the people, communicating with them often, and
understanding what specifically motivates them to invest in your
organization is essential.
About Network for Good
Network for Good’s mission is to drive more resources to nonprofits
online in two ways. First, Network for Good provides easy-to-use,
low-cost tools to nonprofits to help them cultivate donors and raise
money online. Second, Network for Good operates the Web site
www.networkforgood.org, where consumers can donate to more than a
million U.S. charities through GuideStar and find more than 38,000
volunteer opportunities through a searchable VolunteerMatch
database. Founded in 2001 by AOL, Cisco Systems, and Yahoo!, Network
for Good is an independent, 501(c)(3) nonprofit organization.
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