NPI Evaluation of DonorsChoose.org

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On March 28, 2012, Emily Wang published an updated evaluation of DonorsChoose.org, maintaining its "BUY" rating. This report has been peer reviewed by Ruth Yen and Kent Chao.

Created by Charles Best, a former public high school teacher in the Bronx, DonorsChoose.org (“DC”) is an online funding website that connects U.S. public school teachers to multiple donors, who are able to choose the specific classroom project or supply they want to support. Once a project reaches its fundraising goal, DC purchases the materials and delivers them to the school.

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NPI Evaluation of DonorsChoose.org

  1. 1. NONPROFIT INVESTORINDEPENDENT RESEARCH FOR PHILANTHROPYDonorsChoose.org SUMMARY Created 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 multiple donors, who areBUY able to choose the specific classroom project or supply they want to support. Once a project reaches its fundraising goal, DC purchasesMission Statement the materials and delivers them to the school.DonorsChoose.org engages the public in public STRENGTHSschools by giving people a simple, accountable ▲ Integrity ensured via e-procurement system. When a projectand personal way to address education becomes fully funded, instead of sending the school funds, materialsinequity. It envisions a nation where children are bought through DC’s e-procurement system (“eSchoolMall”),in every community have the tools and ensuring accountability.experiences needed for an excellenteducation. ▲ Successfully creating public awareness. DC has established partnerships with well-known companies, foundations, and publicFinancial Overview figures such as Crate & Barrel, Bill & Melinda Gates Foundation, and$ in MM, Fiscal Year Ended June 30 Oprah. These partnerships, as well as DC gift cards, corporate matching, and Facebook “Like” campaigns have improved public 2009 2010 2011 awareness of DC and its mission.Revenue and Support $17.3 $24.5 $32.9 ▲ Improving efficiencies. DC has worked on automating andOperating Expenses $17.0 $24.5 $33.4 improving its internal processes. From fiscal year 2009 to 2011, classroom processing expenses declined from 11% to 6% as a% of Total: percent of total expenses. Program Expenses 73.8% 81.8% 85.0% ▲ Self sufficiency. In addition to project contributions, donors are Advocacy 17.5% 12.1% 10.1% asked to include an additional (optional) contribution towards DC G&A 4.1% 3.3% 2.5% operating expenses. At the time of NPI’s last report, DC was 56% self- Fundraising 4.6% 2.7% 2.3% sufficient. Currently, at 99%, DC is essentially self-sufficient, representing an impressive accomplishment and milestone.Year Founded: 2000 CAUTIONSContact Details ● Vendor pricing. eSchoolMall is comprised of roughly 20-25 vendor catalogs and websites. While DC does receive some vendor discounts,DonorsChoose.org given DC’s scale, DC may be able to exercise more pricing pressure213 West 35th Street, 2nd Floor East on vendors to ensure lower and more competitive prices to donors.New York, NY 10001 RECOMMENDATION: BUYhttp://www.donorschoose.orgEIN: 13-4129457 Through many successful publicity campaigns, DonorsChoose.org has gained popularity. As a result, contributions to DC have increased dramatically in the past few years, helping more classrooms in need.Analyst: Emily Wang There has been evidence of cost reductions and in fiscal year 2011, DCPeer Review: K. Chao, R. Yen became self-sufficient in covering its operating expenses through optional donations. We recommend donors to contribute to bothPublication Date directly to classroom projects and to DC through an optional 12-19%March 28, 2012 contribution. Nonprofit Investor Research | nonprofitinvestor.org
  2. 2. OVERVIEW OF DONORSCHOOSE.ORG ACTIVITIESCreated in 2000 by Charles Best, a former public high school teacher in the Bronx, DonorsChoose.org (“DC”) is an onlinefunding website that connects U.S. public school teachers to multiple donors, who are able to choose the specificclassroom project or supply they want to support. To ensure integrity, DonorsChoose.org has an internal Assurancedepartment that manages the authentication process by reviewing proposals, text descriptions, and requested materials.Once a project reaches its fundraising goal, DC purchases the materials and delivers them to the school.When a project becomes fully funded, instead of sending the school funds, materials are bought through DC’s e-procurement system (“eSchoolMall”), ensuring accountability. eSchoolMall is comprised of roughly 20-25 vendorcatalogs and websites. Twice a year, DC reviews its vendors on 12 areas including responsiveness, catalog size, in-stockavailability, etc. While DC does receive some vendor discounts, given DC’s scale, DC may be able to exercise more pricingpressure on vendors to ensure lower and more competitive prices to donors. That said, DC attempts to have at least twovendors for a specific item, which naturally encourages competition amongst vendors.PROGRAM RESULTS AND EFFECTIVENESSThe average public school teacher spends $500 annually in out-of-pocket expenses to acquire basic classroom materials.Since inception, DC has raised over $108 million, supporting over 260,000 projects, and helping over 6 million students.Roughly 52% of resources provided are books and technology, 38% towards classroom supplies, and 11% to otherresources such as field trips.About 70% of projects become fully funded and 89% of donations include the optional donation to DC’s operations.Most importantly, 94% of teachers surveyed noted that their funded projects increased their effectiveness in theclassroom.TRANSPARENCYDonorsChoose.org provides financial information from 2008 to 2011 in its financial statements and Form 990s on itswebsite. Its website also provides a detailed overview of dollars raised, number of students helped, and its impact acrosssubject, grade, and resource. These statistics are updated on a daily basis.FINANCIAL OVERVIEWRevenueProject contributions include contributions for Funding (GAAP Basis)classroom projects such as project materials, donor $ in MMthank you package and delivery costs, and third $35.0 $32.8party credit card fees. Contributions for operating $30.0expenses pay for all expenses other than classroom $24.4 $25.0project materials and are divided into threecomponents: a $35 per project fulfillment fee, a $20.0 $18.2 $17.1payment processing fee, and an optional $15.0contribution donors can make. This optional $10.0donation helps pay for all other expenses, including $5.0classroom project advocacy expenses, general and $0.0administrative expenses, and fundraising expenses. 2008 2009 2010 2011 Contributions for Classroom Projects Contributions for Operating ExpensesContributions for program services are unrestricted Contributions for Program Services Donations In-Kindor temporarily restricted. If unrestricted, DC will Investment Income Other DonorsChoose.org | Nonprofit Investor Research 2
  3. 3. decide where the funds will be used. If temporarily restricted, the funds will be used in accordance with the donor’srestriction. In fiscal year 2008, Other represents contributions for expansion, as raised by a small group of donors andthe Board of Directors.ExpensesDC defines program services expenses as classroom project expenses, class project processing expenses, and projectadvocacy expenses. Since advocacy expenses do not directly benefit the project itself, NPI views these expenses asoperating expenses rather than program expenses. As a percent of total expenses, program costs have steadilyimproved over the years from 69% in fiscal year 2008 to 85% in fiscal year 2011, or the equivalent improvement of a 7%compound annual growth rate (CAGR). Notably, included in program costs are classroom processing expenses, whichhave declined through the years due to automating and improving several internal processes to further reduce costs. DCcontinues to aims to grow through scale without adding people. Finally, as a result of widespread popularity ofpartnership campaigns, advocacy costs as a percent of total expenses have declined yearly since 2008. Total Expense Breakdown (GAAP Basis)$ in MM $40.0 100% 85.0% 90% $35.0 81.8% 73.8% 80% $30.0 68.9% 70% $25.0 60% $20.0 50% $15.0 40% 30% $10.0 20% $5.0 10% $0.0 0% 2008 2009 2010 2011 Classroom Project Expense Classroom Project Processing Classroom Project Advocacy General & AdministrativeBenefit per studentIn fiscal year 2011, over $33 million was spent on roughly 65,000 funded projects, equating to $514 as the averageproject cost. With around 1.6 million students helped, the average cost per student benefiting from DC projects was $21.Self-sufficiencyAt the time of NPI’s last report (October 12, 2011), DC was 56% self-sufficient. Currently, at 99%, DC is essentially self-sufficient, representing an impressive accomplishment and milestone for an organization formed in 2000. By DCsdefinition, self-sufficiency is achieved when the sum of contributions for classroom projects and contributions foroperating expenses is greater than total expenses. This is achieved by donors including an additional (optional)contribution towards DC operating expenses. NPIs calculation of self-sufficiency excludes "contributions for programservices and supporting services" as some funds may be temporarily restricted. Based on conversations withmanagement, this exclusion may be overly conservative.Optional contributions to operating expenses increased from 8% of total support in 2008 to 21% in 2011, or $5.6 million.Additionally, DC was able to control total advocacy, general and administrative, and fundraising expenses over the past DonorsChoose.org | Nonprofit Investor Research 3
  4. 4. few years. The total of such expenses increased only 11% from 2008 to 2011, or about $717,000. The combination ofincreased contributions and relatively flat expenses helped DC achieve self-sufficiency. If DC is able to continue to growwhile keeping its fixed costs relatively constant as it historically has, the organizations self-sufficiency should furtherimprove.In fiscal year 2011, DonorsChoose.org expenses exceeded total support and revenues by $502,709. Given theorganizations balance of cash and cash equivalents of $15.6 million and its improvements in operating efficiency, thisdeficit does not significantly impact the organizations sustainability. Detailed Financial InformationFiscal Year Ended June 30 2008 2009 2010 2011 Source:Revenue and Expenses (GAAP Accounting Basis) Support: Contributions for classroom projects $8,557,127 $13,274,332 $17,776,627 $24,689,888 Audited Financial Statements (GAAP) Contributions for operating expenses 1,439,517 2,360,924 3,708,410 7,061,076 Audited Financial Statements (GAAP) Contributions for program services and supporting services 2,651,540 1,043,793 2,418,473 913,716 Audited Financial Statements (GAAP) Contributions for expansion 5,800,000 - - - Audited Financial Statements (GAAP) Revenue Donated services, facilities and equipment 262,842 353,623 524,388 160,394 Audited Financial Statements (GAAP) Provisions for uncollectible unconditional promises to give (500,000) - - - Audited Financial Statements (GAAP) Interest Income 351,263 262,355 89,819 69,538 Audited Financial Statements (GAAP) Net Assets Released from Restrictions - - - - Audited Financial Statements (GAAP) Total Support and Revenues $18,562,289 $17,295,027 $24,517,717 $32,894,612 % Growth -6.8% 41.8% 34.2% Expenses: Program Costs: Classroom project expense $9,145,333 $10,739,446 $17,899,879 $26,250,601 Audited Financial Statements (GAAP) Classroom project processing 1,586,334 1,792,598 2,131,357 2,146,948 Audited Financial Statements (GAAP) Classroom projects advocacy 3,166,531 2,980,298 2,960,326 3,373,225 Audited Financial Statements (GAAP) General & administrative 963,516 697,733 817,831 849,375 Audited Financial Statements (GAAP) Fundraising 712,923 774,839 666,332 777,172 Audited Financial Statements (GAAP) Total Expenses: $15,574,637 $16,984,914 $24,475,725 $33,397,321 % of Revenue 83.9% 98.2% 99.8% 101.5% Revenue Less Expenses $2,987,652 $310,113 $41,992 ($502,709) Program Costs as a % of Total Expenses 68.9% 73.8% 81.8% 85.0% Advocacy as a % of Total Expenses 20.3% 17.5% 12.1% 10.1% G&A as a % of Total Expenses 6.2% 4.1% 3.3% 2.5% Fundraising as a % of Total Expenses 4.6% 4.6% 2.7% 2.3% Self-Sufficiency %* 22.4% 37.8% 56.4% 98.8%Cost per Project / Beneficiary Projects Funded 27,172 34,000 46,000 65,000 Form 990 Total Expenses $15,574,637 $16,984,914 $24,475,725 $33,397,321 Audited Financial Statements (GAAP) Average Cost Per Project $573 $500 $532 $514 Total Students Benefited 900,000 1,100,000 1,600,000 Form 990 Average Cost Per Student $19 $22 $21*Self-Sufficiency %: Contributions for operating expenses / (Total expenses - Classroom project expense) DonorsChoose.org | Nonprofit Investor Research 4
  5. 5. GROWTHReplication of DC modelThe multi-user funding model whereby donors can choose by state, subject, grade level, and resource the project thatmost appeals to them can be replicated to other community and social agendas such as police officers, medical needs,etc. While DC has had several project requests for such agendas, the organization has no plans to expand its model toother efforts and instead, plans to further strengthen its model specifically in the United States, in public schools, in low-income communities. That said, DC regularly hosts webinars to interested parties on their various business operations,such as procurement, marketing, and technology. DC’s collaboration to help external sources replicate their successfulbusiness model is viewed extremely positively.Information sharingWhile DC’s website provides very comprehensive details of dollars raised, students helped, etc., beyond this, there areno studies showing how such information has been shared with other organizations or to influence education resourcesor policy—arguably, an area DC can make an even larger impact. That said, DC is aware that their clout and organizationfollowing could potentially be leveraged for this purpose.THIRD PARTY RATINGSDC is positively reviewed by Charity Navigator, receiving four-stars (out of four-stars), reflecting high accountability andtransparency scores, as well as strong financial scores. The primary difference in NPI’s analysis and Charity Navigator’sanalysis is in reference to program expenses. While Charity Navigator includes processing and advocacy expenses in itscalculation of program expenses, NPI has excluded it. As a result, Charity Navigator calculates program expenses at 95%of total expenses versus NPI at 85%.GET INVOLVED• The primary way to support DC is monetarily, by supporting a classroom project. Roughly 24,000 projects are currently in need of funding.• DC offers a gift card which allows the recipient to select classroom projects to support (gift cards can be purchased by individuals and corporations)DISCLOSURESEmily does not have any affiliation with DonorsChoose.org and has made one donation to DC prior to the writing of thisreport. NPI analysts and NPI as an organization do not receive any form of compensation from reviewed charities. NPIhas held a call with DonorsChoose.orgs CFO and a member of DCs Financial Operations team. DonorsChoose.org | Nonprofit Investor Research 5

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