Giving in the digital world
How might we apply the advances of fintech and saas to charitable giving?
Prescript: Scroll down to the bottom for a TLDR version of this article. Sometimes, I prefer getting the summary before deciding to read the whole thing. But other times, I don’t want the “spoiler”. I like how The Information solves this by having a TLDR version at the end of the story. So, those readers who want a summary first could scroll down, and then scroll back up to read the whole thing if they’re interested. I’m going to borrow that and experiment here.
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This piece is about my learnings from going into a wormhole on non-profits’ fundraising efforts. It started with an annoyance to physical mail from Save The Children. They have been sending a lot of mail lately - monthly magazines and letters to donate more (as the world is on fire lately). But it still annoyed me for two reasons:
Wastage: I read the emails they send. I also check their annual reports before donating. If they check their Hubspot or MailChimp email marketing systems and reconcile with the physical mail (direct mail) conversion rates, they will realize direct mail is a total waste of money on me. That’s money they could spend on the cause I donated for.
Emissions: Those monthly magazines and envelopes are heavy and mailed from across the US or the world, leaving their adverse footprint on climate change.
So, I thought it’s best to temper my biases and educate myself. I checked Save The Children’s website to learn that they are actually quite efficient. In fact, Charity Navigator says that Save The Children outpaces most charities in America in terms of efficiency!
Then I remembered two things: 1.) Goldman’s consumer division Marcus blitzscaled using direct mail. It’s a better channel because we (at least non-GenZs) are conditioned to give gravitas to things on paper, it’s personal, and you give more mindshare and time1. 2.) They are “reactivating” me to donate. Given that I’ve already given once, I’m more likely to give again and give more. So, it’s totally reasonable for them to spend more money on me.
So, in summary, they are efficient vs. their peers but there is still room to optimize.
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Out of curiosity, I thought it’d be fun to do what we do with our portfolio companies. So, I tried to flesh out how can some interesting advances from my day job looking at Fintech and SaaS companies be applied to Charitable giving. Three big ideas came out:
1.) Subscription: Subscription software businesses such as Slack and Okta are great because they have recurring, predictable, and often, growing revenue. Human and server capacity could be planned in advance instead of scrambling last minute to hire or fire. Sales, customer success, and marketing teams can specialize and focus on new customers, existing customers, and branding respectively - instead of everyone doing everything blindly. Investors and CXOs can look at Net Dollar Retention and just 2-3 other key metrics to see how well the business is doing.
Non-profits used to have a similar dynamic in the olden days. Rich patrons were reliable donors every year, and churches and religious institutions used to get donations every week or at key festive seasons. However, in the modern era, young people migrate from their hometowns. Moreover, most of the non-profits have a larger portion of their funds coming from a “longtail” of donors than just “rich, reliable, and recurring” patrons. Furthermore, there is an outpouring of support when a disaster strikes, and the support dries up afterward. This makes it hard to hire staff and build facilities that are needed to work on longer-term solutions.
Non-profits could replicate this now with most payment gateways - by enabling the recurring subscription feature. In fact, most leading non-profits have this toggle already. However, those that have this toggle don’t emphasize the rationale enough. Most of them have an emotional appeal than a rational one.2 I think Doctors without borders (MSF) does an exceptional job in creating awareness for their users.3
Lastly, yes, Save The Children direct mail is likely my fault. I donated when my bonus came at the start of this year, and I haven’t since then. I should have made it recurring, and they might have put me in the other pile of recurring donors who don’t need constant appeals.
2.) Consumption-based charity: When compared with peers, consumption-based pricing SaaS companies have a 38% faster revenue growth rate, higher net dollar retention, and 50% higher revenue multiples! There are several caveats to this pricing model: It shouldn’t be used if your product isn’t best in class, is easy to switch, or if your clients aren’t growing rapidly. But it works wonders if your product is similar to Zoom, Twilio, Snowflake, or AWS. You make it easier for clients to sign up with little upfront costs and commitment, and you grow with them and their love for you. Famously, Twilio grew on the back of Uber in the early days - its API enabled Uber’s SMS and messaging functionalities with little fixed costs for uber and scaled revenue exponentially with each ride uber made.
Some of these characteristics apply to top charities such as Save The Children, MSF, and ASPCA. They are similarly well-run, do mission-critical work, and are reliable during disasters and conflicts. Furthermore, the longtail, digital millennial donors are great clients to try this kind of giving model - Get them to start giving and grow with their incomes instead of asking to start with a minimum ticket size.
If we were to marry these two, here’s an interesting way to implement it: Apple Pay or Cash App or Paytm money or Rappi Wallet could productize this at scale. Users could designate their favorite charity and set “1-2%” of their spending to go to that cause. Similar to what Acorns did to invest spare change. The charities could promote this as a “1%” tip for the world, on top of the 18-20% you tip at places4.
In each of these markets, all these fintech players are fighting with each other to gain market share and wallet share. A small product feature such as this could move the needle marginally in their favor, and get tons of free PR and goodwill! Even more potent is for Stripe or Razorpay to move from B2B to B2C!
3.) Charitable investing: Donor Advised Funds (DAF) are great because you can donate appreciated stocks directly than liquidate and pay taxes (and lose some to government overheads before reaching the needy). Unfortunately, most of the investing apps don’t have DAFs yet. I am a big Robinhood user and I’m at the brink of switching given all the controversies around them. DAF is a small but potent product feature for Public or Charles Schwab to make a pun at Robinhood’s $HOOD ticker and take customers away from Robinhood.
If someone wants to go even further, I’d love to be able to do “small cases” or Vanguard ETF like donations based on my passion (ala thematic investing) or impact efficiency (ala returns) or expense ratios using Charity Navigator data.
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In summary, the point of this post is less about these specific ideas but more to illustrate the potential of giving from the for-profit world to the non-profit world. It’d be catalytic to have more people from the tech world volunteer at non-profits give their knowledge and time alongside money. A somewhat salient point for companies is also that you can do well by doing good, especially when going after incumbent market leaders. Lastly, I want to acknowledge that this needs to be a consultative process with experts from the non-profit world, or else there may be unintended consequences that do more harm than good.
Have a great weekend!
TLDR:
SaaS companies with subscription and usage-based pricing showcase the power of predictable, recurring, and growing revenues. Donors and non-profits could leverage those models and tools to have more predictability of funds to enable long-range planning and commitments.
Fintechs could translate lessons from embedded fintech to build similar “embedded charity” products to do good and gain market share from incumbents.
However, it is pertinent to have key stakeholders and experts from non-profits to avoid unintended consequences.
Direct mail would need you to pick it up from your mailbox and hold it in your hands for more time than you would to delete an email or leave it unread!
I’m cognizant that A/B tests might have said that emotional appeal works better to convert to monthly donation than a one-time donation. But I didn’t find enough literature to say that is the case.
MSF’s default and prominent option on the website is a monthly donation. It hyperlinks to a dedicated page explaining why monthly donations are important. The last time I gave to the MSF, I gave a recurring donation to them because of this page. I also presume that this is why they don’t send too much mail to me. They don’t have to “reactivate me” as they only have to worry if I stop my recurring donation, in which case they can call or ask why I am stopping and address the issue. Similar to how good SaaS companies deal with churn by finding and fixing issues quickly.
Shoutout to my incredible classmate Joan Gass for founding the One for the World initiative, a pledge to give 1% of income to charitable causes. I built on this idea to propose this consumption-based charity concept.
Very well written Madhu, I enjoyed reading it.