How do you fund an $11.5-million strategic expansion plan and build grassroots support at the time? That’s the question TechSoup set out to answer with its Growth Capital Campaign.
TechSoup provides civil society organizations access to critical technology such as cloud computing and security software. Their network of nonprofits is already the largest in the world, but that doesn't mean all the need is met. They set out to increase the resources they distribute globally from nearly $2 billion in 2018 to $4.8 billion by 2023, while growing their reach from 1 million to 1.7 million nonprofits. To get there, they’d need to build up their infrastructure and develop new products and services which in turn requires growth capital.
As a nonprofit itself, TechSoup could have raised the funds through grants and donations. But Ken Tsunoda, Vice President of Development, said that he had doubts if they could raise $11.5 million through grants alone quickly enough to accomplish their goals.
“We wanted to try something different that would also involve the various stakeholders in our community,” Tsunoda said.
In November 2018, TechSoup launched a Growth Capital Campaign with the goal of raising $11.5 million through a debt financing by engaging its stakeholders as impact investors. In the first year of the campaign, TechSoup raised over $8 million of their $11.5 million goal.
Major investment came from NFF, which provided a $4 million loan, and from corporate partners like Microsoft and VMware. TechSoup also became the first nonprofit to be qualified by the Securities and Exchange Commission to raise funds through a Reg A+ Tier 2 offering, a type of offering that allows companies to offer securities to the general public, not just accredited investors, across all 50 states. They set the minimum investment amount at just $50. Investors receive their investments back after five years, along with annual interest payments of 2 percent to 5 percent depending on the size of their investments.
“We saw this as a community relationship building campaign,” said Tsunoda. “This way employees at the nonprofits we work with and people who care about the nonprofit sector could become stakeholders.”
Taking investments at $50 came with two key challenges. The cost associated with processing a $50 investment can be prohibitive, but TechSoup worked with an online impact investing marketplace called SVX to keep the transaction costs down. Second, they had to educate people on how investments in nonprofits work.
“People know what a $50 donation is, but an investment in a nonprofit, that required some learning,” Tsunoda said.
To date, TechSoup has raised $8.2 million of its 3-year, $11.5-million goal – in a little more than a year. $700,000 of that has come from 250 individuals with investments ranging from $50 to $100,000.
With its innovative approach, TechSoup is well on the way to equipping many more nonprofits with the technology they need while building a community of engaged investors.
This story was written as part of NFF's 40th anniversary celebration.