Nonprofit Start-up Bay Citizen Adds $9.5 Million In Funding

The Bay Citizen is going public with a new round of funding a little sooner than planned after a column in the rival San Francisco Chronicle left the impression it was running out of money. Editor-in-Chief Jonathan Weber told paidContent the nonprofit news startup has raised $9.5 million on top of the $5 million in seed money from philanthropist Warren Hellman.

He steered away from details about whether the money is from gifts, grants or a mix, deferring that until after the new year. But he said the $9.5 million, more than they had budgeted, is in addition to revenue coming in from other sources, including a syndication deal with the New York Times that he describes as a “fairly small line.”

The item in the Chron popped up after tipsters told the paper’s Matier & Ross column about being pitched for donations on street corners in downtown San Francisco. I’m not sure what happened when the Chron‘s Matier & Ross column talked with Bay Citizen membership director Rose Roll but somehow the paper wound up conflating the $5 million in seed money from Warren Hellman with a first-year budget of nearly $5 million. The impression left was that the new news org was out of money just six months after launch and had to race to raise funds by “hustling donations on the corner.” Also mentioned: the “chunk” of money going to top executives. The post was picked up by the San Francisco Peninsula Press Club blog, raising questions about where the money went and how the spending had forced the street sales. Together, the two made Romenesko and the comments started swirling.

Having written about the new nonprofit at the beginning, the portrayal made little sense to me. Like the execs for other nonprofit news startups across the country, CEO Lisa Frazier and Editor-in-Chief Jonathan Weber have been clear all along about the needs for mixed revenue streams in addition to the large grants and gifts used for kick off. They’ve also been open about the need to expand giving beyond those early sums.

Weber tried to set the record straight on Twitter through his @citizenweber account, mentioning total fundraising of $14 million and spending of less than $5 million. It turns our When we spoke a day later, he was still flummoxed by how the budget and the Hellman gift had been connected connected — and more than a little frustrated to be put in the position of defending salaries after going through it nearly a year ago. (Frazier is out of the country.)

“The business model for the Bay Citizen has always involved four revenue streams — large gifts & foundation grants; sponsorship & underwriting; syndication (like the New York Times) and membership,” Weber explained. “The fundraising has been ongoing all the way along. That (the Hellman gift) was always viewed as startup money. We also knew we would need a lot more to do what we want to do. The key thing about the revenue model is revenue streams shift over time.” For instance, membership is a small piece of the pie in the first year but a lot more important in the fifth year. Large gifts and grants help at the start before the audience is big enough for sponsorships and underwriting; a full-time staffer was added two months ago to push the latter.

Where did the money go?: “We’re certainly not out of money. We’re very much on plan,” Weber said, with first-year spending at $4 million. That covers 26 full-time staffers (18 editorial, including Weber), news gathering expenses, site development, fundraising costs and more. They’re in the process of hiring three more in editorial. And yes, as he and Frazier confirmed when we spoke last January, they do make — and pay — competitive salaries. Her salary is $400,000. Weber’s salary will be public when they file with the IRS and he prefers to keep it that way.

“We’ve got 26 people here. What do people think a 26-person news operation costs?” he asked. (Mother Jones’ Steve Katz tweeted that his newsroom had 50-plus staff and a $9.3 million budget, backing up the numbers.) “First of all, the idea that there are lots of people making big salaries is just incorrect. We pay competitive salaries in general but that’s it. The second thing I would say is I take some of this kind of personally. I spent a long time in the trenches paying myself very little money, paying other people very little money trying to make a go of a startup. That was great experience and I don’t regret it. But the notion that there’s greater virtue in not paying people is not one I agree with.”

Weber was a co-founder of The Industry Standard and the founder of Montana news outlet New West, where he spent the five years before Bay Citizen. “I can look anyone in the eyes and say, ‘I paid my dues in the start-up trenches.'” But these circumstances are different. Building a sustainable nonprofit isn’t the same as trying to build a startup for profit or sale. “The notion that because we do have an approach that is enabling us to pay people real salaries and that we should be criticized for that, I don’t get.”

About those street fundraisers: As for the street campaign, Weber says it’s a contract with a group that puts a half-dozen paid fundraisers who know a lot about the Bay Citizen. “They get a very high rate of people who give … once they get them to stop. It’s a way of spreading awareness even if people don’t donate. I actually like it relative to other ways of raising money.” He added, “Ironically, you often outside the Ferry Building see a guy out there selling Chronicle subscriptions.”

They’re trying the other forms, too — direct marketing, advertising, membership drives. Through midnight Friday, the First Republic Bank is matching donations. Late December is an important time for tax-deductible drives. The numbers aren’t final yet but current expectations are they’ll end the year with 1,500 members at a minimum $50. That would be at least $75,000 for the year from membership. Another 500 or so “small” donors have given less than that.

Is it sustainable local journalism? Too soon to tell but at the current spending pace, the Bay Citizen has enough to last through 2012, which is more than some for-profit news orgs can say.