Kintera, Inc.

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Kintera, Inc.

9605 Scranton Road, Suite 240
San Diego, California 92121
U.S.A.
Telephone: (858) 795-3000
Fax: (858) 795-3010
Web site: http://www.kintera.com

Public Company
Incorporated: 2000 as VirtualDonors.com, Inc.
Employees: 473
Sales: $23.7 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: KNTA
NAIC: 511210 Software Publishers

Kintera, Inc. provides software and services to help nonprofit organizations raise money online and manage their fundraising activities. Kintera generates revenue by taking a percentage of each donation and by charging monthly maintenance fees for operating web sites. The principal products offered by the company are the "Friends Asking Friends" fundraising program and "Kintera Sphere," a web-based service providing nonprofit organizations with the tools to put together a complete marketing infrastructure. Kintera serves more than 15,000 accounts in the nonprofit, government, and corporate sectors.

Origins

Much of the financial support, faith in, and future hopes of Kintera rested on the reputation of its cofounder and principal executive, Harry E. Gruber. For many of those who studied Kintera, analyzing its moves and progress, the individual behind the company was more important than what the company did—Gruber's accomplishments, his track record, overshadowed Kintera's business model. Gruber completed his medical training in internal medicine, rheumatology, and biochemical genetics at the University of California, San Diego (UCSD). After earning his medical degree, he joined the faculty at UCSD's School of Medicine, serving as a geneticist, rheumatologist, and a researcher until 1986, when he left to start a second career as an entrepreneur. The change in direction eventually netted Gruber an immense personal fortune measured in the hundreds of million of dollars and earned him a reputation on Wall Street as a shrewd and skillful businessman.

When Gruber left UCSD, he started Gensia Pharmaceuticals, Inc., a biotechnology firm that became the first of five companies he founded before starting Kintera. Gensia, later renamed SICOR, Inc. and sold to Teva Pharmaceutical Industries LTD. for $3.4 billion in 2003, established Gruber as an entrepreneur of note, fueling his confidence to try other ventures. Over the course of the ensuing decade, he developed the technology for three publicly traded companies focused on human genetics. Gruber founded Aramed, Inc., a central nervous system drug discovery company; Metabasis, Inc., a company developing drugs to treat diabetes and liver disease; and Viagene, Inc., a gene therapy company. After selling Viagene to Chiron Corp. for $150 million, Gruber readied himself for another start-up venture of the same ilk. "I thought I'd take some time off and then do another genetics project," he reflected in a May 15, 2003 interview with Investor's Business Daily. Gruber's plans soon changed, however. After a conversation with a friend, he decided to leave the healthcare field and start a company based on the then nascent technology of the Internet.

In 1995, Gruber started INTERVU Inc. after a friend suggested forming a business that offered online videos to help real estate agents. "The idea," Gruber said in his interview with Investor's Business Daily, "was to put together little video vignettes so brokers could look at the clips without having to visit the properties." At the time, the Internet had yet to become the bustling hub of information and commerce its proponents promised it would become, but advances in technology would soon turn their vision into reality. Advances in technology, aside from moving the Internet into the mainstream, propelled INTERVU in a new direction shortly after its formation. The advent of streaming technology, which enabled users to watch video as it was being downloaded, prompted Gruber to address a new, larger customer base. INTERVU began offering its service to enable companies to provide audio and video broadcasts of their quarterly financial conference call meetings with analysts and investors. Gruber struck gold with the idea, quickly gaining numerous corporate clients. Television companies NBC and CNN used INTERVU's services to provide video of breaking news stories online. In the midst of the company's widely heralded success and the phenomenal growth of the Internet as a virtual destination, Microsoft Corp. invested $30 million in INTERVU to promote the use of its media player software. "We got a lot of adoption from that relationship," a Microsoft executive said in a May 15, 2003 interview with Investor's Business Daily. "It's one of the reasons we're the No. 1 media player." Gruber took INTERVU public in 1997 and, at the height of the Internet fervor, sold the company in February 2000 to Akamai Technologies, Inc. in a $3.5 billion deal, a transaction that netted Gruber $245 million worth of stock.

In his late 40s at the time he sold INTERVU, Gruber possessed more than enough wealth to last a lifetime, but he was ready to strike out again on his own. "The bubble Internet was about creating communities, getting people to show up," he said in a May 15, 2003 interview with Investor's Business Daily. "The post-bubble Internet is about transactional communities, getting people to spend money on the Internet." Although his interpretation of the two periods segued to an age decidedly more capitalistic in nature, Gruber adopted a somewhat philanthropic stance with his next company. He decided to start a company that would help charities raise money online, an idea that sprang from his work with Senator John McCain. Gruber, who served as chairman of the development committee responsible for fundraising at UCSD between 1994 and 1999, was organizing online town hall meetings through INTERVU for McCain's 2000 presidential campaign when he realized the potential for online fundraising. "At the time," he explained in a September 28, 2004 interview with the Daily Deal, "we were also delivering live music from the House of Blues, but I couldn't get people to spend $10 to hear concerts. But we got people to pay $100 to spend an hour in a town hall meeting with John McCain." Gruber, intent on running a company that sold software and related services to help nonprofits build web sites and collect donations, enlisted the help of his brother Allen Gruber, a physician and early investor in INTERVU, and Dennis Berman, with whom he had attended the University of Pennsylvania during the early 1970s, and started his sixth company. The company was incorporated in February 2000 as VirtualDonors.com, Inc. and changed its name to Kintera, which stood for "Knowledge Interaction," in July 2000.

As Gruber and his two partners set out, the goal was to develop comprehensive capabilities for Kintera. U.S. nonprofit organizations collected more than $200 billion annually, obtaining a fraction of that total—slightly more than $1 billion—online. Gruber was convinced online donations would increase exponentially in the years ahead, and he intended to make Kintera the premier provider of interactive software and services across all sectors of the industry. The company eventually targeted 14 markets that covered the spectrum of nonprofit, government, and corporate sectors: arts and culture; associations; foundations; corporate workplace giving; education, environmental and animal causes; faith-based groups; federations; financial services; governments; health and hospitals; human and social services; international affairs; and advocacy and politics. To meet the needs of clients in each of these sectors, Gruber needed to broaden Kintera's portfolio of services, an objective he pursued by employing an aggressive acquisition strategy. "We're trying to build a substantial company in a short period of time," Gruber explained during a December 6, 2004 interview with the San Diego Business Journal. "We're building a brain trust and acquiring the best and brightest management teams in the industry."

Acquisitions Fueling Growth During Kintera's First Years

Kintera's growth during its formative years was fueled by acquisitions. The company followed a particular strategy, surveying the industry landscape, which was populated with scores of firms, and identifying its acquisition targets. "The number one reason is the quality of the management team," Gruber said in his interview with the San Diego Business Journal, "and number two is [management's] knowledge of a particular sector. The technology itself is less important because we rebuild it anyway to fit our platform." Gruber agreed to acquire one of his first companies in November 2000, when he purchased Give Power, Inc., a two-person firm based in San Diego that offered online services for athletic fundraising activities. After a lull in acquisitive activity, Kintera began purchasing competing firms with regularity, tailoring each acquisition to fit its platform. Two flagship products, which constituted the company's platform, emerged, "Kintera Sphere" and "Friends Asking Friends." Kintera Sphere, a web-based service, gave clients the ability to manage their web sites, organize individuals, advocate causes, and implement marketing campaigns. Friends Asking Friends, which the October 13, 2003 issue of Forbes described as "a kind of do-gooder pyramid scheme," served as a way for volunteers to solicit donations from their friends.

Company Perspectives:

Kintera is dedicated to helping nonprofit organizations fulfill their mission by providing Knowledge Interaction technology to build vibrant communities of supporters, beneficiaries and staff. By sharing a set of dynamic data and content, organizations can motivate and engage community members to achieve marketing, programming and fundraising success. With leading edge technology and innovative leadership, Kintera is committed to making a difference in the nonprofit sector.

Kintera's acquisition campaign began in earnest in 2002. During the ensuing two years, the company acquired more than a dozen companies, significantly broadening its capabilities. Most of the acquired properties were rival software designers with expertise in particular sectors, but one acquisition stood out from the rest. In February 2002, Kintera acquired Masterplanner Media, Inc., a company founded and owned by Elisabeth Familian. In 1986, Familian published the Los Angeles Masterplanner, a publication that offered a comprehensive calendar of social and civic events in Los Angeles, thereby enabling fundraisers and party planners to avoid conflicts with events targeting the same crowd. Familian added a version for New York City in 1997. In November 2002, eight months after acquiring Masterplanner Media, Gruber published a 28-page, glossy magazine for San Diego, charging a $225 per year subscription rate. A version for Washington, D.C., was slated for release in 2003, part of Gruber's plan to add two to four markets a year until Masterplanner Media's coverage encompassed ten major markets.

Public Offering of Stock in 2003

Thanks largely to acquisitions, Kintera's revenue increased substantially during the first years of the decade, but profits eluded the company. After losing $12.4 million in 2001, the company lost $9.4 million in 2002, a year in which revenues totaled $1.9 million. As the company's acquisition rate picked up pace, its revenue swelled. By August 2003, Kintera was managing monthly donations totaling more than $5.6 million, significantly more than the $65,000 it was managing two years earlier. At this point, Gruber chose to take the company public, filing for an initial public offering (IPO) of stock in October 2003 to reduce nearly $30 million of debt. The IPO was completed in December 2003, raising roughly $35 million, but the year ended with another substantial loss. Kintera generated $7.5 million in revenue and posted a $9.8 million loss. In 2004, a flurry of acquisitions coupled with online donations spurred by the U.S. presidential election, helped revenues nearly triple to $23.7 million, but the year ended with another substantial loss, putting Kintera $19.2 million further in debt.

As Kintera plotted its future course, its inability to post a profit worried some analysts. Gruber remained confident, however, offering advice to those who claimed Kintera was destined to be a perennial money-loser. "I don't think it's a wise bet considering the last two companies I owned were each sold for $3 billion," he said in a September 28, 2004 interview with the Daily Deal. "Those who bet on the jockey own my stock," he added. The company was expected to record another major increase in revenue in 2005. Further acquisitions combined with the outpouring of donations for the damage caused by the December 26, 2004 tsunami in Southeast Asia and Hurricane Katrina in August 2005 promised to fuel dramatic revenue growth for the year. Increased revenue offered no guarantee of profitability, however. To help make Kintera a profitable company, Gruber turned his attention to streamlining operations and trimming the company's workforce by 10 percent in August 2005. As it had since the company's formation, success for Kintera rested on the skill and reputation of Gruber. He offered no guarantee that he would end his career at Kintera, only mildly dismissing speculation that he was planning to leave. "I've never started a company to be acquired," he stated in his interview with the Daily Deal. "They're more like children—you don't want them to leave, but they grow up."