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Mini Case Study: Why VolunteerMatch rejected venture financing and the prospect of fast growth

   /   Oct 18th, 2010Mini Case Studies

PROBLEM:
VolunteerMatch
, an online service that matches volunteers and organizations, had operated for about a year when it faced a wrenching choice: either become a for-profit business, which would allow the organization to grow quickly by accepting investment from venture investors, or remain a nonprofit, which would mean maintaining a strong social mission but expanding at a slower pace.

Angel investors had backed the launch of the fledgling service, but more money was needed to scale up nationally. VolunteerMatch’s management and board wondered how to fulfill a promise made to funders during the organization’s first capital campaign: after the initial philanthropic investment, VolunteerMatch would be self-supporting.

A group of venture capitalists (VCs) offered VolunteerMatch the financing it needed for its next growth phase, but there was a catch: the organization would have to go for-profit, offering the VCs an opportunity to capitalize on their investments if the company was sold or went public. The founders and the board worried that social organizations would stop dealing with the site if it turned into a business. Meanwhile, investors wanted the right to withdraw from the deal if VolunteerMatch failed to meet its growth targets. Greg Baldwin, VolunteerMatch’s president, recalls that the choice he was faced with “couldn’t have been any more agonizing: Do you want to be rich? Or do you want to do the right thing?”

RESPONSE:
Internal discussions centered around maintaining credibility and trust among VolunteerMatch’s clients. After debating the options ”ad nauseum,” Baldwin recalls, VolunteerMatch decided to remain a nonprofit. A philanthropist on the VolunteerMatch board helped rally donors to contribute enough money to expand the service nationally. And in 2000, major foundations, including Atlantic Philanthropies and the Ford, Knight, Packard, Omidyar and Surdna Foundations, funded a capital reserve account that would help cover expenses when revenues fell short.

RESULTS:
VolunteerMatch has grown steadily, but, as predicted, more slowly than venture investment would have allowed. The organization has worked to keep expenses down. When shortfalls occur, as in 2009 when the $3.5 million in revenues fell $200,000 short of overall expenses, they are covered with the capital reserve account or individual donations. But VolunteerMatch has not had to seek major capital infusions to maintain its work.

Learn More:

Today, VolunteerMatch has millions of visitors each year and boasts that it is “the preferred internet recruiting tool for more than 73,000 non-profit organizations.” Baldwin says that he and the founders have no regrets that VolunteerMatch has not made them rich. “It was the classic, ‘Are we prepared to take the road less traveled in order to better serve the non-profit community?’ It was really hard, but hanging on to that idea and making sure it would work was really important to us.”

Photo: VolunteerMatch

3 Responses

  1. Jeff Mowatt says:

    That is where a pioneer of for-profit social enterprise agrees with you.
    http://www.axiomnews.ca/gennews/966
    A distinction needs to be made between profit-for-purpose social enterprise and that funded by VC with expectations of return..

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