What is a "Founders Pledge?"

It has the power to unleash a tsunami of positive social impact, and supercharge innovation on university campuses. But what is it?

You might have heard the term recently if you follow the tech press or you’re in the philanthropy sector. After being featured recently in a trade magazine for educational philanthropy, I received many inquiries about my work in this area. And with champions like Marc Benioff, pre-liquidity, or pre-exit philanthropy is definitely having a moment. Here are the basics.

Definition

A founders pledge is a new model of pre-exit philanthropy, designed for individuals and companies with equity in private, high-growth-potential companies (a.k.a. startups). These individuals or companies pledge to give, or otherwise designate a portion of their illiquid equity to charity to be gifted or spent if and when the equity can be exchanged on the open market (e.g. when a startup is acquired for cash or publicly-traded stock, or goes public).

pre-exit philanthropy models are just starting to hit their stride

In my research I’ve identified about a dozen programs established since 1998, when Dartmouth alum (go Big Green!) and venture capital investor Gib Myers founded the Entrepreneurs Foundation in Silicon Valley [UPDATE: see A Brief History of Founders Pledge Programs for additional historical programs]. Only a handful of these programs still exist. (Full disclosure: My team built the Berkeley Founders’ Pledge, the largest program in Higher Ed. I also led the team that launched the Dartmouth Founders Project at Dartmouth College, already at 50 members within 6 months).

The models vary along a few lines

A donor’s commitment might ultimately look very different from one program to next. Here are the key factors that shape a founders pledge program.

Where does it live? It may sit inside a university, benefiting and leveraging the university’s programs. Or a standalone nonprofit may run a founders pledge program to benefit a community, cause, or organization of the donor’s choice.

Who makes the pledges? Founders pledge programs may be targeted to companies, to individuals employees in startups, or to both. The type of donor impacts the actual mechanics of the pledge.

How does the actual pledge work? Today’s programs require equity commitments that range from nonspecific and non-binding (Berkeley) to 2% of equity and binding (Founders Pledge UK).

The actual mechanism of giving also varies :

through warrants;
through transfer of private shares at any point before price is set for a sale or IPO;
in cash after liquidity is achieved;
via stock transfer once the shares are marketable and unrestricted;
some flexible arrangement according to each donor’s individual situation.

Donors can also commit other forms of capital (employee time, product), as in the Pledge 1%/Salesforce Foundation model.

Are there membership benefits similar to other giving circles? Programs might offer specific membership benefits or not. Networking is a featured benefit of all programs.

There are advantages on ALL sides of the equation

Entrepreneurs looking to give back, and nonprofits eager to attract support have a lot to offer one another. Here’s how they could benefit.

Donors. By signaling their philanthropic intent prior to liquidity, donors realize the maximum stewardship value and impact of their generosity. The organizations they promise to support can offer a heightened level of appreciation and access right from the start. Importantly, this means donors have more time to direct and maximize the impact of the gift.

For companies, there are strong CSR, marketing, and employee morale benefits from incorporating philanthropy early.

Charitable organizations can use this strategy to engage a powerful new constituency, identify future donors and strengthen ties to them. When gifts “mature,” it feels simply amazing to all parties. It’s a resource-efficient approach that draws potential donors in. The organization can then build community around this segment. All parties enjoy more meaningful content and connections.

Stoking innovation. In universities, founders pledge models can actually help to unlock innovation. They can align groups in campus ecosystems that are typically mismatched — but which might have assets, knowledge, or connections that could support each other’s missions.

Imagine if startup recruiting were 10% easier. Imagine if a university’s IT team spent 2 hours each quarter helping alumni startups test their ideas and messaging. Imagine if tech transfer offices had a robust network of investors and technologists to advise them on patenting and commercialization opportunities from faculty inventions.

A founders pledge program creates a platform on which university Advancement (i.e. fundraising amd alumni relations) teams can work with career services, IT, Procurement, and others. They can build solutions with the entrepreneurs most likely to give back.

Now picture this scaled across the 4,700 degree-granting colleges and universities in the country — and beyond. Small improvements may not seem very sexy, but consider this: entrepreneurship ecosystems are economies. For Higher Education, intentional economic development is key to increasing the volume and value of interactions in the system, and therefore the size and health of that economy— just as it is for any municipality, region, or state.

Even small investments in the success of alumni ventures (visibility, networking, recruiting insights) can help create a flywheel effect in which all the nodes in the university’s ecosystem are operating with more momentum and less friction. And those best positioned to enable this? The Advancement teams. More on that in a future post.

Learn more --> The 4 Things Entrepreneurs Want from Their Alma Maters

The Future of Founders Pledge models

Entrepreneurs play a growing role in big philanthropy. While our sector is eager to work more closely with these folks, we’re still learning to address their unique attributes as constituents. This is a moment of great opportunity.

A few thoughts on what the future might hold:

The model will spread widely over the coming years — and I’m actively trying to enable this.
Further engagement and endorsement by entrepreneurs will be necessary to accelerate this. If you are an entrepreneur or philanthropist who wants to help, let’s connect.
Pledge structures will proliferate as new programs launch and they work to differentiate themselves. Partnerships will start to pop up.
Programs that cultivate a strong founders pledge community, deliver value, and keep costs low will be best hedged against downturns in the entrepreneurship sector.

What could we all achieve if we started to work together from the very beginning?

--> Now that you've read about what a founders pledge is, check out this counterpoint on What a Founders Pledge is NOT.