SwipeGood Works to Make Giving So Easy, It’s a Rounding Error
This is the fifth in a series of profiles of Y Combinator Winter 2011 (YC W11) startups.
“Keep the change.” You might say that to a taxi driver who’d delivered you speedily and safely to your destination, but it’s unlikely you’d ever say it to a grocery checkout clerk or a Nieman Marcus salesperson. Yet over time the change on your daily purchases can add up to amounts that would make a significant difference to some group, such as your favorite charity.
In fact, if you use your credit or debit card a few times a day, round up each purchase to the next dollar, and add up the difference, you’ll find that you’re racking up $20 in “change” each month, or $240 per year. At least, that’s the average that SwipeGood, a Y Combinator-backed startup based in Palo Alto, is seeing among its users so far. Its mission is to help people give that money to causes they believe in, and, in the process, to help stabilize the fundraising process for non-profit organizations.
Call it “smallesse” (as opposed to largesse). Signing up with SwipeGood, which tracks your purchases and adds the appropriate roundup amount at the end of each month, is a no-hassle, easy-to-understand way to be a mini-philanthropist. At the startup’s website you can choose to send your change to any of more than 500 non-profit groups, from Kiva.org to KQED. Once you’ve chosen one, your money flows to the recipient automatically, providing it with reliable, subscription-style revenue of the type that’s all too rare in the non-profit world.
SwipeGood keeps 5 percent of the donations to fund its own operations. That’s a lot less than the 10 to 20 percent of the annual budget that goes toward marketing and fundraising at most non-profits, says Steli Efti, one of SwipeGood’s three co-founders. “We thought this would be a way to make fundraising more affordable, and to turn it into month-over-month recurring revenue,” Efti says. “Our whole reason for existence is to provide the simple and most elegant solution for giving.”
Efti and his co-founders Anthony Nemitz and Thomas Steinacher made up one of the 43 startup teams to finish the Winter 2011 term at Y Combinator this spring. Even before the incubator’s Demo Day on March 23, the company had raised $500,000 in seed funding from individual investors such as Bebo co-founder Michael Birch. “We were already making revenue then, so we are looking at a very long runway,” says Efti. “I think we could become profitable in a very short period of time.”
An ethnic Greek who was born and raised in Germany, Efti came to the U.S. three years ago with big dreams. His first startup, Supercool School, built a white-label online education platform that’s now used at 4,000 schools in 43 countries. He thinks SwipeGood, which is already seeing weekly growth in the double-digit percentages, can sign up 10 million U.S. households over the next five years—enough to generate donations of $2 billion per year. That would put it on a par with the Salvation Army, the nation’s second largest charity, which raised $1.7 billion in private support in 2010.
The very same consumers who would balk at donating a set percentage of each purchase to a charity are perfectly happy to give away their change, Efti says. “People are afraid of a percentage, but the round-up is a concept everybody gets, and feels they can afford. It’s the option that just psychologically clicks with people.”
But some people are telling the startup they want to give more—so the company is developing settings that would let users round up to the nearest $2, or $5, or simply double their donation at the end of each month. It’s also building ways to let merchants match their customers’ donations, doubling the impact of each transaction—both in bricks-and-mortar locations and online.
I got the whole story on SwipeGood’s operation and its future plans in an interview with Efti yesterday. Here are a few of the key points.
On what’s broken about the current system of non-profit fundraising, from the donor’s perspective:
“There’s too much friction. People have to decide, first what is the right amount to give. Second, what is the right time—now, or at the end of the year, or when the recession is over? Third, finding the right cause where my money will actually make a difference, which organization is going to use my money in the right fashion. People have to make a lot of decisions based on very little information. That results in a lot of people postponing or dropping out of the process. We thought, ‘Why isn’t there a simple and elegant solution where I can make giving to charity part of my daily life, something that ties into my normal behavior?'”
On how the SwipeGood donation collection system actually works:
“There’s an industry-standard platform that provides transactional data for most [financial services] companies, even the banks, and we use the same provider that Mint and Blippy and Bank of America use. It’s called Yodlee. Through them, we can get the transaction data. We do the round-up math on a daily basis, but we charge your card once every 30 days for the aggregated amount. The reason we do that is to decrease the [credit-card processing] charges that the bank would have. If we got charged a 5-cent processing fee on a round-up amount that was only 5 cents, we’d be losing money.”
On how SwipeGood screens non-profits:
“There’s no cost for a non-profit to sign up. They have to fill out a lot of information. They have to put in their EIN [employer identification number], so that we can verify they are a 501(c)(3). They have to share their numbers from the past year. We research those organizations online, check that they are legitimate non-profits, and see what reviews they get and that their overall reputation is a good one. Then we schedule a call to talk with them about the work they’re doing, the types of fundraising they do, and explain how our system works. Then we make them live, and every non-profit gets a special landing page that they can use to market and promote themselves, as well as a dashboard that gives them analytics and allows them to see exactly what’s happening and how many round-ups have been done.”
On extending SwipeGood’s technology to merchants and e-retailers:
“We have a lot of merchants reaching out to us, and we think we are going to start introducing matching [donations by merchants] in the next six to nine months. We are also seeing a lot of interest from online shops—people asking if we have an API [application programming interface] because they would like to include a SwipeGood option in their checkout, so their own customers could round up. It’s a social good component. Merchants say, “I don’t want to deal with a non-profit, you guys seem like a great organization, I just want to use your technology.” That’s an API that we are currently working on and will introduce in the next three months.”
On how SwipeGood is affecting non-profits:
“Once we started sending non-profits monthly checks, we learned that most non-profits have very bad habits in terms of their finances. They’re used to raising a big chunk of money every three to six months and then sitting on that capital until they figure out how to use it, and then fundraising again. But everybody knows that subscription revenue is better than big one-time events. A lot of organizations thought in the past that getting month-over-month donation revenue was impossible, but once they see the kind of impact we can have on their bottom line, they tell us they hope SwipeGood is going to become one of their largest fundraising sources. It allows them to deploy more time and energy to their actual missions.”
On how SwipeGood chooses which non-profits to feature on its home page, and whether organizations might end up in a zero-sum competition for SwipeGood users’ money:
“There are two different streams of users and incomes. Every non-profit has an established donor base, and what we offer is an additional way for their donor base to support them in their daily lives. The second stream of donations happens through generic users who come to SwipeGood who have not already decided what cause they want to benefit. There, you are absolutely right, we are not going to be able to support millions of non-profits with the same amount of money equally. But to be honest we don’t think that’s our responsibility. Nobody entitles a non-profit to win from every new website out there. We will focus on those who do the greatest work and those we think our users will be most excited about.
“But we believe that if you are a non-profit, you should have access to a better funding source. We won’t charge for the platform, we are not going to turn this into a CRM system and start adding features and tools and charge them for that. It will always be free and every non-profit can participate. It’s a level playing field.”
On whether the SwipeGood team members think of themselves as technologists or philanthropists, and whether charitable giving is a field ripe for more innovation:
“We see ourselves as product people. We love beautiful products. And we like to work on things that are not just beautiful products, but are things that can have a big impact. I don’t know if I would go so far as to say we are philanthropists. SwipeGood is a company that unites those things.
“We think there are a million things left to do. The product is very simple, and we love it that way. But there are a million things we can do to make it easier and more accessible and improve the cycle from information to donation flow to what that donation causes and letting users know what the impact of their money was. We want people not just to enroll and forget about it, but to be able to see what kind of impact they are causing with their daily purchases. We think we are just getting started.”