Years back when Fred and Jerry began Flatiron Partners we (spouses included here) got together to discuss how we set up the upside. As a VC you get a managing fee as well as a percentage of the upside once you pay back your limited partners. We set it up so that a piece of that upside (essentially stock in all the companies) was put it into our own foundation. That foundation grew as certain stocks grew up in value. We sold them in the foundation and that gave us the ability to give away that money to things that we cared about such as education.
It is a bit more complicated than all of the above but that is the simple explanation. I have had several conversations with founders who have built significant value in their companies who have exited and were never given any advice on ways to set this up before their stock that was valued at 10 cents a share became worth $30 a share and more. The foundation is just one thing to do as there are multiple ways to set up your worth when it is valued at a minimal amount vs a tremendous amount. It is one of those things that few people talk about and I wish more VC’s talked to the founders that they invested in about it even though some of their companies won’t have those big exits you can’t turn back time once the big one happens. Taxes are obviously connected to all of these transactions.
I spoke to the Seth Levine at the Foundry Group about the 1% Pledge and what he was doing at Foundry to get more companies to think about this from the get-go. It is something I am a big fan of. He introduced me to Amy Lesnick, the Executive Director of the Pledge 1% Organization about what she is trying to build. The key is encouraging companies to pledge a piece of their equity early on to charities that they care about or as we did a foundation where we can give to several non-profit organizations that we want to support. The Foundry Group has already given back over $1m back to the Boulder community through their commitment. That’s powerful.
If every single founder made a commitment to join the 1% just think of what a difference that would make. If you are interested, contact Amy at the Pledge 1% Organization.
Other Pledge 1% companies include Salesforce, Atlassian, Box, Yelp, Docusign, Box, GlassDoor, MediaMath, AppNexus, General Assembly, BlueWolf, and Virgin America.
Pledge 1% empowers founders by providing the framework and turn key solutions. You are still in total control of your funds and the causes you want to support like a foundation.
If you are in NY and this is of interest and you can make it on July 27 and feel free to come to this event and RSVP.
The reason most founders dont think about this 1% (me included) is because we think our equity isn’t worth much.. Until suddenly it is.
until it suddenly is….
but it creeps up on you and it can seem very grandiose in a founder’s head at the beginning of a startup to think 1% of nothing can be worth something.
wouldn’t it be better to do it after an exit? Founders equity is their blood sweat and tears. I empathize with the sentiment. When I was trading, if I made money I donated. If I didn’t, I didn’t. On the trading floor, I bet I donated $250-$500 per week to various charities.
No it would not. Giving away equity later on is expensive.
Love this, and I love your use of the term “give back” (vs just “give”).