Internet Entrepreneur Tries to Bring Employee Giving On Line

To former Microsoft employee Pete Mountanos, it seemed to be simple enough:

He wanted to give money to a shelter for battered women through the company’s annual employee charity drive.

But because the Santa Barbara, Cal., shelter he wanted to support wasn’t on Microsoft’s roster of approved charities, Mr. Mountanos needed to obtain paperwork proving that the group had legal status as a charity. Then, he had to wait three months for Microsoft to send out the check.

Vexed by the process, Mr. Mountanos came up with the idea for Charitableway, a company he started last year to enable corporate employees and others to give quickly and easily to charity by using the Internet.

Mr. Mountanos is just one of several dozen entrepreneurs trying to carve a niche for themselves in the emerging realm of on-line giving. Some 40 to 50 organizations now offer some type of on-line donation service to channel gifts to charities, experts estimate, and they predict that as many as 100 could exist by year’s end.

Not all those efforts will survive for the long term, but many people think Mr. Mountanos’s has a good shot. Observers say he has the vision and technical skills to turn the 20th-century world of on-the-job giving on its head by using technology to make detailed information about a wide array of charities available to donors at a moment’s notice, and to speed up the transfer of funds from donor to charity.

The Palo Alto company helps businesses run their on-line giving programs. And through its Web site (http://www.charitableway.com), prospective donors can get information on some 3,000 charities — as well as make a credit-card contribution. Donors can also shop on line and direct a portion of what they spend to charity. What’s more, Charitableway also helps charities accept gifts of non-cash items such as frequent-flier miles or even “Flooz,” the Internet gift-certificate currency.

As if all that weren’t enough, Mr. Mountanos also hopes to give Fidelity Investments a run for its money by working with brokerages to help their clients transfer stock and other assets to charity, just as Fidelity’s Charitable Gifts Fund does now.

“They are adding every feature they can think of because, like everyone else, they can’t tell what is going to work,” says Nick Allen of Donordigital.com, a Berkeley, Cal., consulting company that advises non-profit groups on technology issues.

Mr. Mountanos is new to the charity world. The 50-year-old executive was a financial analyst in the defense industry before he became the chief executive of several video-technology companies.

He sold one of those companies, VXtreme, to Microsoft in 1997 and worked at Microsoft after the sale. But he decided he wasn’t suited to working at a large corporation, and left in 1998.

At first, Mr. Mountanos thought about retiring. But after getting encouragement from several venture capitalists about his idea for an on-line giving site, he decided to start Charitableway.

Charitableway, like many of the new organizations seeking to gain hold of the on-line donation market, is a commercial business. The main reason is the cost: To develop software, design a Web site that is secure, and attract high-quality technology workers takes a lot of working capital, which non-profit organizations typically do not have. In addition, they cannot offer prospective employees stock options, a common enticement for high-technology workers in the private sector.

Mr. Mountanos has already raised $8.3-million in venture capital and says he expects an infusion of an additional $35-million this month.

But the fact that those investors expect to make a good return bothers some charity leaders. They wonder whether donors would be better off giving directly to charities than donating through Charitableway, which says it will take from 1 per cent to 9.9 per cent of each donor’s gift (depending on the complexity of the transaction) to cover the company’s overhead costs — and to turn a profit.

Charitableway’s policy violates the ethics code of the National Society of Fund Raising Executives, which prohibits members from accepting compensation based on a direct percentage of the amount of the gifts they bring in. However, Paulette Maehara, president of the society, says her organization’s ethics committee is meeting this week to consider whether to make exceptions for on-line fund-raising companies where the donor is informed about the fee arrangement and the fees are deemed to be reasonable.

“This is being much discussed among our members,” she says. “We need to recognize that Web-based fund raising is here, and these are issues we are going to face as we come into the Web world.”

Mr. Mountanos says that while the ethics concerns are valid, he vows that his company will provide full disclosure on any fees charged to the charity, as well as to the donor, on request. He says his critics seem to forget that direct mail, telemarketing, and other fund-raising methods often cost charities much more than 10 per cent of the gifts they take in — and are often provided by companies seeking to make a profit from their work with non-profit causes. In any case, he argues, Charitableway offers an inexpensive way for charities to raise money on line and allows them to reach a wide array of donors with whom they can then develop long-term relationships.

Mr. Mountanos and his investors don’t like to compare the new company to other on-line giving entities, and they argue that Charitableway is different from its competitors, especially those that allow individuals to shop on line and direct a portion of the proceeds to charity.

Although Charitableway does operate a shopping site, Mr. Mountanos does not expect it to remain a core part of the business. While many retailers are now providing fees and subsidies to charities as a way to attract on-line shoppers, Mr. Mountanos says he expects that such deals will disappear once electronic shopping becomes more popular.

But he says that running on-line charity drives for companies is a business that has staying power. Indeed, Mr. Mountanos says the amount of money generated for charity by on-line shopping “pales in comparison to workplace giving.”

Last year, Americans gave $1.77-billion to United Ways through drives conducted by employers. They gave some $238-million to non-United Way employee drives in 1997, the most recent year for which data are available.

Charitableway is currently seeking to work with local United Ways, offering to set up on-line campaigns to solicit employees in exchange for a fee.

But if United Ways decide they don’t want to work with Charitableway, it’s clear that Mr. Mountanos is prepared to solicit contracts on his own, working directly with interested companies to run their campaigns for them.

He says more workers are asking their employers to provide on-line information about charities — including more data on where money goes and what results it produces — and to accept donations electronically.

“There’s no question that they feel threatened,” he says, referring to some United Way leaders. “But at the end of the day, they have to be responsive to the marketplace, and this is the best way to do that.”

Anthony De Cristofaro, vice-president of marketing for United Way of America, says he agrees that United Ways must respond to donors’ and charities’ changing needs. “We absolutely want to take advantage of technology,” he says.

But he also cautions that United Way of America, like many other large, well-established charities, is receiving proposals from Internet companies almost on a daily basis and doesn’t want to make any hasty decisions. “We have to evaluate all of these before deciding how we are going to move ahead,” he says.

At the local level, one United Way is already planning to work with Charitableway. The United Way of Silicon Valley, which recently experienced a serious financial crisis, hopes to bring itself back to financial health in part by making greater use of the Internet to solicit funds from local technology workers.

Looking toward the future, Mr. Mountanos says he knows that on- line philanthropic ventures like Charitableway will have succeeded when bulky direct-mail appeals and charity telemarketing calls at the dinner hour become a distant memory.

“A lot of donors complain about the endless paper solicitations they get because they know it’s wasting money,” he says.

“We’ll find a better way to tell the charity’s story frequently, more accurately, and with a better user experience than they have had in the past,” he adds. “And just as people find it more pleasant to shop on line than at the shopping mall, why wouldn’t it also be the case that they will give on line?”