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GuideStar at crossroads – Challenge is finding capital

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By Todd Cohen

GuideStar, the pioneering Web publisher of tax, financial and program information about nonprofits, has reached a turning point.

In the face of soaring costs and ambitious plans, its nonprofit parent must decide whether to continue operating GuideStar as a nonprofit entity – or create a for-profit subsidiary.

“We need capital,” says Arthur “Buzz” Schmidt, founder and head of Philanthropic Resources Inc. in Williamsburg, Va. “And we’re definitely exploring every avenue to do it.”

PRI itself will not become a for-profit venture, he says, and it hasn’t given up on being a nonprofit.

But annual operating costs have grown to $8 million from $3.2 million last year, he says, conceding that it will be tough to raise that much in philanthropic dollars every year.

PRI, which already has spent most of the $8 million it has raised, is not alone among nonprofit groups in finding that operating on the Web can require a commercial strategy.

Last September, for example, trustees of the 100-year-old College Board created collegeboard.com to deliver programs and services over the Internet to students and parents.

The nonprofit College Board is the majority investor in collegeboard.com, which raised $15 million in its initial equity financing with venture capital groups.

In April, the Web firm hired William C. Korn, a former top Westinghouse and CBS executive, as its president and chief executive officer.

Unlike nonprofits such as the American Red Cross or America’s Second Harvest that used the Web to extend or expand services they already provided, GuideStar exists only online.

And unlike nonprofits that have created Web portal sites that serve as one-stop shops for people looking for information on a particular topic, such as volunteering or the environment, GuideStar is moving in the opposite direction: It wants to be an invisible “infomediary” that teams up with other organizations and provides its data to their readers.

“We don’t need to do everything because we can’t do everything well,” Schmidt says. “We do need to develop the definitive information resource so that users of data and people serving donors have access to complete information.”

Pursuing that strategy will be expensive, both to pay for the technology to feed data to other Web sites, and also to support the staff to develop and maintain partnerships with other sites.

Schmidt, who hopes to make a decision in June on how to proceed, says he suspects many broad-based nonprofit efforts to operate on the Web likely will face challenges similar to those at PRI.

“I think other organizations are facing this, and it’s partially a challenge of the dot.com’s,” he says. “We need to be as technologically proficient and as responsive as they are or this space will be kind of taken over in a very chaotic way by a number of companies.”

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