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U.S./world – Pulling the plug – Unresolved conflicts

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By Todd Cohen

Charitableway, a leading firm in the emerging industry of online philanthropy, is calling it quits after raising $43 million from investors and marketing a Web-based system that has processed $36 million since last fall in workplace-giving campaigns.

The two-year old firm, which is based in San Carlos, Calif., and employs 100 people, overestimated the size of the e-philanthropy market, and could not resolve conflicting demands from its corporate clients and United Way partners, says Pete Mountanos, a former executive of Softbank Technology Ventures and Microsoft who founded and heads the firm.

Another hurdle, he says, was trying to work both with United Way groups and with charities and fundraising federations that are not part of the United Way.

Charitableway initially created a online charity mall aimed at consumers that let visitors contribute to charities directly or by making online purchases.

Investors include Benchmark Capital, Softbank Technology Ventures, TCV, PaineWebber, JGE Capital Management, DLJ, Comdisco, Hambrecht & Quist and Hewlett-Packard.

But after finding that charities were not prepared to manage data about online donors, the company last fall shifted its strategy and introduced its workplace-giving product.

Charitableway, which had planned to introduce a donor-advised-fund product this spring, signed up 12 companies to handle their workplace campaigns.

More than 90 percent of the donations that Charitableway processed involved partnerships between its corporate clients and about 300 United Way affiliates – with the United Way Silicon Valley accounting for about two-thirds of all the company’s business.

Charitableway also processed contributions for the Combined Federal Campaign for U.S. government retirees in partnership with Earthshare and Community Health Charities.

Mountanos says he will liquidate the company in six to eight months after training clients and their charitable partners to process their campaigns using smaller systems.

“Investors want to make sure we do the right thing by the charities,” he says. “And by doing it now, we can return capital to the investors.”

Tom Reis, who tracks e-philanthropy for the W.K. Kellogg Foundation in Battle Creek, Mich., says Charitableway’s demise could signal that the bottom line for the online-charity business may be more about social enterprise than high returns.

“It may be pointing to the reality that while there is enterprise in the e-philanthropy hills, it may not be the golden, high-return on investment that the venture capital community or even the business community in general wants,” he says.

In the past two years, the number of online charity sites has grown to at least 300 from 140, according to Reis, who says Kellogg is about to issue a revised version of a survey of e-philanthropy Web sites it released two years.

Mountanos says he will continue to be involved in e-philanthropy.

“I think there are still good propositions in this space and there is always money for a good business proposition,” he says. “In light of what it takes to grow, and the size of various markets within the big philanthropy market, a more appropriate structure is smaller and slower.”

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