NPI Evaluation of Benetech

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NPI Evaluation of Benetech

  1. 1. NONPROFIT INVESTORINDEPENDENT RESEARCH FOR PHILANTHROPYBenetech SUMMARY Benetech uses technology innovation and business expertise to solveNonprofit Investor Rating: unmet social needs. It currently operates four programs, Bookshare,NEUTRAL Route 66, Human Rights, and Miradi, in the literacy, human rights and environmental conservation sectors.Mission Statement STRENGTHSBenetech combines the power of the human ▲ Strong earned income base. Three of four of Benetech’smind with a deep passion for social programs are revenue generating. With an earned income base,improvement, creating new technology Benetech can reduce its reliance on donor funding as well as movesolutions that serve all of humanity towards financial sustainability.Financial Overview ▲Global impact. Benetech’s products and services are accessible to$ in MM, Fiscal Year Ended December 31 its target population over the web, in turn allowing Benetech to scale globally without a physical presence in individual countries.Accrual Acctg Basis 2008 2009 2010Revenue and Support $9.7 $8.7 $9.0 CAUTIONSOperating Expenses $6.0 $9.7 $10.2 ▼Organization currently not financially sustainable. Benetech’s% of Total: expenses were higher than its revenues in 2009 and 2010 due to a Program Expenses 84.1% 87.3% 83.5% large drop in contributions between 2008 and 2010. Reasons for the G&A 12.6% 10.5% 9.9% decline in contribution are not publicly stated. With just $0.63M of Fundraising 0.3% 0.1% 0.6% cash and cash equivalents at the end of 2010, Benetechs operating R&D, Bid & Proposal 2.9% 2.1% 5.9% deficit is not sustainable. ● Reliance on single revenue source. Benetech derives a significantYear Founded: 1989 portion of program revenue from a single US Department of Education grant. It is unclear how Benetech plans to supplementContact Details program revenue once the grant is fully awarded in Sep 2012.The Benetech Initiative480 S. California Ave. ● Broad focus requires strategic discipline. Benetech indicates thatSuite 201 a key criteria for how the organization selects the causes itPalo Alto, CA 94306-1609 champions is sustainability. However its Human Rights program,(650) 644-3400 which has been in operation since 2003 loses $0.73M a year. In the context of Benetechs overall budget, this is unsustainable.www.benetech.orgEIN: 77-0555413 RECOMMENDATION: NEUTRAL Benetech is a unique organization at the intersection of technologyAnalyst: Nadia Anggraini and social good. It has a proven record of impact, with productsPeer Review: Jason Schifman, Burt Chao currently used by several hundred thousand individuals and organizations globally. Benetech has the potential to become aPublication Date ‘BUY’-rated organization if it improves its financial sustainability andJune 21, 2012 diversity, as well as shows to the public that it is able to operate in a broad range of industries and causes. Nonprofit Investor Research | nonprofitinvestor.org
  2. 2. OVERVIEW OF BENETECHS ACTIVITIESBenetech was founded in 1989 by Jim Fruchterman. It was borne out of Arkenstone, another company started byFruchterman that developed reading machines for blind people. Fruchterman saw the value of providing affordabletools for people with reading disabilities, and was inspired to leverage the power of technology to develop solutions fora broader range of issues varying from education to human rights through Benetech.As described above, Benetech does not focus on a particular sector in its work. Instead, it considers (a) areas for whichthere are great needs, (b) whether there is an opportunity for technology to serve those needs, and (c) whether theproposed business idea to serve the needs is viable and sustainable. The eventual result is the selection andimplementation of ideas that optimize for the “numbers of lives changed” 1, as measured through a metric Benetechcalls ‘Return on Humanity’ (ROH). This is illustrated by the visual below from Benetech’s website:Benetech currently operates four programs: Issue Solution Impact • >125k books available • <5% of published books • Created online library of books • Avg. of 76 titles downloaded per available in formats and periodicals convertible to Bookshare accessible to people with Braille, large print or synthetic user annually • >150k members (across 40 visual or reading disabilities speech countries) • Downloaded by >1k visitors from • Cases of human rights • Developed Martus and Human >60 countries since launch in 03 violations and mass Rights Data Analysis Group • Helped prove certain incidences violence often written off as (HRDAG) tools to collect, Human of human rights violations, inc.: isolated incidences manage, process and analyze Rights – Genocide against • Limited data-driven human rights information indigenous Guatemalan evidence about mass • Offered as open source software population violence available for public access – Peruvian civil war • No software tools designed specifically to manage • Developed software tool for conservation field projects • >4,000 users (across 140 Miradi • Environmental projects do management of complex countries) environmental projects not map well to existing project management tools • >44m people in the US • Developed literacy instruction lacking in basic literacy skills Route 66 • Majority of literacy programs software for adolescents and TBD – launched in 11 beginner adult readers targeted at children onlyAdditionally, Benetech has a for-profit subsidiary, Bengineering, which provides engineering consulting services. It didnot have significant activity in 2008, 2009 and 2010.1 Benetech business model overview: http://www.benetech.org/about/business_model.shtml Benetech | Nonprofit Investor Research 2
  3. 3. PROGRAM RESULTS AND EFFECTIVENESSBenetech tracks and records metrics associated with its individual programs, as illustrated in the diagram above. ItsBookshare, Human Rights, and Miradi programs each have a significant user base, ranging from >1k users havingdownloaded Martus since the program’s inception in 2003, to >150k Bookshare members today.These quantitative metrics are combined with qualitative ones to build a compelling case for the organization’seffectiveness. For example, human rights experts and investigators of truth and reconciliation commissions haveprovided testimonials crediting Martus and HRDAG for playing key roles in proving the case for human rights violationsin countries such as Guatemala and Sri Lanka.One area for which it would be helpful to have more information on is on Benetech’s metric of ‘Return on Humanity’(ROH). ROH is a measure of the “number of lives changed” by Benetech’s programs, and the organization uses thismetric to make decisions on new programs to be launched. However, the organization’s website does not provideadditional detail on how this measure is calculated.TRANSPARENCYBenetech makes its documentation and financials (annual reports, forms 990) up to fiscal year 2010 available on itswebsite. The organization also provides details on its impact on its website.FINANCIAL OVERVIEWBenetech derives its revenue primarily through contributions, in-kind donations, program operations (Bookshare,Human Rights and Miradi). It additionally derives a small proportion of its revenue through royalties, interest income,and engineering & consulting fees, collectively depicted as ‘Other’ income in the chart below.The majority of Benetech’s revenue is generated through its programs (Bookshare, Human Rights, Miradi) rather thancontributions, a strong indication of the organization’s financial sustainability. This growth in program revenue hashelped cushion the >50% decline in contributions experienced by Benetech between 2008 and 2010.It is important to note, however, that a significant proportion of Benetech’s program revenue ($7.2M in 2010, $6.7M in2009, and $6.0M in 2008) is derived from a single source: a 5-year grant awarded by the US Department of Educationtotaling $32M to provide access to Bookshare for all qualified disabled students in the US. While this grant providesBenetech with a stable source of income over multiple years, in turn reducing the need for the organization to devotesignificant resources towards fundraising, it is unclear how Benetech plans to compensate for potential declines inrevenue once this grant is fully awarded in Sep 2012.Additionally, Benetech has experience a decline in its cash and cash equivalents balance amounting approximately$0.7M between 2009 and 2010. With only $0.63M in cash and cash equivalents in 2010 on an operating deficit of $1.0M,this continued deficit will not be sustainable.Benetech is a relatively efficient organization, with majority of expenses being program-related (83% - 87% of totalexpenses between 2008 and 2010). While expenses largely remained flat between 2009 and 2010, there was an increaseof >$3M in expenses between 2008 and 2009, primarily driven by increases in program costs. Program costs rose from$5.1M in 2008 to $8.5M in 2009, a sizable increase given that program revenues only increased from $6.4M to $7.4Mover the same time period. From Benetech’s annual reports, it appears that the increase in program costs between 2008and 2009 were attributable mainly to increases in salaries and related expenses, bank collection and developmentexpenses, and outside services. NPI was not able to contact a spokesperson from Benetech directly to inquire aboutchanges in the organizations’ costs in greater detail. Benetech | Nonprofit Investor Research 3
  4. 4. Revenue Breakdown Expense Breakdown$ in 000 $ in 000 2010 $ (k) +115 7,500 Program revenue Program expenses -729 7,340 7,224 +3 500 859 -69 350 347 0 130 0 69 Bookshare Human Rights Miradi Route 66 Launched 2002 2003 2008 2011 • Subscription: $25 set-up, • Subscription, with pricing $50 annual fee based on ability to pay • HRDAG projects funded • Subscription: from • Awarded $32m govt. – Standard: $250/year by donors individuals, instructors & Rev. model funding in 2007 over 5 – Nonprofit: $150/year • Martus software offered institutional users years to provide services – Low-income (students, for free for free for qualified US dev. country residents: students $25/year • Production: >$6 per novel, • Labor: "Train the trainer" $50 per textbook instruction method, relying • Labor: >200 volunteers for on existing Martus users Cost model scanning & proofreading - - to teach new ones, • Content: partnerships with reducing need for support authors & publishers to 2 by Martus staff minimize delivery costAmong Benetech’s individual programs, Bookshare and Miradi are generating sufficient revenue to break even.Bookshare, Miradi and Route 66 all employ a subscription model that charges individuals or organizations for the use ofproducts, and the Martus software in the Human Rights program stands out as the only program offered for free to thepublic. The decision to offer Martus for free was in line with Benetech’s with Benetech’s principles – “We are committedto equal access to technology. Our software is freely available, and anyone may share our technology and modify it tosuit their needs — all without asking our permission.” 3 As such, the Human Rights program will only achieve breakevenif Benetech is able to raise sufficient funds for it through charitable contributions or government grants.2 Bookshare overview: http://www.benetech.org/literacy/bookshare.shtml; Miradi pricing: https://miradi.org/orders/pricing;Human Rights overview: http://www.benetech.org/human_rights/hrdag.shtml3 Benetech Martus tool overview: http://www.benetech.org/human_rights/martus.shtml Benetech | Nonprofit Investor Research 4
  5. 5. Fiscal Year Ended December 31 2008 2009 2010 Revenue and Expenses (Accrual Accounting Basis - Audited Financial Statements) Support: Donations In-Kind 113,703 105,319 183,021 Contributions 3,091,529 1,215,280 1,030,048 Revenue Program Revenues 6,448,155 7,362,736 7,819,221 Royalties 3,912 6,193 5,844 Engineering and Consulting Fees 9,919 30,127 6,414 Interest Income 2,109 6,192 2,175 Total Support and Revenues $9,669,327 $8,725,847 $9,046,723 % Growth -9.8% 3.7% Expenses: Program Expenses $5,070,605 $8,454,561 $8,499,709 Management and General 761,424 1,015,577 1,008,183 Fundraising 21,064 12,429 63,055 Bid and Proposal 162,914 204,653 593,733 Research and Development 10,986 0 11,703 Total Expenses: $6,026,993 $9,687,220 $10,176,383 Change in Net Assets $3,642,334 ($961,373) ($1,129,660) Program Costs as a % of Total Expenses 84.1% 87.3% 83.5% G&A as a % of Total Expenses 12.6% 10.5% 9.9% Fundraising as a % of Total Expenses 0.3% 0.1% 0.6%THIRD PARTY RATINGSBenetech holds close to a 5-star rating from Great Nonprofits (based on 7 reviews), and is not currently rated on CharityNavigator, Philanthropedia or Givewell.GET INVOLVED • Volunteer with Benetech in a number of capacities (e.g. engineers to assist with programming, QA and research projects, translators to help update Martus software, individuals to scan books for Bookshare) • Donate to BenetechDISCLOSURESNadia Anggraini certifies that she does not have any affiliation with Benetech and has never made a donation to the organization.Additionally, Nadia has not supported directly competing organizations in a greater capacity than a nominal donation. NPI analystsand NPI as an organization do not receive any form of compensation from reviewed charities.This report is for informational purposes only and does not constitute a solicitation for donations. While the reliability of informationcontained in this report has been assessed by NPI, NPI makes no representation as to its accuracy or completeness, except withrespect to the Disclosure Section of the report. Any opinions expressed herein reflect our judgment as of the date of the materialsand are subject to change without notice. NPI has no obligation to update, modify or amend any report or to otherwise notify areader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changesor subsequently becomes inaccurate, or if research on the subject organization is withdrawn.Opinions and recommendations in our reports do not take into account specific reader circumstances, objectives, or needs. Therecipients of our reports must make their own independent decisions regarding any organization mentioned by NPI. Benetech | Nonprofit Investor Research 5

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