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The 1M1M Deal Radar 2010: BiddingForGood ,Cambridge, Massachusetts

Posted on Tuesday, Sep 28th 2010 is a charitable commerce platform that over 3,000 nonprofits and schools, including Youth Advocate Inc.,, and the New York Wine and Food Festival, use to raise money by selling goods and services, primarily by moving their silent auction fundraisers online.

The Cambridge, Massachusetts–based company was founded in 2002. CEO Jon Carson is a serial entrepreneur who has focused on for-profit social ventures. This is his fourth venture; his most recent company, FamilyEducation Network, was acquired by Pearson for $175 million in 2000. Carson is not the initial founder with the core idea but joined the company early on, in month four.

Auctions are listed in an eBay style, with separate sections for the most popular items, hidden deals, and local tickets and events. On September 27, items up for auction included a guitar signed by pop singer Justin Bieber for Notre Dame de Sion School in Kansas City; Boston Celtics tickets for the Perkins School for the Blind; and a Rolex watch for the United Way of Santa Barbara. Companies and celebrities donate goods and services to causes, and causes pay BiddingForGood a $600 annual subscription plus a 9%, 6%, or 3% performance fee based on volume to action them off. BiddingForGood also has instant items it gets from providers and gives $2,000–$8,000 worth of these items to causes to add to their auction catalogs. It takes 33% of what is earned from the instant items. There is no fee to product advertisers other than the offer itself. Up to 91% of the money earned from an auction goes to the sponsoring charity.

According to BiddingForGood, such a service is better than a traditional auction or gala approach because clients will get a 4:1 return on fees they pay and at the same time build a higher level of engagement and brand awareness by being online. They will do this by getting 30% more bids from BiddingForGood’s community of bidders and engage all of their bidders, rather than just the people who attend a gala. Further, says BiddingForGood, causes and charities will generate revenue from ticket sales and cash donations, and if they enable the company’s sponsorship feature, there is the possibility of selling an average of $2,000 of sponsorships per auction.

The National Auctioneers Association estimates the 2008 charity auction market at $16.4 billion. BiddingForGood’s rough bottom-up analysis of the 1.9 million nonprofits is that 10%, or 190,000, run fundraising auctions. About 20% of schools run an annual fundraising auction (schools are the number one vertical) which is another 10,000 auctions for a total of 200,000 units. In addition, 40% of BiddingForGood’s clients have never run auctions before, which indicates that the total possible market is much larger. The top target/client segments are K-12 education (37%), of which private and parochial schools are 60%; the arts, 11%; human services, 9%; and health, 8%.

The primary competitor is eBay. The company’s strategy was to specialize in this market in a way that eBay as a generalist would be unlikely to. For example, it assigns an auction consultant to every account (eBay customer service is self-service from the eBay community). It offers features that eBay is also unlikely the offer, such as selling tickets to galas, soliciting cash donations from bidders, and printing in-room bid sheets. Its weblogs suggest BiddingForGood loses to eBay 4% of the time. Beyond eBay, says Carson, there have been a variety of small unfunded upstarts that have tended to last 24 months or fewer. BenefitEvents and are others provider of online auction software and fundraising event management services.

BiddingForGood gained traction through cold calls, trade shows, and search. Over time, word of mouth spread and inbound leads became more important. Last year, the company introduced an online item request system it uses for hotels, restaurants, and merchants that are hit up for items. This service is now used in over 350 retail locations and has become the number four lead channel, growing at 40% month over month.

For its first year, the company was bootstrapped. In 2003, it raised $3 million from Carson, angels, and Morningside Technology Ventures (backer of Carson’s last venture, FamilyEducation Network). In 2004, it raised $8 million from these same investors, and in 2006 it raised $10 million from Morningside and Canaan Partners. This spring, it raised $2.5 million from Morningside, Canaan, and angels for a total of $23.5 million. There are no plans to raise more money at this time.

BiddingForGood will transact $35 million of merchandise sales this year. Revenues are in the low double-digit millions. It turned cash positive in Q2 but subsequently raised $2.5 million in growth capital to add five sales reps to the item request initiative, develop a mobile app, and roll out an item acquisition service. As of early October, it will have helped to raise over $100 million for schools and charitable causes. There are 200,000 registered shoppers, a number which is growing 70% annually. Over 3,000 local school and charities nationwide use the platform, and over 110 retailers, hotels, and restaurants use the company’s item request system. The company gets 200,000–600,000 unique visitors/month with an average of seventeen page views per visit.

The growth strategy is built on four aims: first, get the item request tool installed in 10,000 retail locations so as to have a proprietary lead channel to drive more auction clients; second, to introduce daily deals with a percentage to charity to BidingForGood’s 200,000 registered shoppers (growing organically at 70% CAGR); third, add new merchants to the product advertising program; and finally, give registered shoppers a delightful experience.

Carson says that “you earn your exits and execute them when there are no better options. We aren’t building this company for purely financial reasons. We honestly are in no hurry to exit- it’s just getting really fun.” While galas and other events have a social aspect that cannot be fully replicated online and will likely continue to be an important source of money for schools, charities, and museums, the company is bringing greater efficiency and organization to the fundraising process.

Recommended Readings
Deal Radar 2009: Convio
Cambridge company getting ready to mark $100 million raised for charities (from the Boston Globe)

This segment is a part in the series : The 1M1M Deal Radar 2010

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