Commentary: Fundraising, Operations Shouldn’t Be Musical Chairs

Let’s all gather around for a story. Once upon a time, someone got the inspired idea that email could be integrated into the fundraising process but there were no tailored solutions in the marketplace. It turns out it was not an idea that would die of loneliness.

The exhibit floors of nonprofit conferences were littered with technology solutions before you could say GetActive, Convio and Kintera. Those three firms were cut-throat competitors. All three were started in either 1999 or 2000. For those playing at home, Kintera was born as virtualdonors.com and the name was changed a few months later.

The virtual combat could not be sustained. Convio ended up buying GetActive in 2007 for an estimated but undisclosed sum of between $10 million and $12 million. Blackbaud bought Kintera in 2008 reportedly for between $46 million and $48 million. Blackbaud also bought Convio in 2012 for a reported $325 million.

Adjusting for inflation from the month and year of the sales to today, you’re talking more than a half-billion dollars. It’s $503 million to be precise.

Now imagine that you were a customer of GetActive. Your platform was switched twice in five years if you stayed with the solution after the initial implementation and learning curve. Despite platitudes that customers will be nursed onto any new systems, it is still costly in training time, data migration and in many cases pricing.

Entrepreneurs who come up with an idea have the right to eventually cash out. During the late 1990s and early 2000s there was explosive expansion of internet adoption and plenty of available venture capital.

Of course, if you’re around long enough you get to identify patterns and we are seeing some of them again.

Mergers and acquisitions are well planned in some cases but then there are the others. Much of what’s driving an unusual flurry of transitions at fundraising technology firms and fundraising agencies is investment by private equity firms.

This might read like an anti-private equity rant. That is absolutely is not the case.

Private equity has fueled some exceptional advances in fundraising and other forms of nonprofit management. But some have been outfoxed when entering the sector after seeing an estimated $1 trillion in assets and wanting a piece of it. The CEO of one of the top fundraising agencies recently said privately that investors of all types are entering the sector because they see the opportunity to improve the sector by modernizing and streamlining a fragmented industry.

There are agencies and tech firms saddled with private equity debt that exceeds the firms’ annual revenue. There have been reductions in force at some of the fundraising firms. There are advertising and marketing conglomerates that buy fundraising agencies, merge them, wonder why the firms are not generating the same margins as traditional marketing agencies and dump them. That puts charities on the move again. (See this story https://bit.ly/40gcAP3)

The challenge for charity executives is deciding which firms offering services are in it for the long haul. It is often said that charities are late adopters to technology and process. If that is true (often it is not), it might not be such a tragedy. Jumping for the shiny new tool before it loses its training wheels can lead to challenges medium to smaller nonprofits can’t afford.

A nonprofit’s financial position can be researched and examined by vendors by grabbing the most recent public federal Form 990. That’s not the case with most tech firms and agencies. Nonprofit executives can check the financial data of for-profit firms whose stock is traded on the various exchanges. A similar demand for transparency must be made when it comes to private firms. Find out who is investing in a potential vendor and the track record with other investments in the space. Pull the Dun & Bradstreet reports of vendors.

Check websites such as Crunchbase to discover founders and investors. There are firms not carrying crushing debt. Demand price caps and manageable annual adjustments. Talk to other clients.

There is a lot on the line in the charitable space, which feeds people, provides healthcare and education and even a little entertainment. Everyone takes a chance when a purchase is made. The stakes are much higher for a nonprofit organization.

Charities need to roll sevens, not snake eyes when the dice are thrown. Betting on the seven provides the best odds. The winning percentage isn’t great (roughly 1.36%) but it is way better than losing.

Lives depend on nonprofits winning. Make sure your organization has all of its chips when the game is over.