Shaking the Foundations

Kansas City's community foundation is more sophisticated than most. Philanthropic tyros with a yen to give locally should look carefully at the services and track records of foundations in their areas. "Some community foundations are trying to differentiate themselves by giving donors value-added services," says Allen Grossman, a professor at Harvard Business School's Initiative on Social Enterprise. "Whatever competitive advantage they have is in helping donors think through the funding options. Not enough of them do that well."

The New New Philanthropy

People who don't know the rules don't fret about breaking them. That's one reason the Internet took off with young entrepreneurs in the mid 1990s. At the same time, something very similar was happening in philanthropy.

"There was a wealth of people who didn't grow up with a traditional understanding of philanthropy, and that led to a concerted initiative to create learning labs around the country," says Alison Wiley, president of the Forum of Regional Associations of Grantmakers. In 1998 the Forum launched New Ventures in Philanthropy, a $20-million, 10-year project that funds and supports new models for giving. Those experiments often focus on specific donor groups, such as women, African Americans, Latinos, rural Americans, the gay and lesbian community, and entrepreneurs.

In North Carolina's Raleigh-Durham research triangle, for example, New Ventures is funding the Catalyst Project, an outgrowth of the Triangle Community Foundation. Part of Catalyst's mission, says project director Shannon E. St. John, is to involve local entrepreneurs in creating vehicles for giving that fit their needs.

Chris Evans, CEO of consulting company Deepwood Group, is one such entrepreneur. In 1999 he and a dozen other local company owners began discussing their ideal philanthropic model. At first the group was mostly sure of what it didn't want. The SVP model, for example, was out. "They didn't want a giving circle in any way, shape, or form," says St. John. "They didn't want to pool their money and make joint decisions." The group was more intrigued by the Entrepreneur's Foundation, in Cupertino, Calif. (See " Valley Legend's Biggest Road Show Ever," Inc, April 2001.) Early-stage entrepreneurs pledge pre-IPO stock to that foundation, which invests in local nonprofits when the stock becomes liquid. But Evans didn't like that idea. "The charitable act was delayed, and that didn't sit well," he says.

So Evans did some tweaking and came up with the Entrepreneurs Philanthropic Venture Fund. It, too, solicits donations of stock from start-ups. But companies that want to give right away can make grants of up to 50% of their contributions' value, from a common fund. That fund is bankrolled by a small group of investors (Evans is one) and replenished when the start-ups either go public or are sold. The first proceeds repay the fund. The remainder is split between the fund and the participating entrepreneurs, all of whom must use the money for charitable purposes.

The fund launched in 2001 with Max Wallace, founder of three-year-old Cogent Neuroscience, as its pilot participant. Wallace pledged part of his own stock in Cogent, then immediately donated $5,000 from the fund to Family Health Ministries, a health-care program in Haiti that he researched on his own. While his gift was small, Wallace says it sent an important message to his 80 employees. "Every employee at Cogent has stock or stock options, and I want to show them that it's possible to do this," he says. "My thought is that one day we'll have an employee group of philanthropists. When it's your ownership and your sweat, and you're willing to share that, it's more dear than cash."

But it's cash the fund needs, and its investors bet Cogent will deliver. This is Wallace's fourth biotech company: of the previous three, one went public and two were sold to large pharmaceutical companies. "Wallace has a good track record of success," says Evans. "That's why we approached him."

While the model was conceived in palmier times, St. John says the group never expected quick returns. "We have a lot of biotech companies here," she says, "and they're always on a longer time frame." But, she concedes, "we have become more selective about the companies we invite to participate."

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