San Diego startup Classy corrals $118m for software to help nonprofits with digital fundraising

Classy, a San Diego software firm that helps nonprofits raise money online, said Tuesday that it pulled in $118 million in a fourth round of venture capital funding — yet another sign of recent money-raising momentum for local startups.

Co-founded by Scot Chisholm as a “passion project” to raise money for cancer research after his mom was diagnosed with the disease, Classy morphed into a technology platform that creates digital pathways for more than 6,000 nonprofits to connect with a younger generation of tech-savvy donors.

“We just crossed $3 billion raised on the platform since we were founded in 2011 as a technology company,” said Chisholm. “We’re currently pacing at over $1 billion a year in terms of fundraising” for nonprofits.

Before this latest round, Classy had raised just $45 million. It is rare for San Diego technology startups to get $100 million-plus funding rounds from investors. Those big-dollar bets are more often made on the region’s life sciences and biotechnology firms.

But over the past year or so, local software, robotics and artificial intelligence outfits have popped up on the radar of venture capital firms looking to deploy big chunks of capital. Flock Freight, Clickup, Seismic and Tealium are among the San Diego tech firms that have raised rounds either approaching or exceeding the $100 million threshold.

Classy plans to use the money to beef up its software stack, as well as possibly make acquisitions, said Chisholm.

“We’re planning on doubling the size of our engineering team and product team over the next 24 months to really deliver more features and more value directly to our nonprofit customers to increase their impact,” he said.

The company also will repay a nearly $4 million federal Paycheck Protection Program loan it received last year amid the COVID-19 pandemic. And it will accelerate its transition into a Public Benefit Corporation — where its mission beyond maximizing shareholder value must be considered at the board level when making decisions. Classy employs 235 workers.

Blackbaud, a public company, is a leader in the non-profit/social impact software market. There are smaller competitors as well. Classy’s client base spans a range of 501C organizations ranging from the Salvation Army to Feeding San Diego, cancer and disease research organizations and nonprofit hospitals and clinics. It aims to expand into colleges and universities, as well as corporate giving — digitally connecting employees of companies with its 6,000 nonprofits clients.

With the funding round, Chisholm will step down as chief executive and become executive chairman, where he will lead mergers and acquisitions and expansion into new markets. He will remain on Classy’s board of directors.

Christopher Himes, Classy’s chief operating officer and a long-time board member, will take over as CEO. Himes formerly worked as a senior vice president of Salesforce and was an executive fellow at the Salesforce.com Foundation. Before that, he served as the chief financial officer at Fair Trade and has held board positions with nonprofits including The Trust for Public Land.

Nearly 20 percent of total giving on Classy’s platform is done by donors who “subscribe” to nonprofits and pledge to give on a regular basis. Himes said the company will focus on delivering more digital tools to encourage recurring giving.

“Donor retention is a massive problem in the nonprofit space,” said Himes. “So, we’re trying to help increase that through an amazing donor experience and converting more donors to recurring gifts. For nonprofits, online fundraising is the highest margin fundraising category. It’s the most secure and it has the highest retention.”

Norwest Venture Partners, a Bay Area firm that manages $9.5 billion, led the funding round. Existing Classy investors Salesforce Ventures and Hinge Capital also participated.

“Last year was especially challenging for nonprofits, forcing them to adapt their fundraising efforts to meet the needs of their recipients while increasingly leaning on technology solutions,” said David Su, Partner at Norwest. “As the social sector looks to reach new audiences on digital platforms, Classy is poised to support this growing market demand.”