DIGESTING AN UNPRECEDENTED YEAR OF CHANGE
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DIGESTING AN UNPRECEDENTED YEAR OF CHANGE
NONPROFIT SOFTWARE INDUSTRY UPDATE | Q4 2020
Q4 2020
Nonprofit Software
Digesting an Unprecedented Year of Change
CONTRIBUTORS HIGHLIGHTS
Teak Murphy COVID-19 substantially impacted the segment with positive, long-term implications for software
Nonprofit Software providers as nonprofits seek to diversify their fundraising with a heavier focus on digital. However,
Director some software providers focused more on in-person events have been hurt by shutdowns.
(310) 746-5006
A combination of Black Lives Matter (BLM) and COVID-19 has advanced focus on corporate social
tmurphy@capstoneheadwaters.com
responsibility (CSR) and environmental, social, and corporate governance (ESG) as corporations
increasingly encounter scrutiny for their position and efforts around social issues (see slide 23).
2020 transaction volume of 21 deals is a meaningful drop from recent years as private equity (PE)-
backed rollups have quieted and investors struggle to find companies with meaningful revenue scale
for platform acquisitions with owners mostly heads down during 2020.
There has been over $4 billion in reported transaction value since the start of 2015, though valuation
data is only available for 19 of the 185 deals.
Nonprofit merger and acquisition (M&A) deals have traded at a median of 6x last-twelve-month
(LTM) revenue, although it is difficult to draw conclusions with data for just ten deals.
Blackbaud (Nasdaq:BLKB), the only public company with a broad focus on the Nonprofit sector, has
bounced back from its initial COVID-19 drop but remains well below pre-COVID levels while Pushpay
(NZSE:PPH), focused on church management software, quickly rebounded and pushed to new highs.
www.capstoneheadwaters.com
KEY TAKEAWAYS M&A ACTIVITY BUYER ANALYSIS MARKET OVERVIEW & TRENDS CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE
NONPROFIT SOFTWARE REPORT | Q4 2020
DIGESTING 2020 – AN UNPRECEDENTED YEAR
COVID-19 dominated the year, impacting every aspect of life for everyone around the globe.
» Global economies were shaken by large scale business restrictions that continue to hamper economic recovery.
» Record unemployment required drastic government action with nonprofits ramping up efforts to support needs locally
and worldwide.
» Public markets bounced back surprisingly quickly as money flooded into the stock market after prices initially pulled
back, ending the year well above pre-COVID levels despite lingering employment issues, business struggles and massive
government spending that will need to be paid back.
Social justice, driven by Black Lives Matter, captured the national spotlight.
» Politicians were forced to take firm positions on social justice issues which played a key role in elections at the local, state
and federal level.
» Amid an increasingly powerful cancel culture, businesses quickly jumped to get supportive messaging out through ad
campaigns, donations and increased internal oversight while others struggled to play defense as current and past failures
received enormous public scrutiny.
» Social networks struggled to manage the usage of their platforms for driving positive change as some users leveraged them
to spread hate and misinformation.
» The social justice momentum, driven by Me Too and Black Lives Matter movements, coupled with ease of mobilization from
social networks and an increasingly politically engaged younger generation appears to have helped social justice issues
reach escape velocity, forcing politicians and leaders to address issues they could previously stay quiet on and hope to
fizzle out.
Natural disasters continue to disrupt the lives of millions each year.
» Fires, hurricanes and snowstorms repeatedly overwhelm US cities and states, requiring support from the federal government
and nonprofits.
» Emergency fundraising has historically driven huge donation volume as the country rallies to support those in need, though
the seemingly constant disaster relief needs risk donor fatigue as donors could become inured to disasters and withhold
donations to focus on larger or more local emergency needs.
3
NONPROFIT SOFTWARE REPORT | Q4 2020
DIGESTING 2020 – IMPACT ON PHILANTHROPY AND NONPROFIT SOFTWARE
Early data indicates that, despite the enormous economic impact of COVID-19, giving increased in 2020.
» We are not surprised by the increase as historical data has shown giving holds up surprisingly well during recessions and usually spikes in times of disasters.
» Giving as a percentage of GDP is expected to hit its second highest level in 15 years, behind only 2017’s heightened levels in advance of tax changes.
Despite the increase in aggregate giving, we aren’t seeing a “rising tide lifts all boats” effect.
» Large nonprofits typically experienced sizable donation increases while mid-sized nonprofits saw slight boosts.
» Smaller nonprofits have typically seen donations shrink and there are concerns many will not survive.
Lessons learned:
» Digital capabilities were essential for survival and nonprofits with established efforts were better positioned to quickly react, effectively managing donor
communications to generate donations, as galas and events were cancelled or moved virtual.
• The church segment is a great example where some went dark and hoped to weather the storm while others embraced virtual engagement to maintain
communication in a time of need and rallied congregants to donate to support the church as well as giving in the community, boosting their profile.
» Breaking through the noise in 2020 was difficult and nonprofits with missions that aligned with healthcare, social justice and disaster relief were more likely
to resonate with new donors.
» Donor retention was the make-or-break metric for many nonprofits as loyal, long-time donors were more likely to continue to support organizations, even if
COVID-19 restrictions limited their ability to execute on their mission, while attracting new donors became difficult when competing for wallet share against
those that could quickly put dollars to work for much needed relief efforts.
» Adaptation was key – while nonprofits aren’t typically the nimblest organizations, those that quickly adapted to the new environment by finding ways to digitally
connect with donors and continue their missions were able to survive and often thrive.
The bottom line for software providers:
» While most nonprofit software providers experienced strong growth during the year with businesses rushing to implement or increase digital initiatives, we
expect increased churn in 2021 as many nonprofits fail and others naively fall back into their old fundraising ways.
» Nonprofits that survived are more likely to be those that successfully embraced technology, making for strong customers moving forward, and newer nonprofits
are more likely to incorporate digital efforts as part of their core strategy which will result in continued acceleration in the shift to digital giving.
4
NONPROFIT SOFTWARE REPORT | Q4 2020
A LOOK BACK AT U.S. PHILANTHROPIC GIVING
Historically, giving has held up well in the face of recession and surged following disasters
U.S. giving has increased nearly every year over the past 30 years, even in the face of recessions, with declines experienced only in 1987, 2008, and 2009.
» Early datapoints indicate increased giving during 2020 driven by COVID-19, Black Lives Matter, and disaster relief despite a troubled economic landscape.
Disasters have historically spurred driven increased donations and we certainly saw companies and individuals increase giving in 2020.
» 1989, 2004-2005, and 2012 all saw double digit increases in giving on the heels of major disasters. 2014-2018 huge growth in giving 2020 COVID-19
on back of strong economy and pandemic
2004-2005 major disasters drove surge in bull market with jump in 2017 in
giving (Hurricanes Katrina, Ivan, Frances, and advance of Tax Cuts and Jobs Act
$500 Charley and Indian Ocean earthquake/ 2.5%
tsunami) 2012 Hurricane Sandy
drives strong return to
Giving was flat amid giving
$450
2001 recession
following tech bubble
Late 90s booming burst but remains at 2008-2009 drop in
$400 2.3%
economy and stock peak % of GDP giving amid Great
market drives record Recession
Giving remains
$350 strong during giving
1980-1982 1989 – Loma Prieta
Giving ($ in billions)
recession Earthquake
$300 2.1%
% of GDP
1986 flurry of giving Giving holds up well
in advance of tax during 1990-1991
$250 law changes leading recession though falls
to decline in 1987 as % of GDP
$200 1.9%
$150
$100 1.7%
$50
$0 1.5%
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(est)
Giving Recession Giving % of GDP Sources: Candid, Giving USA, and Blackbaud 5
NONPROFIT SOFTWARE REPORT | Q4 2020
COVID-19 IMPACT ON NEAR TERM DEALMAKING
Impact on M&A
Blackbaud’s (Nasdaq:BLBK) valuation remains well below pre-COVID levels and off even further from LTM high. Without significant cash on hand and an increased
focus on profitability, they’ll likely be highly selective on acquisitions as they’ll struggle to justify any dilutive transactions.
Private equity (PE) backed strategics have been less active recently on acquisitions.
» With most potential targets experiencing good growth amid the increased shift to digital, acquirers will likely have to get more aggressive to get deals done.
Growth-focused private equity software investors are aggressively hunting for platform investments.
» Private equity firms are attracted to nonprofit as a large vertical with attractive growth opportunities for modern solutions.
» Increasing digital fundraising provides additional growth potential for transactional business models with PE already chasing payments plays.
» Biggest challenge for PE has been finding opportunities with enough revenue scale with most targeting $10-20M+ in revenue and many showing preference
for already profitable businesses though plenty are willing to fund losses for businesses with strong growth and unit economics (CAC, retention, etc.).
Impact on Capital Raise
Growth-focused investors are aggressively hunting for new investments.
» Private equity and venture capital firms are flush with capital and aggressively looking to deploy.
» Preference for ideal fit deals with higher demand for businesses growing through COVID-19 with sound unit economics (recurring revenue, retention rates,
customer acquisition costs, etc.) and strong customer bases.
Valuations are at record levels for businesses that check all the boxes with growth as the primary valuation driver.
Investors are getting more creative on deal structure.
» PEs previously focused on control transactions are now open to minority deals, particularly where there is a path to gaining control in the future.
» Openness to novel approaches to address valuation gaps.
6
NONPROFIT SOFTWARE REPORT | Q4 2020
KEY TAKEAWAYS
MARKET SIZE NONPROFIT TRENDS M&A ACTIVITY AND VALUATIONS
Nonprofit software represents a $10 billion total COVID-19 impact accelerated the shift to digital 2020 transaction volume of 21 deals is a meaningful
available market (TAM). fundraising and virtual events. drop from recent years as PE-backed rollups have
quieted and investors struggle to find new
Blackbaud, the only public provider broadly Black Lives Matter and COVID-19 are driving
platforms with scale to acquire.
targeting nonprofit software, claims less than 10% significant advances in CSR/ESG (slide 23).
market penetration. The median LTM revenue multiple of 6x for
COVID-19 disruption pushing increased adoption
Nonprofit Software is above recent levels for
The industry is highly fragmented, particularly at of SaaS church software (slide 24).
broader Enterprise SaaS and Vertical market.
the lower end of market.
Private equity firms have driven the majority of
Blackbaud (Nasdaq:BLKB), valuation has rebounded
Much of the TAM is “greenfield” opportunity in transaction volume in the space.
but remains below pre-COVID levels while PushPay
SMB and developing categories/capabilities.
(NZSE:PPH) has surged to 70% above its pre-COVID
price.
NONPROFIT M&A OUTLOOK NOTABLE RECENT M&A TRANSACTIONS MOST ACTIVE BUYERS
Buyer Target Segment EV
COVID-19 will have a positive, meaningful long-
term impact on Nonprofit Software, accelerating Association management NA
software
adoption by several years.
Fundraising software NA
Nonprofit Software is still in the early days of
consolidation with only two public companies and a CSR/ESG software $1.1B
small number of PE-backed players vying for Volunteer / Event NA
market share in a highly fragmented market. management
Donor management
We expect to see additional consolidation with software
NA
smaller players getting scooped up by larger Volunteer / Event NA
strategics to add scale and fill in product gaps. management
NA
Early PE-backed players will likely be hitting the Fundraising software
market over the next 24 months as larger PEs are NA
Fundraising software
increasingly attracted to the space but struggling to
find investment opportunities with enough scale. Church management NA
software
Church streaming NA
software
Association payment NA 7
software
KEY TAKEAWAYS M&A ACTIVITY BUYER ANALYSIS MARKET OVERVIEW & TRENDS CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE
NONPROFIT SOFTWARE REPORT | Q4 2020
M&A DEAL VOLUME
Transaction volume of 22 deals represents a significant slowdown from recent years, with just two deals completed in Q2’20.
» COVID-19 disruption slowed M&A as businesses with exposure to events/galas struggled to adjust while digital fundraising companies generally were heads
down on execution as pipelines were full.
» H2 saw a nice splash of activity with Benevity transacting at a $1B+ valuation and Bloomerang also trading at a strong multiple.
Beginning in 2015, Nonprofit Software saw a significant increase in M&A activity, largely driven by PE-backed players, particularly Community Brands.
» Over 60% of transactions have been completed by private equity investors or PE/VC-backed strategics though activity has fallen substantially recently as PE/VC-
backed businesses like Community Brands have slowed down on acquisitions and investors struggle to find opportunities for new platform investments.
Blackbaud and PushPay are the only public pure-play nonprofit software acquirers, neither of which have been very active on M&A recently, with few other public
players seeking offerings tailored to nonprofits.
40 38 deals
35 deals
34 deals
35 1
9 1
30 deals 2 4
30
27 deals
5 3
9 8
25 5
4 21 deals
9
Transactions
2
20 3
17 deals
1
15 1 11 9
15 8
6 19
11
10
7
6 8 7
5
6 7
3 4 3 3
2
0
2014 2015 2016 2017 2018 2019 2020
LTM = Last Twelve Months
Financial Buyer PE/VC-backed Company Private Company Public Company Community Brands Sources: Capital IQ, 451 Group and CSHW Research 9NONPROFIT SOFTWARE REPORT | Q4 2020
REVENUE MULTIPLES
Nonprofit M&A deals have traded at a median of 6x LTM revenue although it is difficult to draw conclusions with data for just ten deals.
» M&A median revenue multiple for Nonprofit Software is above the broader SaaS & Cloud and Vertical Market median levels, though those were depressed in 2020
due to a heavy mix of low multiple struggling businesses forced into firesales as COVID-19 impacted businesses.
» Blackbaud (broad nonprofit software) had an up and down year but ended the year down 30% from its pre-COVID level.
» Pushpay’s (church management) stock price was cut in half amid the sell-off but more than tripled to end the year up ~100%.
Well positioned SaaS companies that check all the key boxes can command premium revenue multiples above the median.
✓Companies with revenue scale of $15-20M+ are needle movers for strategics and potential platform investments for private equity players.
✓Most aggressive valuations are placed on higher growth businesses and those that pass the “Rule of 40” (revenue growth + EBITDA margin > 40%).
✓Proven unit economics (high customer retention, high recurring revenue mix, rational customer acquisition costs relative to payback period, and lifetime value).
10x
9x
8x
Enterprise Value / LTM Revenue
7x
6x
5x
9.2x
4x
3x 6.0x
2x
3.6x
3.0x 2.8x
1x
0x LTM = Last Twelve Months
All Dates = Jan 2014 to Current
Nonprofit Software SaaS & Cloud Vertical Market Blackbaud Pushpay Data as of 12/31/20
M&A - All Dates M&A - LTM M&A - LTM Source: CapitalIQ 10NONPROFIT SOFTWARE REPORT | Q4 2020
NOTABLE M&A TRANSACTIONS – 2020
LTM
Enterprise
Ann. Date Buyer Target Target Description Strategic Rationale Revenue
Value
Multiple
Develops membership management software for small staff associations, Personify further expands its member management platform coverage with
12/25/20 NA NA
AMCs, and non-profit organizations. MemberClicks’s enhancing its capabilities for small/mid-sized organizations.
Virtuous further enhances its capabilities to provide non-profits with highly
12/11/20 Develops online fundraising platform for growing nonprofits. NA NA
personalized and responsive giving experiences through the acquisition.
Provides workplace giving and volunteer management SaaS that enables HG’s investment in Benevity will allow the company to accelerate growth at
12/03/20 $1.1B 8.8x
users to optimize corporate giving and donation matching programs. a time when ESG is quickly rising in importance for corporations worldwide.
11/30/20 Provides volunteer recruitment and events management SaaS for non-profit EveryAction’s acquisition of Mobilize allows for groups to have access to NA NA
organizations, unions, political campaigns, and advocacy organizations. complementary online/offline organizing and events management software.
Provides donor management SaaS for non-profit organizations that enables JMI Equity’s investment in Bloomerang provides support to help accelerate NA
09/17/20 8.0x
payment processing capabilities and includes a mobile application. growth and strengthen their product offering.
Provides auction and event management SaaS for automating charity MaestroSoft’s auction and event management platform helps Arreva extend
08/12/20 NA NA
auctions and fundraising for non-profit organizations. into virtual events to better serve their customers.
Develops an advanced knowledge marketing system and customer support The acquisition of Altruja by RaiseNow combines the two of the largest
07/28/20 NA NA
to empower nonprofits to be at the forefront of digital transformation. European fundraising technology platforms.
04/23/20 Provides custom online forms that enable non-profit organizations to Qgiv continues to expand its fundraising product suite with the acquisition
NA NA
accept donations and online payments. of Acceptiva.
04/22/20 Vitec’s acquisition of LJ Systems’s allows for the company to expand into the
Develops an application for church and school administration. NA NA
church management software market.
Operates a digital content delivery network and provides automated Subsplash’s acquisition of StreamSpot helps further tap into the growing
03/24/20 NA NA
content distribution SaaS for faith-based businesses and organizations. church streaming market as COVID-19 forced closures for many churches.
Provides online credit and debit card processing services for professional TA bought AffiniPay from Great Hill, extending its history of payments
02/24/20 NA NA
associations, lawyers, accountants, architects, and psychologists acquisitions that include BluePay, BillDesk, and Financial Info Technologies.
11NONPROFIT SOFTWARE REPORT | Q4 2020
NOTABLE M&A TRANSACTIONS – 2019
LTM
Enterprise
Ann. Date Buyer Target Target Description Strategic Rationale Revenue
Value
Multiple
Provides administrative management and payments SaaS for U.S. churches,
Church Community Builder broadens Pushpay’s offering to include church
12/12/19 enabling member communication, records management, payments, and $88M NA
management, delivering a more complete offering.
other administrative capabilities.
GrowthZone’s association management software helps member-based
The investment by Greenridge enables increased investment in product
11/07/19 organizations grow and retain membership, generate revenue, NA NA
development and growth in its customer base.
communicate with members, and streamline their day-to-day operations.
Causemo will strengthen Pursuant’s analytics capabilities, delivering
08/14/19 Causemo Inc. develops a fundraising and donor segmentation SaaS NA
customers a data platform with helpful insights and recommendations on NA
platform which uses data science to help nonprofit organizations fundraise.
how to apply those insights.
DonorTrends’ Donorlytics cloud-based tool helps nonprofit organizations The acquisition brings enhanced fundraising analytics to EveryAction’s
06/06/19 NA NA
maximize donations and net revenue by providing data and analytics. customer base, delivering actionable data to improve fundraising efforts.
Qgiv provides Sphere with a vertically focused solution targeting the
Qgiv develops online donation software solutions that empower NA
04/23/19 Nonprofit segment as Sphere seeks to grow its payment offerings via NA
fundraising across mobile, online, and in-person kiosk fundraising.
vertically focused solutions.
The consolidation of Salesforce.org within Salesforce simplifies the
Salesforce.org provides cloud-based solutions based on the Salesforce $300M
04/17/19 .org company’s go-to-market strategy and allows better incentivization of NA
platform for nonprofits and educational institutions.
Salesforce.org employees.
Provides association management SaaS for associations, professional Qgiv provides Fullsteam with a vertically focused solution targeting the
02/22/19 societies, non-profits, and member-based organizations including CRM, association segment as Fullsteam seeks to grow its payment offerings via NA NA
website content management, and business intelligence. vertically focused solutions.
The merger combines Foundation Center’s database of foundations and
02/05/19 GuideStar is the world's largest source of information on nonprofit NA NA
grants with GuideStar’s data on nonprofit organizations under one roof to
organizations, providing insights, data services, APIs, and web-based tools.
create a synergistic network providing a 360 degree view of giving.
roundCorner provides a cloud-based CRM and marketing automation
The acquisition of roundCorner allows Salesforce to gain control over a
01/14/19 system for board management, major gifts, corporate and foundation NA NA
partner whose strategic direction was straying from Salesforce’s.
relations, membership and prospect management, and event management.
Provides SaaS-based employee engagement and grants management Blackbaud enhances its product offering through the addition of
01/02/19 $157M 7.9x
solutions for employees and nonprofits. YourCause’s cloud-based CSR and employee engagement solutions.
12NONPROFIT SOFTWARE REPORT | Q4 2020
NOTABLE M&A TRANSACTIONS – 2018
LTM
Enterprise
Ann. Date Buyer Target Target Description Strategic Rationale Revenue
Value
Multiple
Provides online payments SaaS for nonprofits, faith-based organization, The acquisition of Stewardship by GTCR-backed Paya expands its reach into
11/01/18 and educational institutions, enabling users to set up a donor-advised the Nonprofit segment, delivering access to a large market segment that is NA NA
funds and manage online donations. rapidly undergoing a transition to digital donations.
Neon One provides a cloud-based nonprofit software suite for mobile Blue Star and FTV partnered to back the combination of NeonCRM and
09/13/18 fundraising application, membership software, and events management. Rallybound, pairing NeonCRM’s donor management capabilities with NA NA
RallyBound provides a social fundraising platform for organizations. Rallybound’s peer-to-peer fundraising tools.
Agilon's Donor CRM provides communications and donor relations in the Agilon provides Aquiline-backed Fullsteam with an entry point into the
09/11/18 Higher Education, Health Care and Health Relief, Public Broadcasting, and Nonprofit segment, providing a strong donor management and fundraising NA NA
Membership-based business markets. solution that has processed over $12 billion in donations.
Provides SaaS for donor relationship management, email campaigns, online Insight’s investment enables EveryAction to accelerate its strategy of
08/21/18 giving and donation payment transaction processing, call centers, and acquiring to broaden focus and capabilities as well as invest in technology NA NA
advocacy and volunteer management and reporting. to develop more innovative products and features on top of their CRM.
Pamlico’s acquisition allows Personify to accelerate plans to create an end-
Provides customer analytics and related CRM and association management NA
07/26/18 to-end constituent management platform as they increasingly transition to NA
software for member-based organizations.
cloud-based deployments and expand their customer footprint.
Frontstream offers credit and debit card processing SaaS and services for
After some stumbles following quick growth via acquisition, Marlin enables NA
05/30/18 nonprofit organizations, charities, businesses, government agencies, and NA
Frontstream to reboot as it goes to market with its new Panorama platform.
educational institutions.
Provides higher education fundraising SaaS to colleges and universities,
Reeher strengthens Blackbaud’s fundraising capabilities and adds scale in
integrating with existing donor databases and providing features for $43M
05/01/18 the Higher Education segment, an important focus area as Blackbaud 4.3x
analyzing donor information and performance, predictive reporting, and
continues to broaden its offering.
volunteer management.
Provides fundraising management and marketing automation SaaS to The acquisition helps accelerate Salsa’s strategy to organically build upon
04/13/18 nonprofits, featuring email marketing, donor management, online advocacy their engagement platform and acquire technologies that empower NA NA
campaigning, SMS messaging, event registration, and reporting. nonprofits to more successfully fundraise and manage relationships.
Provides fundraising management SaaS to nonprofit organizations, SofTrek provides Togetherwork with its broadest offering in the Nonprofit
04/11/18 including donor relationship management, online giving and call center segment, complementing earlier acquisitions targeted at churches and NA NA
management, and volunteer management and reporting. synagogues, fraternities and sororities, and religious camps.
Provides workplace giving and volunteer management SaaS, enabling users The deal positions Benevity to continue to capitalize on its strong
01/24/18 to optimize corporate giving, employee donation matching programs, and momentum in the corporate philanthropy segment with its workplace giving NA NA
employee volunteer sign-up. and employee volunteering solutions while expanding its product breadth.
13KEY TAKEAWAYS M&A ACTIVITY BUYER ANALYSIS MARKET & TRENDS CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE
NONPROFIT SOFTWARE REPORT | Q4 2020
BUYER OVERVIEW – MOST ACTIVE STRATEGIC ACQUIRERS
Recent M&A History
Company Comments Date Company Value
▪ Blackbaud has invested more than $640M in M&A since the start of 2014, typically averaging a deal a year. 01/02/19 YourCause, LLC $158M
‒ Blackbaud’s M&A focus has primarily focused on businesses that could expand footprint/TAM (e.g., church management and education) 05/01/18 Reeher LLC $43M
and accelerate transition to the cloud. 02/01/18 Seraphim NA
06/26/17 Giving.com Limited (dba JustGiving) $121M
‒ Blackbaud has been quiet recently on M&A and, with a current focus on profitability, will likely keep M&A highly opportunistic.
05/10/17 WPG Solutions, Inc. NA
04/03/17 AcademicWorks, Inc. $50M
03/09/17 Dexterity Ventures Inc. NA
07/11/16 Attentive.ly (fka Good + Geek Inc.) $4M
02/01/16 Orange Leap, LLC NA
11/05/15 Amerigives Inc. NA
09/02/14 MicroEdge, LLC $160M
03/09/13 MyCharity Limited NA
▪ Community Brands is the umbrella holding company Insight Venture Partners created as a roll-up vehicle for the Nonprofit segment with three 03/26/19 Churchstreaming.tv NA
core segments and dozens of brands. 03/19/18 Sharefaith Inc. NA
‒ Church software – division containing over 30 sub-brands covering nearly every church need. Insight purchased the church software roll- 12/11/17 501 Auctions LLC NA
up Ministry Brands, previously backed by Genstar Capital and Providence Equity, in October 2016. 12/11/17 GiveSmart US Inc. NA
12/11/17 Gesture LLC [fka Auctions By Cellular] NA
‒ Association and Nonprofit – division containing approximately a dozen sub-brands. Established following Insight’s purchase of
YourMembership.com in Feb’17 and quickly adding on Abila, Aptify, and NimbleUser to capture a large portion of the association 09/27/17 DonorDirect NA
management segment. 08/01/17 Configio NA
04/26/17 VanDamme Assoc. (dba NimbleUser) NA
‒ Education – division of eight sub-brands focused on K-12 schools. Community Brands has a broad suite of products in the K-12 segment
04/07/17 Abila [fka Sage Nonprofit Solutions] NA
with over 4,000 schools on its platform, providing a significant growth opportunity in the segment.
04/07/17 Aptify Corporation $75M
▪ Ross Crowley stepped back into the CEO role in late 2019, replacing JP Guilbault, it remains to be seen if Community Brands will return to its
02/01/17 YourMemerbership.com NA
prior growth through M&A strategy.
10/31/16 Ministry Brands LLC NA
▪ Roll-up for group management and payments software, backed by Aquiline in 2015 and bought by GI Partners in 2018. 04/24/19 UnionWare Inc. NA
▪ Togetherwork has completed over a dozen acquisitions on the platform with eight in the Nonprofit segment. 03/28/19 FILE990.ORG LLC NA
‒ SofTrek and Pennington provide fundraising software while FILE990 provides for easy 990 filing. 04/11/18 SofTrek NA
‒ CircuiTree is a leader in faith-based camp management software. 10/26/17 Chaverware NA
10/26/17 Congregation Connect NA
‒ Congregation Connect provides congregation management software and Chaverware delivers synagogue member management.
08/16/17 Group Interactive Networks NA
‒ Doubleknot provides visitor, member, and fundraising services to museums, zoos, and other organizations.
06/07/17 Pennington & Company NA
11/16/16 CircuiTree NA
09/22/16 Doubleknot LLC NA
For Community Brands:
Bolded transactions purchased by Insight Venture Partners directly as part of formation of Community Brands.
Does not include acquisitions made prior to the formation of Community Brands.
15NONPROFIT SOFTWARE REPORT | Q4 2020
BUYER OVERVIEW – MOST ACTIVE STRATEGIC ACQUIRERS
Recent M&A History
Company Comments Date Company Value
▪ ClearCourse is a roll-up focused on software for payments and membership backed by Aquiline Capital Partners, the original investors in 08/01/19 Protech Computer Systems Limited NA
Togetherwork. 07/03/19 Trillium Systems Limited NA
▪ ClearCourse has completed 15 acquisitions on the platform in about 12 months with seven in the Nonprofit segment. 06/04/19 Decisions Express Ltd NA
‒ APT, Decisions Express, MillerTech, Protech, Silverbear, and Trillium provide association management software. 05/16/19 instaGiv Ltd NA
‒ instaGiv delivers mobile fundraising and engagement tools for charities. 02/06/19 APT Solutions Ltd NA
01/16/19 Silverbear Ltd. NA
11/13/18 Miller Technology Limited NA
▪ The Pursuant Group has its roots in consulting and marketing for fundraising but has expanded its capabilities through several software 08/14/19 Causemo Inc. NA
acquisitions. 03/13/19 ADVIZOR Solutions, Inc. NA
‒ 2DIALOG, Causemo, and ADVIZOR provide fundraising automation and analytics. 02/01/17 TouchPoint Software LLC NA
‒ ShareRewards provides shopping portals to raise money for nonprofits through online retail partners. 10/27/15 ShareRewards NA
‒ ToughPoint Software provides church management software. 03/10/15 2DIALOG NA
▪ Neon One was formed via the combination of NeonCRM and Rallybound, backed by Blue Star Innovation Partners and FTV Capital. 04/07/19 Arts People, Inc. NA
▪ The Blue Star team had previously executed a rapid roll-up in the sports registration space with 20 acquisitions leading to a $300M exit. 12/20/18 CiviCore NA
‒ Acquisitions have focused on building a complete software suite including CRM (NeonCRM), peer-to-peer fundraising platform 09/13/18 Rallybound NA
(Rallybound), advocacy and grants management (CiviCore), and events management (Arts People). 09/13/18 NeonCRM NA
▪ Provides CSR solutions including employee giving and volunteering, grants management, and fundraising software, backed by GA and JMI. 03/28/18 Versaic NA
‒ Versaic strengthened Benevity’s grants offering and Trust CSR helped expand into Europe. 02/27/18 Trust CSR Limited NA
‒ GrantStream broadened Benevity’s offering to include grants management. 11/09/15 GrantStream Inc. NA
▪ Formed in 2010 via the combination of Voter Activation Network and NGP to create a leader in political fundraising and campaign management. 06/24/19 BSD Tools NA
▪ Launched EveryAction is 2014 to expand focus to include the broader Nonprofit segment. 06/06/19 DonorTrends, Inc. NA
‒ BSD Tools provides online political fundraising and advocacy solutions. 05/08/19 We Also Walk Dogs (dba ActionKit) NA
‒ EveryAction expanded its nonprofit offering through acquisitions of ActionKit (email marketing) and DonorTrends (donor analytics).
▪ Ruffalo Noel Levitz provides enrollment and fundraising software to the Higher Education segment. 11/20/19 QuadWrangle, Inc. NA
‒ QuadWrangle provides alumni donor engagement and analytics. 01/30/19 Funderful SIA NA
‒ Funderful provides alumni fundraising software. 01/14/14 ScaleFunder, Inc. NA
‒ ScaleFunder enables crowdfunding.
16NONPROFIT SOFTWARE REPORT | Q4 2020
BUYER OVERVIEW – ADDITIONAL NOTABLE ACQUIRERS
Recent M&A History
Company Comments Date Company Value
▪ Frontstream grew quickly organically and through acquisitions but had some stumbles; it was purchased by Marlin Equity from Arsenal in 2018 07/27/15 BiddingForGood, Inc. NA
and has retooled its product with a more integrated offering but hasn’t returned to M&A since the change in ownership.
02/28/14 TRUiST, Inc. NA
‒ BiddingForGood adds auction and event management capabilities to Frontstream’s offering.
‒ TRUiST brings corporate employee giving and volunteering solutions. 08/09/13 Artez Interactive, Inc. NA
‒ Artez provided web, mobile, and social fundraising solutions for nonprofits while GiftWorks deliveres donor management software. 08/09/13 GiftWorks, Inc. NA
▪ ACS Technologies provides church and school ministry management software. 04/15/16 Helpmate Technology Solutions, LLC NA
‒ Helpmate provides church management software and Mersoft delivers education software for faith-based ministries and schools.
06/29/15 Mersoft (Solomon LMS) NA
▪ Rebranded after DonorCommunity (online fundraising and event management) acquired Telosa Software to add donor management. 08/12/20 MaestroSoft Inc. NA
‒ MaestroSoft expands Arreva’s capabilities into virtual events and auctions.
05/20/19 Heritage Designs LLC NA
‒ Heritage Designs provides donor management and fundraising software.
05/18/17 Telosa Software, Inc. NA
▪ GoFundMe disrupted the Nonprofit segment, delivering a platform for crowdfunding which provides direct giving to individuals or causes. 04/03/18 YouCaring.com $55M
‒ To date, its M&A activity has targeted the crowdfunding space with additions of YouCaring.com and CrowdRise.
01/10/17 CrowdRise, Inc. NA
▪ Provides association management software, backed by BlueArc, Five Elms, and Level Equity in 2017. 11/02/17 WebLink International Inc. NA
‒ ePly offers event registration and WebLink offers association management software.
05/26/17 ePly Services Inc. NA
▪ Network for Good delivers an integrated platform for fundraising and donor management, backed by Camden Partners and Boathouse Capital. 04/14/16 DonorPath Inc. NA
‒ GiveCorps strengthened NFG’s online fundraising while DonorPath brought digital fundraising training and coaching capabilities.
05/20/14 GiveLink LLC (dba GiveCorps) NA
▪ Personify delivers CRM and communications solutions to associations and nonprofits. 09/26/17 Wild Apricot Inc. NA
‒ Wild Apricot expanded Personify’s reach to smaller associations while Small World added community and social networking capabilities.
11/09/15 Small World Labs Inc. NA
▪ Pushpay provides member engagement, donor development, and digital giving solutions for churches. 12/12/19 Church Community Builder LLC $88M
‒ Church Community Builder broadened Pushpay’s offering to include church management solutions, delivering a more complete offering for
its customers. 11/23/16 Bluebridge Digital (Church app bus) $3M
▪ The acquisitions of roundCorner and Salesforce.org caused some stirs as folks thought Salesforce could be shifting strategies in the Nonprofit 04/17/19 Salesforce.org NA
segment but roundCorner seems to be more about regaining control over a partner whose strategic direction was straying from Salesforce’s and
the acquisition of Salesforce.org simplifies go-to-market and .org employees’ incentives. 01/14/19 roundCorner, Inc. NA
▪ Salsa Labs provides advocacy, donor management, and online fundraising software, backed by Accel-KKR. 11/05/15 TowerCare (dba DonorPro) NA
‒ Salsa Labs expanded its focus from advocacy into online fundraising via givezooks and added donor management via DonorPro.
10/31/14 givezooks!, Inc. NA
17NONPROFIT SOFTWARE REPORT | Q4 2020
ACTIVE INVESTORS IN NONPROFIT SAAS SEGMENT
INVESTOR RELEVANT PORTFOLIO COMPANIES INVESTOR RELEVANT PORTFOLIO COMPANIES INVESTOR RELEVANT PORTFOLIO COMPANIES
18
Indicates exited investmentKEY TAKEAWAYS M&A ACTIVITY BUYER ANALYSIS MARKET OVERVIEW & TRENDS CAPSTONE HEADWATERS NONPROFIT SOFTWARE TEAM & DEAL EXPERIENCE
NONPROFIT SOFTWARE REPORT | Q4 2020
$10 BILLION MARKET
The Nonprofit Software segment represents an enormous market opportunity that is not well-served by horizontal players.
The Market remains highly fragmented with the largest public company, Blackbaud, claiming under 10% penetration.
There is a significant “greenfield” opportunity as many nonprofits are adopting dedicated software solutions for the first time while new categories and capabilities
emerge in the industry.
Fundraising & Relationship Management
$3B+ Market
Fundraising
Peer-to-peer fundraising
Donor management
Donor communications
Financial & Grants Management Payment Services
$1.5B+ Market $3B+ Market
Fund accounting Credit card processing
Grants management ACH processing
Scholarship management Payable management
Social Responsibility Organizational & Program Management
$1B+ Market $1.5B+ Market
Employee giving Advocacy
$ Employee volunteering Organization Management
Case Management
Source: Blackbaud Investor Report
20NONPROFIT SOFTWARE REPORT | Q4 2020
PHILANTHROPY – HIGHLY FRAGMENTED MARKET FOR $450B IN ANNUAL DONATIONS
Fragmented by software providers with Blackbaud, the largest provider, Fragmented by size with vast majority of nonprofits under $1M budget
claiming less than 10% of market share. (IRS data), representing an enormous long-tail opportunity.
Fragmented by source of funds with 78% coming from individuals/bequest. Fragmented by mission with varying needs depending on focus.
Corporations
5%
Foundations
17%
Human
Religion Education Services Foundations Health
29% 14% 12% 12% 9%
Individuals
Society Environment
78% Benefit International Arts/Culture /Animals Individuals
8% 6% 5% 3% 2%
Source: Giving USA 2020 Report (Individuals includes Bequest) Source: Giving USA 2020 Report
21NONPROFIT SOFTWARE REPORT | Q4 2020
PRODUCT MAP
Nonprofit segment has key product feature requirements that
are not well served by broader, horizontal software providers.
Associations, charities, religious, and political nonprofits share a lot
of the same key features and organizations are increasingly
seeking modern solutions, providing a threat to legacy providers.
» Transaction processing, whether dues or donations, are
increasingly moving to digital platforms.
» Constituent management through an integrated database
enhances member and donor relationships.
» Analytics are rising in importance as modern solutions enable
organizations to better understand and serve their constituents.
» Associations tend to be slower moving in adopting new
solutions and hold solutions for long periods.
Foundations and financial institutions tend to be slow moving and
change solutions less frequently.
» Primary focus for product selection is driven by financial
management capabilities.
• Managing grants, reconciling contributions and
distributions, and managing funds are high priority
focus areas.
» Constituent management usually through dedicated portals
with email and marketing automation much less important.
Crowdfunding has quickly captured a large portion of donations as
people are more inclined to give to recipients they are personally
connected to and the model provides quick, easy impulse giving.
22NONPROFIT SOFTWARE REPORT | Q4 2020
MARKET TREND – CSR + ESG
Corporations are rapidly evolving their approach to corporate social responsibility (CSR) and environmental, social and corporate governance (ESG) with 2020
catapulting slow burning trends to the top of corporate priority lists.
A look back at CSR:
» Previously, a well-crafted mission statement, a few folks managing some corporate grants, perhaps a cumbersome donation matching offering and not
dumping chemicals into the local water supply would place a company in the upper echelon of corporations.
» In recent years, CSR began to move up the priority list, getting C-suite attention with philanthropic efforts more prominently displayed on company websites
and shared with employees, customers, investors, and other stake holders with many investors incorporating ESG initiatives in their investment philosophy.
» Starting 2020, most companies had realized:
• Employees expect more than a paycheck from their employers with initiatives around philanthropy/volunteering, community/global impact, and
fostering a culture that aligns with employee values as important considerations for employment that enhance job satisfaction, retention, and productivity.
• Cancel culture can quickly shine a light on any misstep, causing enormous harm with more companies proactively taking steps to ensure ESG
considerations at all organizational levels, though many companies were slower to embrace wide ranging initiatives to truly change company culture.
• Companies with CSR/ESG at their core can thrive and even outperform their peers as newer companies with a purpose-driven approach resonated with
customers, employees, and investors with consumers showing a willingness to pay a premium for companies with strong CSR/ESG and products that
support philanthropic endeavors.
Where we stand today:
» As COVID-19 disrupted every aspect of our lives, companies quickly shifted gears toward pushing messaging of good deeds and unity as commercials largely
touted social good.
» The Black Lives Matter movement similarly prompted many companies to tout their initiatives around diversity and social justice while others scrambled to
pull together programs or play damage control.
» Over 2,500 B-corporations in less than 15 years and 8,500 companies are taking the 1% Pledge in the past half dozen years.
Capstone sees 2020’s quick one-two combination of COVID-19 and Black Lives Matter resulting in companies speeding up CSR and ESG initiatives by
several years as it is clear a reactive strategy to social issues will not suffice in our current environment as employees, customers, and shareholders
demand more of the companies they support.
23NONPROFIT SOFTWARE REPORT | Q4 2020
MARKET TREND – CHURCH, SYNAGOGUE & MOSQUE SOFTWARE
COVID-19 instantly impacted religious gatherings as all were forced to cease in-person services with a shift to digital
donations essential for survival.
» Forward thinking churches had previously adopted digital donation solutions to provide congregants an alternative
form of giving with the added benefit of autopay ensuring donations even if congregants missed a service.
» A large number of churches, particularly smaller ones, had not yet adopted digital donations, leaving them
scrambling to implement solutions and drive congregant adoption.
SaaS management software rises in importance as users are unable to come into the office.
» Day-to-day church management benefits from the increased flexibility of multiple users working remotely and
COVID-19 will drive adoption of modern solutions delivering improved management for a large number of
institutions.
» Larger churches generally have dedicated staff that are more tech-savvy while smaller churches often rely on a
changing set of volunteers, making ease of use a priority.
Digital fundraising and volunteering immediately arose as an important need for organizations looking to rally
support for those impacted in their community and beyond.
» Without weekly services as a platform to raise money in support of specific causes and rally volunteers, many
institutions were caught flat-footed as they attempted to provide aid in a time of great need.
Virtual services and digital communications became important offerings, allowing leaders to remain connected to
followers and provide guidance and encouragement in a universally difficult time.
» More content focused institutions with advanced capabilities may have already been offering virtual services, but
that is certainly the minority, it will be interesting to see if more institutions adopt virtual services as a way to
expand their reach.
24NONPROFIT SOFTWARE REPORT | Q4 2020
MARKET TREND – INVASION OF PRIVATE EQUITY
PE firms are attracted to the niche market which is not well served by horizontal software leaders due to specific product needs.
» Only two pure-play public software companies.
Highly fragmented market provides roll-up opportunities to gain scale.
» Lack of clear leaders with deep brand awareness enables aggressive acquirers to consolidate multiple smaller businesses to gain benefits of scale without lack
of “name brand” positioning that could otherwise hinder growth potential.
» Combining businesses with complementary product offerings enables cross-selling, which brings a lower customer acquisition cost (CAC) for upsell compared
to new customer wins and delivers customers a better integrated experience.
» Early PE entrants often had to dip below their traditional check sizes for initial platform investments due to a lack of opportunities with sufficient scale.
» Ministry Brands/Community Brands is by far the largest scale roll-up in the Nonprofit Software space, having completed over 25 acquisitions.
Large payments processing opportunity:
» As donations, dues, and grants increasingly move digital there is an enormous opportunity to capture processing fees on the $400B flowing annually to these
organizations
» Many PE investors have active roll-up strategies in the payments space and are looking at vertical market software solutions that are processing high payments
volume as a way to grow those businesses
Significant greenfield opportunity:
» Many smaller nonprofits are adopting purpose-built solutions for the first time, seeking digital payments and improved donor management.
» Developing segments like donor-advised funds and CSR have many companies in need of their first product and are seeking modern solutions to help
support growth.
Capstone is increasingly seeing interest from larger private equity buyers attracted to the segment looking to invest $100M+.
» Very few independent companies exist with enough scale to warrant $100M+ equity checks.
» We expect to see a wave of earlier investments coming to market in the next 24 months that could attract strong valuations for well positioned businesses from
large PE firms attracted to the segment and eager to put capital to work.
25NONPROFIT SOFTWARE REPORT | Q4 2020
MARKET TREND – THE DIGITAL TRANSFORMATION
Online presence and digital marketing: Ice Bucket Challenge
» Smaller nonprofits are increasingly establishing a digital presence and leveraging a variety of tools and analytics to better
target and retain donors, although a large portion still lack any digital presence.
• Leverage email, SMS, and social media for outreach and communications.
• Utilize websites and videos as a means of storytelling to drive awareness and share outcomes with viral potential.
Digital fundraising:
» Online giving represents less than 10% of dollar volume but experiencing double digit growth.
» Mobile giving is experiencing triple digit growth in recent years, as donors increasingly consume content on mobile devices In 2014 the Ice Bucket
while savvy nonprofits adopt tools to simplify giving. Challenge went viral, quickly
» Text to give has gained popularity as a great way to capture impulse giving. becoming an international
phenomenon with millions
» Subscription giving is growing, driven by digital giving adoption and consumer’s increasing comfort with subscription services, sharing videos and raising
with nonprofits leveraging tools to drive more donors to subscriptions in an effort to reduce churn. $115M in just a couple months
for ALS Association which had
Peer-to-peer: raised less than $25M in total
» Social networks, email, and text messaging provide increased connections for users while new software tools are helping funding the prior year.
nonprofits leverage their donors’ networks to increase donations.
» Individuals are more likely to donate when the request comes from a trusted friend or family member.
» Facebook has exploded onto the scene, announcing last year that users raised more than $300 million for nonprofits in birthday donations on the platform.
Crowdfunding is generating billions in annual charitable giving.
» Crowdfunding has created an entirely new category of digital giving, though donations are often directly to individuals, not nonprofits.
» Simplifies giving with easy-to-use interfaces and frictionless payments.
» Demonstrates donor’s desire to see funds go directly to the people and issues they care about with clear use of funds and a meaningful contribution to a goal.
» However, there are concerns over lack of tax deductibility for direct donations to individuals and lack of oversight over use of funds.
Sources: Nonprofits Source, Facebook
26NONPROFIT SOFTWARE REPORT | Q4 2020
MARKET TREND – THE RISE OF THE DAF
Donor Advised Funds (DAFs) were originally created in the 1930s but have more recently taken off in popularity.
» DAFs now account for over 12% of giving with assets held in DAFs reaching $121 billion in 2018, nearly tripling from $45 billion in 2012.
» Popularity of DAFs has primarily been driven by tax advantages, simplicity, and reduced expenses for foundations.
» Financial institutions are pushing DAFs to high-net-worth clients due to the tax benefits.
• Big motivation for financial institutions is the benefit of capturing more assets under management.
• Increasingly looking to extend DAFs from a tool for the wealthy down to the average individual as a means to centralize giving and provide flexibility on
timing of contributions and distributions to charities.
The 2018 Tax Cuts and Jobs Act eliminated the tax benefit of giving for many Americans as 90% of tax payers now take the standard deduction.
» Changes may have already had an impact as individual giving decreased 1.1% in 2018 while giving by foundations and corporations were up over 5%.
» DAFs can be utilized to aggregate contributions for tax purposes into a single year when deduction can be utilized while the distributions to nonprofits are
spread over time.
Corporate DAFs for employees could provide a new market opportunity that delivers significant benefits to employer and employee.
» Companies can provide each employee with a set amount of funds they can direct as a part of their benefits package.
• Enhances employee satisfaction, raises awareness of CSR, and provides employees a dedicated fund to utilize for giving.
• Company can capture the tax benefit of donations when an individual employee taking standard deduction often would not.
» DAFs simplify gift-matching of employee donations when companies match contributions through a DAF, reducing administrative burden and ensuring
donation dollars meet corporate giving criteria (e.g., every dollar an employee puts into their corporate DAF account is matched by the company).
» If properly structured, employees may be able to forgo salary with money directed to a DAF to effectively capture tax benefits otherwise lost if the employee
takes a standard deduction.
» Corporation gets credit for employee giving as all donations come from the corporate DAF, boosting CSR efforts and community perception.
» Employees can participate in corporate grant making, providing easier to find donation opportunities they care about and enhancing the
employer and employee relationship through partnering on philanthropy.
Sources: Giving USA, National Philanthropic Trust and Tax Policy Center 27NONPROFIT SOFTWARE REPORT | Q4 2020
MARKET TREND – ANALYTICS
Adopting modern CRM capabilities to better understand and serve their constituents.
» Consumer expectations and preferences are quickly shifting with nonprofits and associations needing to adjust their approaches to keep up with trends.
» User experience meaningfully impacts constituents’ impression of nonprofits and associations.
» Nonprofits and associations are increasingly viewing their donors or members as customers and striving to provide heightened levels of satisfaction.
Leveraging internal data:
» Better serve donors and members through deeper understanding based on communication preferences, historical involvement, etc. on an individual basis.
» Improved tracking of relationship history to better manage customers, enabling alternative outreach campaigns that are more individually tailored for success.
» Return on investment (ROI) based on campaign type, donor demographics, etc. can help organizations better understand donor acquisition costs compared to
lifetime value and drive substantially improved returns ultimately determining whether a nonprofit can survive in a very crowded segment with high failure
rates.
» Identify key evangelists and empower peer-to-peer outreach for strong ROI.
Communications:
» Transitions from snail mail to digital communications via e-mail, texting, and social networks provide more paths for communications.
» Varying preferences amongst constituents for how they are contacted based on content (e.g. outreach, updates, thank you notes) further complicates
managing effective communications.
» Savvy nonprofits and associations adopt tools providing flexibility to connect with constituents in ways that drive the strongest relationship with each individual.
3rd party data:
» Helps provide a more holistic view of constituents, allowing for improved targeting and management.
» Identify donors that are good candidates for significant donation increases based on other giving or recent life events.
» Improved ability to identify higher ROI targets to invest additional resources and time.
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