The Biggest Startup You’ve Never Heard Of

An Interview With the Founder of Classy

Author

Justin Gordon
May 09, 2024

Hey! Justin here, and welcome to Just Go Grind, a newsletter sharing the lessons, tactics, and stories of world-class founders! We’ve got a special interview today with Scot Chisholm, the founder of Classy and Highland!

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👋 Community Update

We’ve got more than 85 people signed up for our next hike on May 11th in Los Angeles! This should be a lot of fun 😊 

I’m looking forward to meeting all the ambitious founders, operators, and investors in Los Angeles who are coming!

We’ve also got coffee meetups ☕️ in WeHo and Santa Monica scheduled. More events are coming soon!

I’m still working on the San Francisco calendar and hoping to get some events scheduled in the next few weeks.

Want to sponsor these events and also get exposure in this newsletter? Fill out this form or reply to this newsletter.

One last thing… the waitlist is now open for the vetted community of founders I’m assembling; dozens of people have already joined the waitlist!

Scot Chisholm, Founder of Classy and Highland

After getting introduced to Scot through this newsletter (Gotta love the power of media) I knew I wanted to have him share his story with all of you.

Scot co-founded Classy, an online fundraising platform designed for nonprofits. Along the way, he raised more than $180 million in capital to build the business before selling it to GoFundMe in 2022. He’s now building Highland, an invite-only CEO coaching program for high-potential founders.

There’s a lot to take away from Scot’s journey building both Classy and Highland and I’m excited to have Scot share some of those lessons with you today!

Let’s get to it.

What's your quick background and why did you start Classy?

Classy started as a fundraising event to raise money for cancer research, because my mom had cancer when I was growing up.

We decided on a pubcrawl of all things and collected cash at the door. When we were coming up with the name for the fundraising pubcrawl, the movie Anchorman with Will Ferrell happened to be on in our San Diego apartment. And so we named the event the Stay Classy pubcrawl.

That one event turned into dozens of charity events from cancer research to planting trees, and from pubcrawls to athletic events and concerts. Our biggest event was a 5-10k person music festival with headliners Matisyahu and Bassnectar.

Eventually, as we started working closer with the nonprofits themselves, we started to realize that the technology they were using to raise money was prehistoric. They also didn’t understand how to move fully online and connect with a younger generation of donors. So, the idea for “Classy” the software company was born.

That first fundraising pubcrawl happened in 2006, and it wasn’t until 2011 that we launched as a SaaS company for any nonprofit.

Fast forward 10+ years and Classy now raises billions of dollars a year across its platform and works with nearly 10,000 nonprofits. It was also acquired by GoFundMe in 2022 to create the largest giving platform in the world.

All of this started with a personal story, just trying to raise money for my mom. Well, that and a little magic from Will Ferrell.

How did you build the founding team and find early team members?

We have a very non-typical founding story with our history in physical events. But at some point, the group of us had to decide who was really into this for the long run as a software company.

There were two of us who stepped up initially, myself and my co-founder Pat Walsh. I became the CEO, only because I was the one who picked up the incorporation paperwork from our lawyers. Pat was good with it, luckily.

Then around 2011 we went through a startup accelerator in San Diego, refined our idea, and then brought on two other co-founders. One was a software developer and the other was a designer. Myself and Pat had technical backgrounds (Mechanical and Industrial Engineering), but we weren’t software developers or designers. So this was critical to add to the team.

The next several team members that we brought on were either close acquaintances, family, or just some crazy person who really wanted to work for a startup (and I say “crazy” in the most heartfelt way).

One of those was my officemate at Booz Allen Hamilton, Todd, who went on to become our head of product management for years. The other was my brother who had just graduated second in his class from BU Law School - but since the economy was still crap, thought our new startup sounded more attractive. He led legal of course, but then marketing for years. Todd & Sean were the ultimate utility players - Smart, hungry, and played multiple roles well over the next 5-10 years.

It’s really common for members of the founding team to hit a ceiling fairly early on. Their ego gets in the way and they are unwilling to adjust. Looking back, we were remarkably good at moving people around into new roles that best fit the needs of the company - all without ego. And they say you can’t go into business with friends and family!

How did you get early traction and what was your GTM?

At first, our entire strategy was product-led growth (before that was a thing). We looked up to companies like Mailchimp and 37 Signals when we were first starting. These were the real pioneers in PLG. I even cold-emailed and called Jason Fried multiple times to invest in our company. He eventually responded: “I really appreciate you thinking of me, but I suck at angel investing so I don’t do it”. This was my first lesson in setting boundaries and saying ‘no’.

So, we got to just shy of $1M in revenue off of just product-led growth. No salespeople.

The majority of nonprofits we were attracting were really small and not the easiest to work with. But there was a silver lining. We noticed in the data that the ones that were really taking off with our platform, raising orders of magnitude more, were nonprofits that were a bit larger - organizations with $500k to $5M in revenue.

Enter Hubspot, the third company that we were very inspired by in the early days.

Hubspot popularized “inbound marketing”, which today is simply known as content marketing. So we ran that playbook HARD, targeting medium-sized nonprofits in that revenue range. We hired full-time writers and an editor before we hired our first salesperson!

This worked wonders, but all of a sudden I was ending up on a ton of sales calls because this target customer wasn’t willing to pull the trigger without talking to a person. So… we started to build out a small sales team about two years in.

What was the business model, how did it evolve, and is there anything you can share about revenue?

Classy’s business model is a lot like Shopify. In a way, we were an “e-commerce” platform for nonprofits. We helped them with their online presence, fundraising & donations.

So the business model was always subscription and payments. In the beginning, we went out with a higher payment fee (% of every transaction) and a lower subscription fee ($49/mo or less). This worked well for really small nonprofits that didn’t raise a ton online.

However, once we discovered our initial target customers (nonprofits with revenue of $500k-$5M in revenue), they were willing to pay a higher subscription fee in order to pay a lower transaction fee. Since they were raising a lot of money, this saved them money in the long run and kept their “cost of revenue” lower. This insight changed our thinking about pricing and we essentially moved to a volume-based model.

Then later on in our development, we really improved the cash and retention components of the business.

When the product got even stronger, we were able to ask for the full annual subscription fee upfront. This helped counter the dreaded “SaaS cash trough” problem - where your acquisition costs take months or years to pay back.

Later on, we were able to get 3-year and even 5-year contract sizes for our largest customers.

All of these changes helped our business, but they also created a powerful long-term relationship dynamic with the customer that I hadn’t fully appreciated earlier when we were selling $49/mo software all self-service.

With larger organizations they started to see us as a vested long-term partner - not just some cheap software they would try once and then put it on a shelf to collect dust. This was a huge transformation in the business.

What was the fundraising journey for Classy?

When we first started raising money from investors, the venture world didn’t want anything to do with us. We weren’t “Silicon Valley” pedigree: we were first-time founders, we didn’t go to Stanford or Harvard, and we didn’t “know anyone” who could provide a reference. We were true underdogs.

Not only that, no VC wanted to invest in the nonprofit vertical. They didn’t see it as an important space to be in and didn’t understand why nonprofits even needed world-class technology.

So, we were forced to raise our first $5M from all angel investors. A painful and long process. The smallest investment we ever took was from my now-wife, who invested $7,500. Like the scumbag I was, I asked her to invest on one of our dates. Luckily that $7,500 is worth quite a lot of money now!

Salesforce Ventures was the first institutional investor to express interest in us. We had built an integration between Salesforce CRM and Classy, and they saw the nonprofit and high-ed vertical as a massive untapped market. So we hit it off right away, and they ended up putting $500k into the company initially, which grew substantially over time.

But once Salesforce wanted to invest, the venture community was all of a sudden more interested in us (shocking!). So we raised a small Series A, that also converted our prior angel money into equity. It was led by Salesforce, Bullpen Capital, and Hinge Ventures.

When we were able to prove we had a repeatable sales process, we went out for our Series B. Peter Thiel’s Mithril Capital led that $18M round, and partner Paul Leggett joined our Board. Paul would turn out to be an incredible Board member and human over the many years to come.

For our Series C, we stupidly chased valuation and went with a Private Equity firm called JMI out of San Diego. I’ll spare you the entire story, but let’s just say it did not go well. They tried to push me and the management team out of the company.

Eventually, we were able to buy them out completely, which was unheard of for a company of our size. But the round was led by insiders, and it showed how bullish they were on the fundamentals of the business. JMI was a nightmare, but the business was very solid.

Not surprisingly the business took off after we removed that “cultural cancer” from the organization. We went on to raise our Series D from Norwest Venture Partners a couple of years later, raising nearly $125M to further accelerate our growth and to return some money to the shareholders.

Not long after our Series D, a very strong offer came in from GoFundMe to buy the business. Since the deal had an equity component to it, I’m also a large shareholder in GoFundMe now (which is rad!). The GoFundMe + Classy combo has proven to be the right move, and the combined companies have so much potential moving forward!

What were the biggest challenges in building Classy?

Prior to the acquisition we were a 300+ person team, raising billions of dollars on the platform from almost every country around the world. But it was a long and winding road to get there.

When people think of “scaling”, they typically think of scaling sales & marketing. And that’s certainly part of it.

But what people don’t think enough about is scaling the people side of the business. Most of the challenges happen on the people side and most founder/CEOs are just not prepared to face those challenges. They don’t teach that type of stuff in school.

For example:

  • How to redesign the org every 12 months

  • How to keep motivation high at all times

  • How to align incentives across the team

  • How to the hire the RIGHT people for your team

  • How to do the hard stuff right - reorgs, layoffs, firing, etc.

These are fundamental principles in leadership, operations and building teams. They will show up whether you’re running a 10-person team or a 1,000-person team.

At the end of the day, business is a people sport. My highest highs were with people, and my lowest lows were also with people.

Let’s talk Highland. How did you decide to start it, what it is, and who its for?

When I was growing Classy - right around $1M in revenue - I felt this uneasiness in my stomach about my own abilities for the first time. Up until that point, I was very confident in my founder-ly duties… build a product that people wanted and get it into market.

But once you reach product-market-fit, you’re job changes from founder to CEO. You have to go from a “building” mentality to a “scaling” mentality. And to be honest, most founders never fully make this transition. They get stuck in “build-mode” (or always return to build mode) and never truly build the foundation for scale. When this happens they become the bottleneck of their own business, and things stagnate around a couple million in revenue. They never break through.

And then we all know what happens next. Either the founder fires themselves (they think they don’t have what it takes), or they get fired by the board.

My belief is that more founders have it in them to become amazing CEOs and leaders. They just don’t know how to make that transition from build-mode to scale-mode. 

And what’s even crazier, there’s VERY LITTLE help out there for them. If you look at the traditional VC model for example, they typically have EIRs that help with functional excellence, like sales, marketing, product. But it’s extremely rare that an investor has a program for the founder themselves to develop into a great CEO and leader.

When I was going through this, I remember wanting to learn from another experienced founder that had made the transition successfully. A founder that had grown into an effective, even world-class CEO from the bottom up. A few that come to mind that I looked up to were Brian Halligan (founder, Hubspot), Jeff Lawson (founder, Twilio) and Brian Chesky (founder, Airbnb).

But these types of founders were either still running their company, or had sailed off into the sunset. So I made a promise to myself that if I were ever fortunate enough to find success in the CEO role, and have an exit, I would build a program that would help good founders become great CEOs.

And that’s what Highland is.

It’s a program that’s designed to help you develop into a top 1% CEO. To help you make the transition from build mode to scale mode and go from $1M in revenue to a company that could thrive into the hundred of millions.

We also have a community component as well, so you are networked in with other CEOs at your exact stage. And we do live sessions every other week where I’ll go deep on a topic from the self-paced curriculum, or I’ll bring in a badass guest leader - like Adam Aarons, the CRO of Drata, Okta and my prior CRO at Classy. Deep functional expertise, delivered in a private setting, every other Wednesday morning.

We just launched in January and the reaction has been incredible. We’ve got 25 CEOs in there now, and we’re gearing up for our next class of about 20-30 CEOs across all industries - from SaaS and robotics, to retail and CPG.

The website is joinhighland.com if any founders are out there and want to apply, or learn more.

What have been the most influential books, podcasts, or other resources for you as you've built Classy & Highland?

I guess I’m kind of a book collector now (with 1,000+ books at home), but I still subscribe to the idea that you should read your top 5 books hundreds of times vs. reading 500 new ones.

So my top 5 most influential books for business have been:

And my top Blogs / Resources over the last 15 years were probably:

Anything else you'd like to share?

It’s so easy to look at someone else’s “success” story and feel like you are so far away from that (at least that’s how it felt for me).

But in reality, you’re a lot closer than you think. Success comes on the other side of failure. You just keep getting back up, and eventually, you’ll be the only one standing!

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Thanks for reading!

Best,

Justin

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