Nonvirtual Reality Hits Giving Sites

As online companies fail, others seek ways to click with donors

As one of scores of dot-com entrepreneurs who hoped to make money by raising money over the Internet for nonprofit groups, Tracey Pettengill counts her company among the lucky ones still standing.

But as the cofounder of 4Charity, which opened in 1999 as an online shopping mall that gave part of every sale it generated to charity, Ms. Pettengill is still a long way from making her fortune.

“We’re pretty solid, but we’re not profitable, so we’re not out of the woods,” she says. Ms. Pettengill hopes that by delivering Web-based software programs that help charities use e-mail, design Web sites, send invitations, and recruit volunteers, as well as raise money online, her company can be in the black by December.

While 4Charity says it helped more than 2,000 nonprofit groups raise $250,000 last year, Ms. Pettengill says she “thought we’d have raised millions by now.”

So did many other companies, including the growing list of ones that no longer exist. Among them: KickStart.com, Shine, OnGiving.com — and the best-known and best-financed of the recent online giving ventures, Charitableway, which closed in March despite having received $43-million from investors.

The problem, many technology observers say, is that neither donors nor charities turned out to be as taken with the idea of giving and receiving donations online as entrepreneurs expected. What’s more, a cultural chasm emerged between online businesses that had to move fast to survive and charities that tend to embrace caution over change.

But the toughest lesson, and perhaps the main reason things didn’t turn out as many expected, is that too many entrepreneurs and venture capitalists believed their own hype about how big and how fast online giving would grow. “We all had high expectations; we were all insane in 1999,” says Ms. Pettengill today.

Businesses Must Diversify

The market for charity-related Internet start-ups now looks as if it could take years, rather than months, to become profitable — if it ever does.

Most of the ventures that have made it through the technology bust so far say that while they still have high hopes for the future of online giving, no business can survive by simply offering the opportunity to make a gift to a collection of charities or purchase products from stores that donate a share of profits to charity. As a result, companies like 4Charity and others have scrambled to offer a wide range of services to nonprofit groups, including selling T-shirts and high-tech services to increase revenue.

But if entrepreneurs are now convinced that things will get easier and that more donors will soon give online, many nonprofit consultants are not.

“I still question if e-philanthropy really addresses a problem that people have,” says Andrew Blau, a consultant to foundations and the author of “More Than Bit Players,” a recently published report on how technology is changing nonprofit organizations. “We still don’t know if people want to give without having a target and if they’ll go online to find a target for their giving.”

But he adds that a growing number of more well-known charities, such as the New York City Ballet, have seen online donations increase.

“It may be too early to write off the whole premise,” Mr. Blau says. “But we may be discovering that nonprofits, especially the larger ones, have better brand names than any e-philanthropy site.”

‘Confusing and Frightening’

No one knows yet just what the shakeout in Internet companies will mean for online giving as a whole. “It’s confusing and frightening to see heavily capitalized firms foundering,” says Vince Stehle, a program officer at the Surdna Foundation, in New York. Foundations, charities, and other nonprofits, “in the wake of the dot-com collapse, are trying to sort out how we can, with our limited resources, achieve our goal of harnessing the Internet for donations,” he says.

Many of the Internet entrepreneurs who developed charity-related products had little more than a dot-com name and what they thought were novel ways to collaborate with charities. Others had plentiful funds from venture capitalists eager to find the philanthropic version of Amazon.com.

But like Amazon and other Internet retailers, the charity-related online companies are finding that hitting on the right economic model — and then getting Americans to embrace a new way of shopping or giving — takes real time, not Internet time.

Stephen C. Nill, who served as Shine’s chief charities officer during the company’s existence as a site that collected donations on behalf of other charities, says it became clear very quickly that that idea wouldn’t take off fast enough to appeal to venture capitalists.

“We concluded the market wasn’t what we thought it was,” says Mr. Nill, who runs CharityChannel, a company that sponsors electronic discussion lists for charity workers. “And Charitableway was the 800-pound gorilla, and we couldn’t compete against them.”

Mr. Nill adds that nonprofit groups have been slow to buy what entrepreneurs sold, in part because many online Web sites were founded by people with no previous nonprofit experience. “If a stranger walks into your living room and says ‘Your decorating is terrible, let me rearrange your furniture and change your wallpaper,’ you’ll resent their cheekiness.”

Are Charities at Fault?

Other companies gave up when they could not meet the expectations of investors. When Randi Shade, founder of Charitygift, realized her company could not grow “at the rapid rate our venture-capitalist backers wanted,” she sold her brainchild to Charitableway, which she thought had a better shot at succeeding.

“People can’t blame nonprofits for not moving fast enough, and it’s not the donors’ fault,’’ she says. “The markets have moved slower than people expected.”

But Pete Mountanos, Charitableway’s chief executive, says he left the market “very disappointed” with how slow charities were to embrace new ideas. “The industry makes it hard for people to help them,’’ he says.

His company’s efforts included a donation-collection site, an Internet shopping mall that benefited charities, and a method for processing gifts made in on-the-job campaigns. Mr. Mountanos says he still believes the workplace model had the best shot at making a profit, but his money from venture capitalists ran out before he could prove it.

Mr. Mountanos says the future for for-profit companies serving charities does not lie with processing online donations or with pursuing just one model of giving. “Nobody wakes up in the morning and says, ‘I’ll go shopping for charity,’” he adds. “The focus in e-philanthropy has to be on the e-asking, not on the e-transacting.”

$3-Million Raised

Even the most successful online giving site, Helping.org, has barely cleared the starting line despite having financial backing and promotional support from corporate giant AOL Time Warner.

The site has raised more than $3-million since 1999, according to Lisa Aramony, vice president of the AOL Time Warner Foundation, which financed the site. “And we’re definitely picking up steam — May was our greatest non-December month yet.” Since January, she says, $1.1-million has been raised through the site, as much as was raised during all of 2000.

Other giving sites have seen smaller returns. Donation Depot, which went online in January 1999, says its site gets about 55,000 different users a month. “But donors aren’t making massive donations,” says Brandon Fix, the company’s chief executive officer. “The average is $10. Some give only a dollar.”

So in January, Donation Depot expanded its services to include a service that nonprofit groups and corporations can use for an annual fee to help them receive and manage electronic donations. The change has turned “a struggling giving portal into a profitable corporation in a matter of months,” Mr. Fix says.

GreaterGood.com, one of the first charity shopping malls, has also tried a number of approaches to help it increase its revenue. In addition to its shopping mall — which has contracts with retailers such as Nordstrom and PetsMart.com to pay a percentage of each sale generated by GreaterGood to charity — the company oversees several “click-to-donate” sites, such as the Hunger Site, through which corporate sponsors agree to pay money based on the number of “clicks” Internet visitors record. The company also now sells T-shirts with the Hunger Site logo, and it will soon offer a dial-up Internet-connection service to nonprofit groups and individuals.

Whether such efforts will pay off remains to be seen. In December GreaterGood ran into some financial problems that prompted some charity beneficiaries to complain about delays in receiving money owed to them.

Lynn Ridenour, the company’s president, says that was an “isolated incident” that was resolved and has not been repeated. She says GreaterGood raised $4-million for charities in 2000, $1-million short of its goal.

GivingCapital, another online company, is trying to make a go of it by providing donor-advised-fund programs for charities and financial advisers, in addition to offering an online fund-raising system that enables nonprofit groups to receive and process online donations, as well as coordinate donation campaigns.

Chris Blunt, chief executive officer of GivingCapital, says the donor-advisedfund part of the business is profitable but the fund-raising business is not. He hopes that will change by the end of the year.

Entrepreneurs and charities “must realize the Internet was not the Messiah, nor was it a fad that should be ignored,’’ Mr. Blunt says.

“Keep the faith,” he advises his for-profit colleagues. “There’s still a big opportunity here. But it’s not a get-rich-quick idea, and success will require more patience than people have shown so far.”