DonorsChoose.org

NONPROFIT INVESTORINDEPENDENT RESEARCH FOR PHILANTHROPYDonorsChoose.org SUMMARY Created in 2000 by Charles Best, a former public high school teacher in theNonprofit Investor Rating: Bronx, DonorsChoose.org (“DC”) is an online funding website that connects U.S. public school teachers to donors that wish to support their specificBUY classroom project or supply needs. Once a project reaches its fundraising goal, DC purchases the materials and delivers them to the school.Mission Statement STRENGTHSDonors Choose engages the public in publicschools by giving people a simple, accountable Integrity ensured via e-procurement system. When a project becomes fullyand personal way to address educational funded, instead of sending the school funds, materials are bought throughinequity. It envisions a nation where children DC’s e-procurement system (“eSchoolMall”), ensuring accountability.in every community has the tools andexperiences needed for an excellent Successfully creating public awareness. DC has established partnershipseducation. with well-known companies, charitable foundations, and public figures such as Bing, Crate & Barrel, Bill & Melinda Gates Foundation, and Oprah. TheseFinancial Overview partnerships, as well as DC gift cards, corporate matching, facebook “Likes”$ in MM, Fiscal Year Ended December 31, campaigns have improved public awareness of DC and its mission. Improving efficiencies. Previously, much of the procurement process was 2008 2009 2010 handled manually; DC continues to work on automating and improvingRevenue and Support $18.6 $17.3 $24.5Operating Expenses $15.6 $17.0 $24.5 internal processes. Classroom processing expenses have declined from 17% to 12% as a percent of total classroom project expenses from 2008 to 2010.% of Total: CAUTIONS Program Expenses 59% 63% 73% G&A 37% 32% 24% Not self-sufficient (yet). In addition to classroom project contributions, Fundraising 5% 5% 3% donors are asked to include an additional (optional) contribution towards DC operating expenses. These contributions have improved yearly, but the% Self Sustaining 22% 38% 56% remaining shortfall is still being covered by expansion funds raised during 2007 and 2008 through a small group of donors and the Board of Directors. Information sharing could be broadened. While DC’s website provides aContact Details detailed statistics of dollars raised, number of students helped, and itsDonorsChoose.org impact across subject, grade, and resource, beyond this, there are no213 West 35th Street, 2nd Floor East studies showing how such information has been shared with otherNew York, NY 10001 organizations or influenced policy to improve educational resources.http://www.donorschoose.org RECOMMENDATION: BUYEIN: 13-4129457 Through many successful publicity campaigns, DonorsChoose.org has gained popularity. As a result, contributions to DC have increasedAnalyst dramatically in the past few years, helping more classrooms in need. AsEmily Wang scalability is reached, there has been evidence of improved processing efficiencies and reduction in costs. In addition to contributing to thePublication Date classroom projects themselves, we would recommend donors to make theOctober 12, 2011 optional contribution of 12-19% to support DC’s operating expenses. Nonprofit Investor.org

OVERVIEW OF DONORS CHOOSECreated in 2000 by Charles Best, a former public high school teacher in the Bronx, DonorsChoose.org (“DC”) is an online fundingwebsite that connects U.S. public school teachers to individual or corporate donors that wish to support their specific classroomproject or supply needs. Once a project reaches its fundraising goal, DC purchases the materials and delivers them to the school.The average public school teacher spends $500 annually in out-of-pocket expenses to acquire basic classroom materials. Sinceinception, DC has raised $90 million, supporting close to 220,000 projects, and helping over 5.0 million students. Roughly 50% ofresources provided are books and technology, 38% towards classroom supplies, and 10% to other resources.FINANCIAL OVERVIEWRevenue Recognition. Contributions for classroom projects include project materials, donor thank you package and delivery costs,and third party credit card fees. Contributions for operating expenses is a suggest optional contribution that helps pay for operatingexpenses such as classroom project processing, project advocacy expenses, general and administrative expenses, and fundraisingexpenses.Expenses. DC defines program services expenses as classroom project expenses, class project processing expenses, and projectadvocacy expenses. This definition seems too broad, as processing expenses and advocacy expenses should be considered operatingexpenses, as the expenses are not directly beneficial to the project itself, but rather are integral parts of operating the non-profit.Taking all this into account, program expenses comprise only 73% - instead of 94% - of total 2010 expenses.Previously, much of the procurement process was handled manually; DC continues to work on – and has publicly admitted effortstoward –automating and improving internal processes and further reducing costs. Classroom processing expenses have declinedfrom 17% to 12% as a percent of total classroom project expenses from 2008 to 2010. Furthermore, as a result of widespreadpopularity of partnership campaigns, advocacy costs have declined yearly since 2008, both as a percent of total expenses andabsolute dollar. 2010 2009 2008 Re venue Contributi ons for cl a ss room projects $ 17,776,627 $ 13,274,332 $ 8,557,127 Contributi ons for opera ting expens es 3,708,410 2,360,924 1,439,517 Contributi ons for progra m s ervi ces a nd supporti ng s ervi ces 2,418,473 1,043,793 2,651,540 Contributi ons for expa ns i on - - 5,800,000 Provi si on for uncol l ecti bl e uncondi ti ona l promi s es to gi ve (500,000) Dona ted s ervi ces , fa ci li ti es a nd equi pme nt 524,388 353,623 262,842 Interes t income 89,819 262,355 351,263 Net a s se ts rel ea s ed from res tri cti ons - - - Total Revenue 24,517,717 17,295,027 18,562,289 Expenses Cl a ss room projects 17,899,879 10,739,446 9,145,333 Opera ting expens es Cl a s s room project process i ng 2,131,357 1,792,598 1,586,334 Cl a s s room projects a dvoca cy 2,960,326 2,980,298 3,166,531 Gene ra l & Admi ni s tra ti ve 817,831 697,733 963,516 Fundra is i ng 666,332 774,839 712,923 Opera ti ng expe nses , subtota l 6,575,846 6,245,468 6,429,304 Total Expenses 24,475,725 16,984,914 15,574,637 Cha nge in As sets 41,992 310,113 2,987,652 Progra m Expenses a s % of Tota l Expens es 73% 63% 59% Opera ti ng Expens es a s % of Tota l Expe nse s 24% 32% 37% Fundra i s i ng Expens es a s % of Tota l Expe nses 3% 5% 5% Sel f Sus ta i ni ng* (2,867,436) (3,884,544) (4,989,787) % Sel f-Susta i ni ng 56% 38% 22% *Cont ributions for operating expenses less operat ing expenses. Operating expenses are def ined as tot al expenses plus capital expneditures, less classroom project expense, donated services included in expenses and depreciat ion DonorsChoose.org | Nonprofit Investor Research 2

RESULTS AND TRANSPARENCYDonors Choose provides the required financial information from 2008 to 2010 in its financial statements and Form 990s.DC’s website provides a detailed overview of dollars raised, number of students helped, and its impact across subject, grade, andresource. These statistics are updated on a daily basis.GROWTHThe multi-user funding model where donors can choose by state, subject, grade level, resource the project that most appeals tothem can be replicated to other community and social agendas such as police officers, medical needs, etc. While DC has had severalproject requests for such agendas, the organization plans to further strengthen its model specifically in the United States, in publicschools, on low-income communities, prior to expanding its model to efforts.NPI RECOMMENDATION VS. CHARITY NAVIGATORDC is positively reviewed by Charity Navigator, receiving four-stars (out of four-stars), reflecting high accountability and transparencyscores, as well as strong financial scores. The primary difference in NPI’s analysis and Charity Navigator’s analysis is in reference toprogram expenses. Charity Navigator takes DC’s definition of program expenses at face value versus NPI analysis which separatesprocessing and advocacy expenses from the definition. Charity Navigator calculates program expenses, as a percent total expenses,at 95% versus NPI at 73%.DISCLOSURESEmily does not have any affiliation with DC and has made one donation to DC prior to the writing of this report. DonorsChoose.org | Nonprofit Investor Research 3

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