Fund Raisers Drum Up New Business

More and more charities are looking to turn entrepreneurs into donors

The Pittsburgh Public Theater has won a reputation for pushing artistic boundaries.

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Getting Entrepreneurs to Give: a Sampling of Resources

Now it is trying to push conventional fund-raising boundaries by seeking big gifts from business entrepreneurs, most of whom have no track record of giving to charity of any kind. If the theater succeeds, it could offer a new model for raising money in an era when entrepreneurs are transforming the nation’s economy.

Already, the non-profit theater has reason to believe its “New Economy Challenge” fund-raising drive is working. It has persuaded 43 entrepreneurs, mostly in high-technology and related businesses, to make sizable donations for the first time in their lives.

Though many charities have traditionally made little effort to seek money from people who are in the early stages of building a business, the Pittsburgh theater is not the only organization that’s trying to turn new entrepreneurs into philanthropists. Some others:

* The Triangle Community Foundation, in Research Triangle Park, N.C., this summer started the Entrepreneurs Venture Fund, which will solicit two types of gifts: cash or other liquid assets from successful entrepreneurs, and pledges of stock from new entrepreneurs whose companies have venture-capital backing but do not yet have liquid assets. The new fund, which the foundation hopes will grow to at least $500,000, has just received its first gift — $50,000.

* The Entrepreneurs’ Foundation, in Menlo Park, Cal., which seeks gifts only from entrepreneurs, has so far received donations of stock worth $4.9-million (The Chronicle, August 13, 1998). A similar fund in Boston called New Profit Inc. (The Chronicle, April 9, 1998) has raised $1.1-million.

* In June, Community Foundation Silicon Valley held its first meeting for young entrepreneurs, venture capitalists, and other professionals, most of whom are in their 20s and 30s and willing to donate $2,500 or more over the next two years to the foundation. The donors will become part of a committee that will meet quarterly to share information about giving and decide how to distribute contributions — about $125,000 so far.

Says Peter Hero, president of the Silicon Valley fund: “We are doing this to fit a rapidly changing donor base that is increasingly young entrepreneurs.”

Silicon Valley is not the only place being transformed by entrepreneurial activity, much of it in high-technology ventures. Entrepreneurs are creating new jobs and have been fueling much of the country’s extraordinary economic growth over the last few years in cities like Boston, Los Angeles, Pittsburgh, Raleigh, N.C., and Washington.

As the evolution toward a global economy based on information and services continues, the number of entrepreneurs and small companies is expanding rapidly. An estimated 898,000 new companies were incorporated last year, the Small Business Administration reports, up from the 595,000 established in 1982, the first year that the federal agency collected such figures.

Moreover, the amount of money that venture capitalists are pumping into new companies has soared, from $3.8-billion in 1990 to $18.5-billion last year, according to Venture Economics, a company in Newark, N.J.

While many new companies fail, a healthy number make their founders rich. An analysis by the Kauffman Center for Entrepreneurial Leadership, in Kansas City, Mo., found that more than 300 of the people on the Forbes 400 list of wealthiest Americans are first-generation entrepreneurs who — as the researchers put it — “started with little or nothing and built a major enterprise creating enormous wealth.”

But if entrepreneurs are an increasingly important group for charities to court, they also present many fund-raising obstacles.

Many fund raisers aren’t sure how to even find the entrepreneurs who might be interested in their organization’s charitable work.

As they build their businesses, entrepreneurs usually plow all of their financial resources back into their privately held enterprise, sometimes operating out of an apartment or garage and maintaining a modest way of life. As a result, they often escape the notice of fund-raising researchers, who generally use public records to uncover assets such as stock in publicly traded companies and commercial real estate.

Frustrated by a lack of information on new business owners, Lisa Dietlin decided to figure out how many entrepreneurs were among the alumni of Michigan Technological University, in Houghton, where she worked as a fund raiser until recently.

Last year, as part of her master’s thesis, Ms. Dietlin surveyed 1,147 of the alumni — most of whom had made at least a modest gift to the university — and found that more than 30 per cent of them had created their own companies, mostly small businesses, in recent years.

“We were completely missing these people” in efforts to get large donations, she says. The university has a committee that raises big gifts from companies, she notes, but it had focused on established corporations like Dow Chemical and the Dow Corning Corporation and their senior executives.

“It was easy to approach these companies in one fell swoop and try to get their executives to give, sort of like United Way does,” Ms. Dietlin says. “It was the Eisenhower-era approach to fund raising.”

To bring its efforts more in line with economic realities, the university has now added an “entrepreneur committee” to the board of its fund-raising arm, the Michigan Tech Fund.

Ms. Dietlin also learned from her survey that the entrepreneurs who donated to the university had started doing so later than other alumni. On average, they did not make their first gift to the institution until ten years after graduation, while other alumni started giving about eight years after graduating.

She also found that, on average, entrepreneurs made their largest gift to the university about eight years after starting their businesses.

Ms. Dietlin says she plans to use that finding in her current job as assistant dean for development at the University of Illinois’s College of Business Administration, in Chicago. She wants to start building ties to alumni who have recently created companies, though she says she will refrain from asking for a substantial gift until the alumni have been in business for at least eight years. That strategy, she says, may give her institution a leg up on others who do not approach entrepreneurs until much later — when fund raisers learn that their companies are making an initial public offering of stock or have been sold.

“A lot of times we read in The Wall Street Journal that someone just had a great I.P.O. sale and they made $20-million, but think about how you would feel if newfound wealth came into your life, and all these people are suddenly knocking on your door,” Ms. Dietlin says. “Newly wealthy people are offended when all of these people suddenly come after them.”

Even if they wanted to, she notes, many entrepreneurs can’t make significant gifts until their companies succeed. It’s important to have a relationship with them before then, says Ms. Dietlin, but fund raisers need to remember that giving by entrepreneurs “is on their time line, not yours.”

That’s why entrepreneurs are unlikely to respond to appeals urging them to give by a deadline imposed by the charity — before a capital campaign ends, for instance. And because they usually spend all of their waking hours making their businesses work, most do not respond to invitations to serve on charity boards or participate in other activities that involve a major time commitment.

Vanessa Kirsch, president of Boston’s New Profit Inc., says traditional fund-raising methods simply don’t work with entrepreneurs.

“We’re all used to the strategy being that for the first two meetings you don’t ask for money,” she says. “But it’s very different with these guys. They have no time, and they’re used to getting 100 pitches a month. They’re used to selling themselves, and they expect to be sold to. So you come in, and you get one shot. You have to convince them in a very tight way that you know the problem and the solution.”

Ms. Kirsch says that she has trained herself to make “elevator pitches.” She explains: “You have to be able to make your whole case in the amount of time it would take to get in an elevator with them and ride up to their office.”

Many fund raisers, however, are uncomfortable being that direct, says Robert B. Sharp, president of a Lafayette, Colo., fund-raising firm that bears his name.

In interviews with entrepreneurs, he says, he learned that such people “are not even remotely interested unless you can demonstrate that you are cutting edge and the best in the market at what you do.” But, he says, many of his charity clients are “reluctant to adopt this aggressive a style in touting themselves.”

Charity leaders have learned to give out information on how many people they helped or other measures of effectiveness, says Mr. Sharp, but entrepreneurs want much more than that.

“If you create a Pentium chip, it’s not a matter of the chip being effective; it’s a matter of the chip catapulting you into an effectiveness never known before,” he says. “Effective non-profits do not interest a lot of entrepreneurs. What interests them is how you do something in such a remarkable way that you change the whole playing field. That is how these people think of themselves, and that’s what they want to see in you.”

Some charities hope to take advantage of new entrepreneurs’ penchant for changing the playing field by offering them the chance to “be a big fish in a little pond,” says Leslie Wild, development officer at the Pittsburgh Public Theater.

The theater’s efforts, she notes, have centered on getting new entrepreneurs to embrace their role as major players in the changing economy — and to demonstrate that they are markedly different from the wealthy donors who built more-traditional arts institutions a generation or two ago.

One entrepreneur who appears to have taken that message to heart is Glen Meakem, the 35-year-old founder of FreeMarkets OnLine, a Pittsburgh company that solicits on-line bids from suppliers to help companies get industrial products at the lowest price. Mr. Meakem, whose company has grown from two employees to 250 in less than five years, is leading the theater’s effort to raise money from entrepreneurs and has donated $110,000 himself.

“This theater is a great symbol for the new economy,” he says. “I could never get excited about doing this for the opera.”

Mr. Meakem and other entrepreneurs not only give money to the theater, but they also offer another valuable contribution: introductions to people with the potential to be major donors.

“They have introduced us to venture capitalists and other professionals,” says Ms. Wild. “All of these people have lawyers and bankers and investment counselors. They do not go to the big law firms, so I am uncovering niche accounting firms and niche law firms we never knew about.”

Some non-profit groups are reaching entrepreneurs by finding ways to make a charitable donation seem similar to a venture-capital investment.

In North Carolina, the Triangle Community Foundation’s new Entrepreneurs Venture Fund is seeking both cash and other liquid assets from successful entrepreneurs, and pledges of stock from new entrepreneurs.

Here’s how it will work: Entrepreneurs who have pledged stock to the fund will be able to “borrow” against their pledges, making gifts immediately with the cash donated by the established entrepreneurs. When their own companies go public or are sold, the stock they pledged will be transferred to the foundation and sold to pay back the venture fund, thus replenishing it for future donors.

Any additional money from such stock sales will be split evenly: Half will be available for new gifts by the original donors who gave liquid assets, and the other half will become available for gifts by the new entrepreneurs whose companies have succeeded.

Chris Evans, founder of Accipiter, a Raleigh, N.C., company that helps businesses place ads on Web sites, helped the foundation come up with the venture-fund idea. Last year, Mr. Evans, 33, sold his company for $55-million. Last week, he announced a gift of $50,000 to the new fund, its first contribution.

Mr. Evans says he thought of the venture-fund approach after looking at other efforts to raise money from entrepreneurs. He found that few of the approaches gave new business owners much immediate gratification.

“They’re being asked to make pledges or give, but there is not that much in it for them, nothing they can do right now,” he says.

While details such as how much the new entrepreneurs can “borrow” from the fund are still being worked out, one thing is clear: They will be allowed to use money from the fund to support causes of their own choosing.

“You can see the signature of entrepreneurial thinking in this concept,” says Shannon St. John, executive director of the foundation. Letting the individual donor — rather than foundation officials or a group of donors — recommend where a donation from the venture fund will go is something the foundation decided to do, after interviews with about two dozen entrepreneurs showed that they have little interest in group decision making.

“They know exactly what they want and are generally not content with the idea of being a funding facilitator,” says Ms. St. John.

Another way in which the new fund will appeal to entrepreneurs is by letting them know that community leaders believe in their potential, she says.

“We heard from entrepreneurs that they don’t get invites to the country club until after they’ve arrived,” Ms. St. John says. “They wish they had been invited to the table earlier.”

She adds: “What we’re essentially saying is, ‘We believe your company will succeed, and we appreciate you where you are now. And you don’t have to have made your first billion to be part of this.’”