By Brittany Meiling
The San Diego Union-Tribune
WWR Article Summary (tl;dr) Although it took six years for the startup “Classy” to help facilitate its first $500 million in donations, the second $500 million came in just 14 months.
The San Diego Union-Tribune
One of the most valuable software startups in San Diego — Classy — made a splash last week when it announced $1 billion had been raised through its platform for nonprofits.
But the milestone is just a punctuation mark on Classy’s unusual growth in recent years as one of relatively few software companies to flourish in San Diego.
The startup makes software that helps nonprofits raise money online, and in recent years, it’s signed on titans of charity like the Salvation Army, among its 4,000 clients.
The big nonprofits have ramped up Classy’s growth, giving the startup a hockeystick trajectory over the past year.
Although it took six years for Classy to help facilitate its first $500 million in donations, the second $500 million came in just 14 months.
The startup raised $48 million of its own capital over the years, including a $30 million round from venture capitalists last year. That put Classy’s valuation at $150 million, according to data from Pitchbook, placing Classy in the top ranks for valuable software startups in the region.
It’s been an uphill climb, according to Classy’s co-founder and CEO Scot Chisholm.
Although software is starting to gain momentum, San Diego has not historically been a mecca for those writing code.
That’s not to say technology isn’t at the city’s core. Giants like Qualcomm and Viasat have flourished, and the region has deep expertise in computer chips, wireless systems, security, and increasingly robotics and drones.
But software is a different game. Entrepreneurs trying to build software startups have remained outliers to the business community for decades, their ambitions and needs mismatched with San Diego’s experienced leaders and even more disconnected from local wealth. After all, those who have money to invest in San Diego often made their wealth off science and hardware. They don’t have anything to offer to software companies, and therefore often don’t invest in them.
That’s why startups like Classy have been anomalies in San Diego. And their executives are often lone wolves. But that hasn’t stopped Chisholm from steadily growing the startup. Since it’s inception in 2011, Classy has grown to employ 230 people, occupying a lavish office in downtown San Diego with stunning views from its high-rise.
We spoke with Chisholm, 37, about his experience growing a software company in San Diego. These excerpts were edited for length and clarity:
What has been your experience leading a software company in San Diego, where — at least in the early days — you didn’t have many peers?
I won’t lie to you, it was lonely early on. There was no EvoNexus, no startup incubators, and there really wasn’t a community. There were pockets of companies all over San Diego, but nothing to bring them all together. It’s actually extraordinary what’s happened in the past seven years. Today the fibers are stronger in the startup community. And that’s important for raising money, growing, hiring, and getting advice and counsel.
In that environment, what strategies did you use to grow the company?
We felt we had to go out of San Diego to raise money and get software advice. Software-as-a-service was relatively new, and there wasn’t a lot of successful SaaS companies for us to lean on for advice. It was a prerequisite to be networked into the Bay Area. We knew no one, so I used to just go up there multiple times a month. I wouldn’t even have meetings, I would just hang out in the lobby of the Salesforce office hoping to meet people in our world and network with them. That actually led to a partnership with Salesforce, integration with their software, and two investments from Salesforce Ventures. That all came from just showing up.
What advice do you give other entrepreneurs who struggle raising money?
Traction is your best friend. Our business traction is what got us in the door with investors. Start with friends and family or angels, and make sure your story is tight and you’ve got real traction with revenue or growth before you approach institutional money.
Is it difficult to hire talent in San Diego?
For software, it’s difficult to hire for senior positions. This will get easier over time as software companies begin to succeed here, then their top employees will go on to the next startup. But for the early guys — especially for SaaS — it’s definitely been hard hiring those senior positions with software experience. About 20 percent of our staff was recruited from outside San Diego. For mid- to junior-level positions, we’ve done great in San Diego. UCSD has been really strong from a software engineering perspective, and they’ve been our anchor for a long time.
Since Classy was the first company you founded, what would you say was your hardest lesson learned as a new entrepreneur?
Hire earlier than you think you need people, especially for difficult positions. If you think you need to hire a senior position in two years, cut that timeline in half. Onboard people when you don’t need them, and by the time they’re ready, you need them. It’s not just senior positions, either. For example, an unbelievably important position in software is DevOps, which is super hard to find in San Diego. I wish I would have started that hunt two years before I needed it.