Yale SOM Case 09-023 Donorschoose.Org

yale case 09-023 may 1, 2009 DonorsChoose.org An Innovative Internet Philanthropy Goes National Anna Blanding1 Jennifer Stredler2 Kim Su3 Ivy Washington4. Sharon Oster5 Jaan Elias6 Andrea R. Nagy7 In 2000, Charles Best (Yale College ’98), a social studies teacher at an alternative public high school in the South Bronx, found himself frustrated because his school did not have access to many of the resources available in other New York City public schools. Best and his colleagues were able to secure basic materials, but they were unable to bring many creative classroom projects to fruition, because they lacked financial support. Best believed that there were many people who would be willing to fund small projects that quickly improved classroom performance and educational opportunities; however, the challenge was to connect donors with appropriate projects. In an attempt to solve this problem, Best founded DonorsChoose.org, a website that would match donors directly with New York City public school teachers who needed funding for classroom materials and activities. Simple in its conception, the DonorsChoose.org model actually required a number of systems to insure that teachers posted good projects, that donors could easily choose among projects, and that a link was forged between the donors and students. Best believed that this direct link between donors and classrooms would address “the scarcity and inequitable distribution of learning materials and experiences in our public schools.”8 After an auspicious start, Best and DonorsChoose.org set their sights on growing beyond New York City. The organization received national publicity and won a prestigious non-profit strategy award. Then in 2005, a group of Silicon Valley executives agreed to provide a $14 million grant to fund national expansion. DonorsChoose.org scaled up its organization and began a step-by-step expansion into various locales. It created an ambitious outreach program to encourage teachers to design projects and donors to visit the site and commit to funding projects. At the beginning of 2009, as the grant money was coming to an end, the organization had made great strides toward completing its expansion. However, observers wondered whether DonorsChoose.org could reach its goal of providing $100 million per year in gifts to classrooms and whether it would have an impact on the fundamental inequities within the educational system. Changes in Philanthropy in the Early 2000s When Best began considering how to build a service to help classroom teachers, there were a number of trends in public education and philanthropy that he had to consider. In school districts that served the underprivileged, teachers often spent their own money to buy basic learning tools, such as pencils, books, and other classroom materials. Although teachers could file for a $250 deduction for these materials on their annual income tax returns, many teachers reported spending significantly more than this amount to outfit their classrooms with basic supplies. On average, teachers spent $430 of their own money on school supplies each year.9 When Michael Bloomberg became mayor of New York City in 2002, he declared that improving the public school system was his number one priority. Bloomberg and the man he chose to be the head of New York School system, Joel Klein, created a new Fund for Public Schools, which raised $240 million from a variety of philanthropic sources. National foundations, such as the Bill & Melinda Gates, the Wallace, the Pumpkin, and the Michael & Susan Dell Foundations, as well as the local New York Community Trust, made major gifts. Corporate sponsors, such as Goldman Sachs, Morgan Stanley, and Citigroup, also made contributions. In addition, as a result of Klein and Bloomberg’s fundraising abilities, public education “became the darling cause of the corporate-philanthropy-society set.”10 Wealthy individuals, including James Tisch (founder of Lowe’s), Caroline Kennedy, Leonard Riggio (founder of Barnes and Noble), and Rupert Murdoch, began funding experimental programs, such as new schools, academies for principal training, and charter schools. Some philanthropists sponsored a new library or new classrooms at their public school alma maters. Despite this outpouring of charity, most of the funding was going to support major capital projects, and only a limited amount was being directed to everyday needs such as classroom supplies. A related problem was that small donors had relatively few options: because of the complexity of the school system, a small-gift donor could give to the Community Trust or the United Way of New York City, who would in turn direct the gift to the classroom.11 However, the mechanism for such gifts was cumbersome and not well publicized. At the same time, new philanthropic models shaped by the internet were changing the experience of giving for small donors. Under the traditional model of philanthropy, a large organization such as the Red Cross solicited donations and then directed them to worthy causes of their own choosing. For the most part, only individuals and foundations that made major gifts had control over how the money was spent. But under the new internet-based model, philanthropy was becoming more “democratized.” Elaborate computer programs could easily enable any donor to direct any amount of money to a precisely targeted recipient or cause. Internet giving also increased competition and accountability. Donors could easily compare organizations and choose the one that best fit their interests and priorities. They could also monitor the progress of their contributions, ensuring that they were spent as advertised. As a result, non- profit organizations found themselves needing to provide donors with more control over their giving and with more information about the impact of their gifts. The development of online giving resulted in the development of “two-sided marketplace platforms,” in which both donors and recipients could enter preferences and be matched with each other. For example, Heifer International, a charitable organization founded in 1944, became a popular online giving site by allowing individuals to select and fund livestock assets for farmers in developing countries. Another organization, Kiva.org, allowed donors to fund microfinance projects in the developing world by selecting entrepreneurs profiled on its website. By the early 2000s, online giving was becoming an effective way to raise money. According to a survey by the Chronicle of Philanthropy, from 2003 to 2004, online giving to the nation’s largest charities increased 2 DonorsChoose.org by 63 percent to $122 million.12 Best was attracted to the idea of using the internet to solicit funds and to allow donors to direct the use of their funds. He created an organization whose name celebrated the new empowerment of the small donor, and in its first mission statement, DonorsChoose.org made the democratization of philanthropy one of its primary goals. The DonorsChoose.org Model Building on trends in philanthropy, Best came up with a simple idea: DonorsChoose.org would be an online marketplace where classroom teachers could post requests for funds to carry out academic projects, and donors could search for projects of interest and support them. “It’s a philanthropic eBay, in which teachers are the sellers, and donors, or what we call ‘citizen philanthropists,’ are the buyers,” said Best. “It seemed like a common sense solution: we classroom teachers knew our students’ needs better than anybody else in the system, and a lot of people out there wanted to participate more in their giving and really be philanthropists, even if they only had 10 dollars to give.”13 The simplicity of the idea belied the complexity of getting the model working. In order to insure a superior experience for online donors and recipients, Best had to set up an effective structure. Posting Projects DonorsChoose.org first had to determine guidelines for the type of projects teachers could post to the website. Full-time teachers from all public schools, including charter and magnet schools, would be eligible for participation as long as they submitted projects that would directly benefit students. But the organization ruled that projects would not be permitted to “foster discrimination or proselytize a religious or political viewpoint.”14 Projects also could not be used to pay for labor, capital improvements, vehicles, rentals, royalties, or reimbursements.15 Most teachers requested physical materials, such as paints for a kindergarten class, but some wanted funding for special trips or speakers. In order to encourage teachers to plan their projects carefully, DonorsChoose.org implemented a point system. Upon registering, a teacher received three points, which were traded for permission to post a project. Projects requesting materials costing $400 or less required one point to post. More expensive projects required more points. Teachers accumulated additional points for each project that was funded and implemented, and for which donors had been thanked. Teachers who had successfully completed a number of smaller projects could apply for a Special Project, which cost six points and which requested unusual materials (typically for field trips or speakers). No matter how many points a teacher accumulated, the organization limited each teacher to eight projects at a time. (See Exhibit 1 for data about the number of posted projects for a year by teacher and by school.) In order to increase the possibility that the project would be funded quickly, DonorsChoose.org encouraged teachers to submit proposals for projects that cost less than $400, and it suggested that those costing more than $400 be broken up into smaller projects. If a teacher’s project was not funded within five months, it was removed from the site and the points were forfeited. While not part of the initial model, the five-month cut-off was implemented in 2008, after DonorsChoose.org discovered that projects not fully funded after five months were often problematic.

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