Donorschoose.Org: How Technology Facilitated a New Funding Model

CASE: SI-128 DATE: 9/14/15 DONORSCHOOSE.ORG: HOW TECHNOLOGY FACILITATED A NEW FUNDING MODEL My colleagues and I were spending our own money on books and pencils and other school supplies, and we were talking about field trips we wanted to take our students on or science experiments that required a microscope. My thinking was that there must be people out there who 1 would want to help teachers like us if they could see exactly where their money was going. —Charles Best, Founder and CEO, DonorsChoose.org In 2000, Charles Best, a social studies teacher working in a school in the Bronx, New York, scraped together $2,000 to pay an overseas web designer to build a rudimentary website he had designed using pencil and paper. On the website, teachers could post projects that needed funding—from books and paints to field trips and educational software—and individuals could donate towards those requests. By 2014, half of the public and charter schools in the United States had at least one teacher who had used the DonorsChoose.org website,2 more than 10 million students had received classroom supplies, and more than 1.4 million donors had contributed funds to providing these supplies.3 Over time, the organization also found itself with a powerful tool at its disposal—vast troves of data that could be analyzed to provide insights into everything from teaching methods to core education funding needs. “This was one of the breed of start-ups that is scratching a personal itch,” explained Best. “And the solution just started to grow beyond that particular itch.” 1 Interview with Charles Best, founder and CEO of DonorsChoose, August 2014. Subsequent unattributed quotes from Charles Best in this case are from this interview. 2 DonorsChoose.org, National Overview, http://cdn.donorschoose.net/docs/DonorsChoose_org- NationalOverview.pdf (June 7, 2014). 3 DonorsChoose.org website, http://www.donorschoose.org/about/impact.html (June 8, 2014). Lecturer Laura Arrillaga-Andreessen and Sarah Murray prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2015 by the Board of Trustees of the Leland Stanford Junior University. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business. Every effort has been made to respect copyright and to contact copyright holders as appropriate. If you are a copyright holder and have concerns, please contact the Case Writing Office at [email protected] or write to Case Writing Office, Stanford Graduate School of Business, Knight Management Center, 655 Knight Way, Stanford University, Stanford, CA 94305-5015. DonorsChoose.org: How Technology Facilitated a New Funding Model SI-128 p. 2 Best had not set out to influence public education policy. He simply wanted to raise some money to pay for classroom materials and experiences, such as trips to museums and nature preserves, which his school could not afford. But his idea for using the Internet to connect individual donors to teachers who needed extra learning resources was to turn into something far bigger than he had ever imagined. PIONEERING A CROWDFUNDING APPROACH TO PHILANTHROPY Best created DonorsChoose.org because of his frustration at seeing colleagues having to reach into their own pockets to pay for the resources and supplementary educational experiences they needed for the students. This challenge resulted from the increasingly tight budgets at many public schools. Since the U.S. Constitution did not guarantee the right to education, funding for public education remained largely the responsibility of individual states. From 2008, the financial crisis and ensuing recession—which lowered the tax revenues needed to finance education—had taken its toll, with many states reducing the amount of public school funding.4 Concerned with the funding gaps and weaknesses they saw in the traditional education system, many wealthy donors became increasingly focused on education, often by funding charter schools. A national study found that 80 percent of wealthy U.S. donors gave to educational causes in 2011, the highest rate of any issue area.5 However, for the millions of Americans wanting to make smaller education-oriented gifts in a transparent, strategic way, no giving channels existed beyond supporting their local school. This was the philanthropic market need that Best’s new model filled. In 2000, after persuading 11 of his colleagues at the school to post requests on the new site, he went about looking for people to make the donations that would pay for the requests. His aunt, a nurse, funded one of the projects, but Best himself had to fund the other 10 because he did not know any more donors to ask. While relying on colleagues and family at this nascent stage, Best had established a fundraising model that used crowdfunding, a mechanism through which small amounts of money could be sought from large pools of individuals via the Internet in order to fund a particular project. “Thanks to the Internet and technology, the experience of being a philanthropist was now available to someone with five dollars,” said Best. In the DonorsChoose.org model, teachers from any U.S. K-12 public school (including public charter schools) could use the site to post their classroom project requests—from protractors and encyclopedias to digital cameras, musical instruments, and science supplies. To guarantee 4 William Zumeta, “States and Higher Education: On Their Own in a Stagnant Economy,” NEA Almanac of Higher Education, 2012, p. 28, http://www.nea.org/assets/docs/_2012_Zumeta_18Jan12.pdf (November 5, 2014). 5 Bank of American and the Center on Philanthropy at Indiana University, “2012 Bank of America Study of High Net Worth Philanthropy,” November 2012, http://newsroom.bankofamerica.com/files/press_kit/additional/2012_BAC_Study_of_High_Net_Worth_Philanthrop y_0.pdf (November 5, 2014). DonorsChoose.org: How Technology Facilitated a New Funding Model SI-128 p. 3 integrity DonorsChoose.org vetted each request.6 Millions of teachers could seek funding for the supplies and educational experiences that, because their schools were unable to finance them, they were often paying for themselves. Using the DonorsChoose.org website, individuals could select a project that inspired them. They could give any amount to that project and, when the project reached its funding goal, DonorsChoose.org purchased the materials and shipped them to the school. In return, donors received photographs of their project being implemented, a letter from the teacher, and a cost report showing how their money was being spent. Those giving more than $50 would also receive handwritten thank-you letters from the students.7 But while his organization’s beginnings were humble, Best had come up with a model that had the potential for far-reaching impact. Far earlier than many other new generation social entrepreneurs, he had recognized that technology could create a marketplace for “citizen philanthropy”—an approach in which individuals connected with their peers to define and solve problems themselves and meet social needs (rather than relying on experts or large organizations). With DonorsChoose.org as one of the pioneers of this concept, the new brand of citizen philanthropy evolved rapidly since the late 1990s, driven by the advent of broader Internet access and the growth of social media. The ability to give online also allowed individual givers to help drive larger grassroots funding movements in which thousands of small gifts could add up to substantial contributions to organizations or causes. It meant donors from all income levels could participate in philanthropy in new ways. Moreover, financial donations were only part of the new citizen philanthropy movement. Online, individuals could contribute to discussions on everything from poverty to climate change through blogs and social media, thereby becoming advocates and building awareness for social issues. Best saw that by matching donors directly with projects online, he could promote citizen philanthropy and develop a more accountable approach to educational giving, bringing together individual philanthropists and educators in a direct way that would not have been possible without the Internet’s connective power. It should be remembered, however, that in 2000, Best was simply trying to find funds for classroom projects and did not think of himself as a social entrepreneur or as someone building an institution to reinvent how people engage philanthropically. Nevertheless, the growth of DonorsChoose.org was rapid. By 2014, the organization had raised $225 million and helped more than 175,000 teachers fund over 400,000 projects, contributing to a richer education for more than 10 million students.8 6 DonorsChoose.org, National Overview, op. cit. 7 DonorsChoose.org website, http://www.donorschoose.org/about (June 8, 2014). 8 Peg Tyre, “Beyond School Supplies: How DonorsChoose is Crowdsourcing Real Education Reform,” Fast Company, March 2014. DonorsChoose.org: How Technology Facilitated a New Funding Model SI-128 p. 4 A NEW WEB OF CONNECTED PHILANTHROPISTS When Best was conceiving his idea for DonorsChoose.org, the Internet age was coming into being. Dotcom start-ups were using the power of the Internet to connect buyers with sellers across

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