Altruja | Interview with its Co-founder & CEO – Nicolas Reis
In Munich we talked with Nicolas Reis, co-founder and CEO of Altruja, about how he started the company, how the current business model is working and how they are serving which customer segments, and what advice Nicolas can share with other entrepreneurs.
Altruja is a subscription service helping Non-Profit Organization raise more donations online.
Interviewer: Hi. Today we are in the wonderful and sunny Munich with Altruja and Nicolas. Nicolas, who are you and what do you do?
Nicolas: Hi. First of all, welcome, it’s great to have you guys here in Munich. My name is Nicolas, I am one of the founders of Altruja, and we do online fundraising for non-profit organizations. That means we build a software that non-profit organizations, which are our clients, can integrate into their own websites to collect donations. So basically it is payment processing for non-profit organizations.
Interviewer: When and why did you start the company?
Nicolas: We started right about four years ago, in the March of 2010. And ‘why’ is a good question, actually I lived in the US, in Santiago, where I did my Masters, my MBA, and after my MBA I worked for a software company that did online registration for business events, sports events, etc. For example, the Los Angeles Marathon. One of the tools they had was a charity tool. So if you are running the LA Marathon, they would ask you, Hey, it’s great you’re in the marathon, why don’t you raise money for LA’s kids’ charity? And a lot of people were doing this. So when I was checking back and forth with my friends and I was looking at how this was done in the rest of the world, I saw that there was something similar in Australia, in England, but nothing in Central Europe. There was nothing where non-profit organizations were able to collect money easily, securely and fast. It was a very costly process. So when I moved back in 2009 that idea stuck with me and I decided to use this opportunity and build a company.
Interviewer: Did your former employee in any way cooperate with you, or did you just do everything from scratch?
Nicolas: Actually when I came over I took some of the ideas from this company in the US, but none of their technology. When I started here in Munich I was friends with the founders of Amiando – I don’t know if you still know them, they were acquired by XING EVENTS – and our initial idea was to build it up like Amiando for charities, because the idea of integrating a tool into a website was very similar to their technology. But pretty quickly we realized we should open a second company for that. However those guys were very supportive, actually our first investors and shareholders are Amiando and the founders themselves. So we did not take any of the technology, but obviously they were very helpful in making the first introductions and in helping us getting the company started. So that means that now a very little portion of us belongs to XING. I don’t know if they know.
Interviewer: Let’s talk about the business model of Altruja. Can you briefly explain how it works, who are your customers, and how you are making money?
Nicolas: I can actually also tell you how the business model shifted in the past, because that happened three or four time probably. Our clients and our customers are non-profit organization, which means that, by definition, we only work with foundations, clubs, political parties, etc., all those that are eligible and need donations to run their projects. If you think about that, it’s actually quite a big market. In German speaking part of Europe, six to seven billion Euros are donated every year. But only a very small portion of that is donated online, so far like 1% to 2% maybe. Whereas in the US we’re up to 10% to 20%. So that means non-profit organizations waste a lot of money on mail marketing, like postcards. My parents, during Christmas season, get hundreds of postcards from SOS Children’s Village, UNICEF, etc., and 99% of those get trashed in the mail. Another way to get donations is people, especially students, on the street asking people to chip in donations, posters and all that stuff, it’s very costly.
So our system in the beginning worked like this that we offered them the tools completely for free and charging them a percentage fee of whatever we were raising for the. It was like 9.9%. The result was that some of our clients that were using our tool very efficiently were paying us a lot of money. It was nice for us, but it was a lot of money for them. On the other hand, many of the organizations that were raising very little money were probably causing the same trouble for us for the same work, and maybe if they only raised €50 a month, we were sending invoice for €3.85, something like that.
So that means we shifted our model to something where we charge them a software fee, it’s very low, it’s like €59 for the software per month, and included in that is a volume to collect a donation of like €5000. So, in essence, it’s a ‘Software as a Service’, we rent out the software, and if they want we do the payment processing for them. That’s pretty much the business model.
Interviewer: Do you have different pricing points, can you tell us about that?
Nicolas: Initially we had different prices, we had three different tools, one for raising money with friends, peer-to-peer, the other one was raising money with companies, and the last one was just a simple basic donation form. So we had different prices for them and realized that it was way too complicated, different volumes, different tools, way too complicated. Now we just throw everything together, and the only distinction we make is by the volume that you raise, because we pay all the credit card fees. So hopefully you use a lot of our tools and you raise as much money as possible for the organization, but for us the only thing that makes a difference is how much it is because that’s where our cost structure lies.
Interviewer: Can you tell us about how the product is integrated with the non-profit organizations?
Nicolas: It’s actually very simple. You can imagine it’s like integrating a YouTube video into your organization’s website. You get a tool, an HTML code, from us, copy that, paste that into the website, and from a technical perspective that’s it. So we need maybe five minutes of the web admin, that’s it. After that the person who is responsible for fundraising, for the donations, can change the text, the color, the image, the font, it’s as easy as using Windows PC. So that’s very easy.
All the payment processing, all the critical part, happens in this frame, in ours, so that means that the charity does not have to worry about data privacy, about credit card safety, about payment processing above other stuff, that happens in our website that is integrated into their website. However, the donor, the person who wants to donate, does not realize any of this. He just realizes, “Oh, look now the charity has a pretty cool tool on their website.” We are like the good guys in the background, making sure that everything runs smoothly.
Interviewer: Does it only work like this that, let us say, integrate this plugin on my website, and then the users that are coming to my website as a non-profit organization just click on it, donate some money, you take care of the payment process etc., I get my money every month or so, and that’s it, or do you also focus on providing some other services and values to the non-profit organizations?
Nicolas: The first one was the basic tool, that is the bread and butter, that’s what most organizations need to get started, because getting on the website and making donations that’s the must-have. On top of that, if the organizations want to increase the donations and get more donors to get to their site, that’s when we use our peer-to-peer fundraising tool, as we call it, like you run the marathon and you want to support Amnesty International. For example, during the Munich Marathon or Vienna Marathon we work with those, you can create your own little page, it can be like ‘Joe Smith runs the Munich Marathon site for Amnesty International’, and you can invite all your friends and say I am running the Marathon, please help me to raise a thousand Euros for Amnesty International. Now all your friends can donate and help you to achieve your goal, and those will be people that probably would have never donated to Amnesty before, but because they’re friends with you they chipped in.
For example, we had young woman, she’s 32, she started a campaign for an organization from Hamburg last Friday, and over the weekend, within four days, she raised €7,000 from her friends. So just imagine a young lady, 32 years old, raising €7,000 within four days from people all over the world, because they were friends with her and they wanted to help her achieve her goal. And for a non-profit organization that’s gold, they would have never been able to reach those donors.
Interviewer: Let’s talk about corporate strategy. If you’re thinking of Altruja as a service provider for non-profit organizations, what do you need to do in the next years in order to create some competitive advantage over other ways of raising donations?
Nicolas: First of all, for us it’s an advantage that nowadays more and more organizations have to go online. Sometime it’s very shocking how little they know in the web space because obviously most donor organizations are bit older, they’re mostly our parents, so until now they did not have to deal with their website. But now we get the feeling that this is changing, they’re really interested in learning more about this.
To answer your question, I think this is where we need to step up more, and where we want to step up more is to provide them with the knowledge, because it’s not enough just to give them the software, that’s probably what we did in the beginning, like here’s the software, it’s great, you can use a lot of tools, and they were like, okay, great, but I don’t have a driver’s license to drive this car, like they don’t know what to do with it and how to target new donors online.
So now we work with them and help them to be a better online user, how to use social media, how to create an email campaign, how to improve their websites. You would not believe that they have website and you want to give them money, you have to search for like five minutes and then find the IBAN number, then you can write down the IBAN number, that’s it. So we have to help them improve their online strategy, and I think if we’re able to do that then online donations will follow after that.
Interviewer: So you are telling me that you’re trying to go to this kind of advising or consulting business and creating some revenue streams there as well?
Nicolas: Yes and no. You’re right on the consulting. We have to do that and I believe that probably a lot of startups have to do that in the beginning, because of it’s direct cash. If you consult someone you get money right away. And that’s probably good, especially in the beginning, however it’s very hard to scale. So we try to get out of that as much as possible, however we still do it because I guess we need money. But we try to make a lot of those things automatic now. That means setting up an email newsletter that teaches them every week a new thing in social media that is tailored to non-profit organizations. And I think that’s the only way, because up to now we have like 500 hundred originations that we support, from big international organization like Amnesty, to very small local animal shelters, everything from kids to nature and everything. But the only way to scale that is if you do it automatically.
Interviewer: If you’re thinking about switching costs, assume that I am a non-profit organization and because I realize that online marketing is important I want to use your tool or other tools for creating donations on my website, how do you try to integrate with this non-profit organization so they don’t have an incentive to switch to other providers?
Nicolas: Hopefully because we do a very good job. Everything they need, they get from us, hopefully. We have the feeling that money and the price, as long as it is in the same ballpark, is not a reason why they would switch, it’s not for five years more or less. Because they have to trust us with the two most important things that they have, (a) with the money, and (b) with their donor data. We help them to control the data of their donors, so the level of trust has to be really high already. So if we do a good job and don’t violate that – which we don’t do – there is not really a reason to switch for one tool or another.
Interviewer: Did I get it right that non-profit organizations don’t have the data of donors that donate via your online tool?
Nicolas: No, no. We just help them, for example we have one IT guy who deals solely with credit cards, with payment security, so that means it would not make sense for an organization, not even a big one, to hire someone who deals with credit card security. But for us it makes sense because he is able to help 500 organization at one point. That means that all the data privacy protection stuff we do for them so that they don’t have to deal with it. Obviously the data is theirs, we just collect it for them.
Interviewer: Let’s talk about the market development for the donation. You said one very interesting fact that in Europe most of the non-profit organization raise currently their money via offline sources. Can you tell us a little bit about the donation size in Europe, maybe in Germany, and which trends do you see, and what limitations do we currently have which need to be overcome in order to increase the online donation share?
Nicolas: As I said, five to seven billion Euros are donated every year in Germany, Austria and Switzerland, in this market space. It varies if there is a catastrophe like Haiti or something, then obviously that number goes up. As I said before about last years, I think 1.8% of that money was donated online. So you already get the feeling that, compared to buying flights, books and insurance stuff online, finding your future husband or wife online, all that happens now more and more, donations is very very in the back. So that has to change, or is changing, because the people donating are the ones that are working now in the office with a computer so everything moves to the online space.
The average donation online is actually a lot higher, about three times as high as offline. For example, our average donation last year was €87, compared to the average offline donation that we get from the organizations, that was €29. So €29 to €87. And the main reason we think for that is that the average person is not going online for a €5 donation, that was maybe a misconception in the beginning that young students that are online will chip in €5, it’s not the case, we get every day €500, €1000, €100. When people sit in front of their computer, they want to help, they want to do something, they take up their credit card, and you’re not putting out a credit card for €70 or €50, they do €100 donations.
One other thing is that credit card donations are a lot higher than the typical debit donations, and we think maybe because there is a different demographic because not everyone has a credit card. If you have one and you shop online you usually donate a little bit more. Did that answer your question?
Interviewer: It answered my question in terms of the current status. I would be interested in what limitations are there. Why are there only 1.8% of the total donations that are online right now?
Nicolas: To mains reason, first, because indeed most donors are older, and we cannot convince the 98 year old lady to switch online now if she has never done online banking, if she never bought a flight online, or anything like that, the probability is that I will not convince her. So there will be a shift just by the demographic that will move into the donation demographic in the next couple of years. And that is what happened in the US and the UK and stuff.
The other thing is that the clients have to change, they have to adapt to this shift to bring this demographic forward. For example, as I said before, there are websites that are horrible, there are websites that are ten years old and older, and obviously if you have a website like that and you only send out your newsletters via post once every year, why should you get online donations? So organizations have to start collecting email addresses, which sounds logical for all of us, but for many in those organizations – and I understand that, there are people that work part-time or as volunteers, they have a regular job, and on the weekend they have to build up an e-mail newsletter, which is something new for them – it is a hard shift, and that’s where we want to step in and help them to automate that stuff and make the first step towards progress in the modernization of their organization.
Interviewer: Nicole, what could be your forecast for the next 20 years, once the current generation that is donating a lot of money and is older is not donating because they’re out of business, but the younger generation are they still donating as much as the current generation, or do you think even more or less?
Nicolas: There’s a couple of different approaches to that. First, people tend to donate more once they reach certain age groups. Obviously as a young person you have to pay for your education, bringing up your family, buying your first house, car, whatever. And as soon as that’s settled, people have more spending money, so that’s why they usually spend more when they get older. So I am not afraid that people in five or ten years will donate less.
But what will change probably, or is changing already, is how people donate. For example, my parents every year for the past 30 years have donated for the SOS Children’s Villages, automatically every year, the same amount. The change now is that younger people tend to donate more on a project basis. So they see there is a project, I want to help Amnesty International for this project, I want to help Green Peace for this, so people tend to be less loyal for an organization. Also, because of the worldwide web now they’re able to look at new and different projects that appeal more and more to them.
There’s more and more organizations coming up every year. For example 20 years ago if you wanted to do something for nature, there was just Green Peace and WWF, and that’s it. Now every gorilla in Indonesia has its own charity on every island probably. So there’s more and more smaller organizations. I think that changes and that will change how people donate. But one of the tools that we provide is peer-to-peer fundraising tool, I think it helps young people that don’t have as much money, like the woman that I mentioned before, but she still wants to get active and do something, but she has friends and family and her uncle who are now able to donate, so she can do something good without spending thousands of Euros, but she’s still make a lot of difference.
Interviewer: Because it’s project based. Can you briefly explain the market development and the market dynamics in terms of the competitors and how they act in the US, for example, because from my understanding the US is quite a big donor market, and maybe how the competitive situation is there and in Europe, and how the dynamics are?
Nicolas: You’re absolutely right. In the US last year over €300 billion donated, compared to Germany six or seven billion. So it’s just a big difference. It’s not only because of the size of the market, it’s also because it’s a different culture. They pay less taxes, there’s nothing like church tax, which we have in Germany here, but people donate a lot more on a community basis. You donate for your school, your university, all that stuff, which we don’t have here. That’s why there are a lot more donations over there. That’s one thing.
The competitive structure here in Germany is that there are two to three other software providers that do something similar like we do, obviously everyone has their small their niche, but right now we compete maybe for just 1.8% of the market slice. The main competitor that we all share is offline, it’s the postcard, it’s the mailing, it’s the person on the street, that costs a lot more money than raising money online. So I don’t know about them, but we think of our competitors like we all together have to make this slice of the pie a lot bigger, and if we’re able to do that then the market is big enough for all of us. Everyone has their own little features and strengths and weaknesses, but we still think everybody is helping to make the pie bigger.
Interviewer: Nicole, we at Entrepreneurial Insights always try to give first-time entrepreneurs some advice so they make less errors. What advice could you give maybe to your best friend or something?
Nicolas: I think a lot like sharing is caring, and in this case I think it is a good job that you guys do because there are a lot of mistakes that people can avoid if they don’t do the mistake for the first time. For example, one thing is to share your idea. I don’t believe that it would be a good idea to simply keep my idea secret and not talk to anybody, because if they steal the idea they will make the next Facebook, Skype, eBay, whatever. That’s not going to happen. If your idea is that weak that someone can just take it away because he heard it once, then it’s not a good idea. So we were pretty open about our idea, talked to investors, even to competitors, to clients when we still on PowerPoint structure, because we got a lot of feedback from them. We got a lot of critical feedback, a lot of good feedback, but it helped us a lot to grow the idea. So be open about what you’re trying to build.
The second thing I would say is think about money pretty quickly. We had focussed on this in the beginning, and I saw a lot of other founders that were trying to build the product, they were thinking, “I have those €2,500 a month, that will be enough to get the product started and to get some cash flow and then after 12 months I will be profitable and I don’t investors.” It’s probably not going to happen. If it does, good job. But it did not happen for us and we pretty quickly, I think from day one, started to talk to investors, because everything will take longer, it’s just learning from everybody. And we also took those investors very early on to get feedback from them, so afterwards when we talked to them we not new to them. So we even talked to them when we did not want the money. So building up this relationship will take some time, but I think you should get started as early as possible.
The third thing would be – but obviously that depends on the business – get the product out as fast as possible. This is again feedback related, because you can sit in your ivory tower and think a lot about what the clients want, just build it as fast and quick and cheap as possible, get it out and get some real feedback, and then you have some things to work into the product. We call it ‘progress not perfection’, that’s one of our mantras. So as long as you move along it doesn’t matter if it’s only 80% right. Obviously with brain surgery that should not be the case.
Interviewer: Thank you very much Nicolas. And as Nicolas said, sharing is caring. So what do you do with this video? Thanks.