Online-Giving Company to Cease Operations

By NICOLE WALLACE

Charitableway — one of the best-known and best-financed of the recent e-philanthropy ventures — has announced that it is shutting down operations.

The company, which had raised $43-million for its efforts, says it overestimated the size of the workplace-giving market and found itself stymied by slower-than-expected revenue growth, which it attributes to the lengthy negotiations necessary to form alliances in the nonprofit world and to a lack of consistency in the way charities deal with money.

The San Carlos, Calif., company, which helps companies run online giving campaigns for their employees, is now in the process of helping its clients make alternate arrangements for distributing the remaining gifts pledged during campaigns in the fall. It plans to sell the company as a whole or the technology that Charitableway developed.

March 26 will be the last day for Charitableway’s almost 100 employees, except for those who will stay on to fulfill the company’s remaining obligations.

Pete Mountanos, the former Microsoft executive who founded the company, points to a combination of factors that led him to make the decision to close.

Chief among them: Developing the business was a much slower process than he had anticipated.

Mr. Mountanos found that it took longer to build relationships and to negotiate business agreements in the nonprofit world than he had expected. “What should take two weeks in this space takes six months,” he says.

In addition, the variety of ways that nonprofit organizations deal with money made the technology more complicated and, in turn, more expensive to develop. For example, how a corporate employee’s pledge to the local affiliate of a national charity was handled depended on the individual charity. Some organizations wanted the money to go directly to the affiliate, while others required that the money first be sent to the parent organization, which would then pass it on to the local affiliate.

The slow growth, coupled with the fact that the market for on-the-job giving drives was smaller than the company had originally estimated, Mr. Mountanos says, led him and his management team to decide to shut down, despite their investors’ continued support for the venture.

Yet Mr. Mountanos is surprisingly optimistic about the future of online workplace-giving campaigns: “It’s going to come like gangbusters.” He says that many corporations are already doing it themselves and are looking for outside companies to run the campaigns for them.

He believes that charities will really begin to reap the benefits of automated on-the-job campaigns when the nonprofit world reaches a consensus on how difficult it is to run them and moves toward greater standardization in the way money is handled.

It will also be important, he suggests, for charities to be able to accept information about donors and the donations themselves electronically, something that many organizations cannot do now.

Many nonprofit technology observers reacted to Charitableway’s demise with surprise.

“If they couldn’t make a go of it, you have to wonder who can,” says Mark Rovner, senior vice president at Craver, Mathews, Smith & Company, a fund-raising consulting company in Arlington, Va. He notes that Charitableway was one of the philanthropy start-ups that he thought would survive, given the company’s solid financing and what he described as a very sharp management team.

Michael C. Gilbert, president of the Non-Profit Technology Enterprise Network’s founding board, says that the large initial investment in Charitableway may, in retrospect, have worked against it — forcing the company to adopt a business model that called for extensive growth in a short time.

Charities, he advises, should remember the Charitableway example when they are evaluating potential for-profit Internet partners. “If they’re trying to be big, it may be that they really need to be big in order to ever be profitable,” he says.

He also recommends that in a quickly changing technology environment, organizations should always have an exit strategy — a way to make sure that they can get the information on their donors out of their partner’s system even if the company goes out of business.

Ted Hart, president of ePhilanthropyFoundation.Org, says the nonprofit world owes Charitableway a debt of gratitude for being a pioneer in online giving and for drawing attention to the phenomenon. But he also thinks that the failures of various e-philanthropy ventures underscore his organization’s belief that building strong relationships with donors is the key to successful fund raising — both online and off.

“It’s all about relationships, not just about money,” he explains. “Nothing that you do online is going to substitute for the serious need to communicate and build those relationships.”