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Top of Mind: Successful Entrepreneur Says Good Riddance to VC

“It’s better to give than to receive” is not a mantra often spoken by CEOs. But Harry Gruber not only says it, he lives by it. Gruber is CEO of Kintera Inc. (Nasdaq: KNTA), a company he co-founded in 2000. Kintera makes money for nonprofits, providing software and services to help organizations raise billions of dollars a year through the Internet. Unlike its customers, Kintera is a for-profit company. It was backed with about $30 million, mostly from individual investors. Then in December 2003, the company launched a $35 million IPO. It wasn’t the first time Gruber took a company public. The trained medical doctor founded and was the CEO of two publicly traded biotech

companies. He also launched an Internet software company that he later sold for more than $2 billion. But unlike his past startups, in which Gruber says he has worked with about 30 venture firms in all, he didn’t go looking for any venture capital when he started Kintera.

VCJ: So what do you have against venture capital?

Gruber: Venture capital serves a valuable role in the U.S. economy, providing capital and partnerships, but there are disadvantages, too. VCs have a need to gain control of their investments because founders are typically inexperienced. So, certain decisions are made by the VCs that are not always in the best interest of the founders.

Such as what?

For instance, founders are asked continually by VCs to do due diligence on other deals, which takes time from running their own company. VCs use entrepreneurs to educate them on the industry. It’s free labor for them. But it’s not a healthy relationship long-term for entrepreneurs.

When I started Intervu [a provider of Internet video and audio delivery that Gruber co-founded in 1995], I was pitching VCs the concept of the company, which was to develop software and provide software as a service. This was back in the mid-90s and software as a service was too new of a concept for many to grasp. They told me to go back to biotech. I was frustrated, so we raised money from the private sector. (Note: Akamai Technologies Inc. acquired Intervu in 2000 in a stock swap valued at more than $2 billion. After the sale-instead of buying his own island-Gruber went on to launch Kintera. Ed.)

So you felt like you were an experienced enough CEO not to use venture capital when you launched Kintera?

We still raised money, about $30 million, but it was mostly from high net-worth individuals. I realized I didn’t need VC. If you have a seasoned management team and a track record, VCs are more of a hindrance than a help. But for young entrepreneurs, venture capital is fine.

Obviously you’re not opposed to giving a return to your investors. You went public last year. Why?

There were three reasons why we went public. First, it was to get leverage out of our market. We are still getting mentioned in about 50 new articles a month, so the IPO has been giving us marketing leverage. Second, we wanted to expand our sales and marketing efforts. And third, we wanted the currency to buy other companies. (Note: In August, Kintera acquired two companies: BNW Software Inc., a developer of facilities management software for $300,000 and stock and Kamtech Information System, a provider of wealth screening services, for $310,000 and stock. Ed.)

We’ve seen an increase in the number of venture-backed companies go public. What’s your view of the stock market?

The market is bifurcated, as always. Some are looking for the next Google or Saleforce.com to invest in. The other half want to put money in established companies.

Also, generally speaking, a wide-open window for IPOs like what we’re seeing now will not happen for long. (Note: The interview was conducted in late August. Ed.)

You’ve headed up public companies before, so how has Sarbanes-Oxley and other measures that are geared to increase corporate transparency changed things?

For Sarbanes-Oxley and public disclosure, the rules are valuable and useful, and that’s good for the investor. In the long run, it will probably help to build stronger companies. There will always be companies that try to skirt the rules. But the positive thing about Sarbanes-Oxley and other measures is that they provide guidance for executives and boards on how to run a public company.

You’ve been a doctor, a scientist and an entrepreneur. How’d you go from medical school to become a technology CEO?

I went to medical school to become an inventor, and I invented a number of companies. There was Gensia Pharmaceuticals. Then I started Aramed, a central nervous system drug discovery company, and Viagene, a gene therapy company, which was acquired by Chiron Corp. Then I wanted to do something different, and I started Intervu.

When did the idea for Kintera come about?

That happened while I was at Intervu. I saw that the Internet was a powerful tool for connecting donors with causes. And I saw a need to connect nonprofits with more donors using the Internet. There are more than 1.4 million registered nonprofits, and, in 2002, more than $241 billion in total donations were given to charities, affinity groups, colleges and universities and similar institutions. We estimate that more than $1 billion of those donations were made online, so online donations now are just the tip of the iceberg.

Where did this sense of giving and philanthropy come from?

Philanthropy, the drive to help others, has always been important to me. In the beginning, with the first companies I ran, we donated royalties. Now, as a volunteer, I help do fund-raising at UCSD. Giving is addictive. You give and feel good, so you give more and feel good again.

So what advice do you have for other CEOs who may be thinking about philanthropy?

The return is great. More companies and CEOs should do it. It improves employee moral, it increases your brand marketing, it’s absolutely fundamental. It also provides the highest ROI on marketing dollars, other than good press.

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