Or, How I Learned to Stop Worrying and Love the Non-Specific, Non-Binding Founders Pledge.

For a fascinating post-mortem directly with the entrepreneur featured in this post, subscribe below. 

“Why don’t you ask for a hard commitment of either a percentage of equity or number of shares? How do you know all your work is ‘worth it’ without that assurance?” I often hear these questions from fundraising teams exploring pre-exit philanthropy programs. These programs encourage a soft commitment from entrepreneurs to support a given cause if and when their startup equity becomes liquid— usually through an IPO or acquisition.

--> For a quick explainer on pre-exit philanthropy, read this post.

When you look back at the development of a product, the specific moments that shift momentum and/or shape the product itself   begin to stand out. 

A handful of conversations heavily influenced the pre-exit philanthropy programs I’ve helped to build at Berkeley and Dartmouth. These moments crystallized the principles that I rely on in this work — among them: a service-orientation, a platform approach, and a commitment to keeping the participation barriers low for entrepreneurs. 

When considering that last concept — low barriers to entry — I always think about The One That Got Away. It was hard-won knowledge, because it involves a fascinating startup I’d watched since its birth in a lab. 

When I first saw this student’s research, it blew me away. From a business perspective, it was early days, but the concept had many possible applications. It was ambitious and difficult technically, so if it were to actually spin out as a startup, they’d have fewer competitors and possibly a head start. This kind of ‘defensibility’ is very important to a startup. The team was strong. This was one to watch. 

Fast forward a few years. They had indeed spun out the IP, but were still early in product development — years away from launch. I approached the founder about our idea to create a vehicle for pre-exit philanthropy. He was one of the first individuals I pinged, thinking he could be an influential early adopter. 

Mistake #1: Pitching Over Email 

Because I knew his bandwidth was tight, and we were reasonably well-acquainted, I opted to explain the idea directly in our email exchange — I offered a meeting, but didn’t ask for one. As became apparent fairly quickly, if pitched this over email, the close rate dropped off a cliff. You might not get a ‘No’ — in fact, I’ve been pitching this general concept for five years, and I can count the outright No’s on my fingers. But the conversation might wither. Pitching in person, or at least over the phone, really helps (more on this in a future post). 

He opted to workshop the idea over email, and I responded with a brief summary of the key points, mechanisms and goals of the idea. 

Mistake #2: Tying a specific obligation to a wildly uncertain outcome

One key point was around the gift commitment itself. I explained that we weren't looking for an actual transfer of shares from early stage companies, but rather that we were exploring whether founders would commit to giving 1% of the value of their equity upon exit. I noted that we also planned to build resources, stewardship, and community into this project, which we hoped members would value. Over our exchange, it became clear the the 1% gave him pause.

When he ultimately declined to be part of our beta group, he said “founders think carefully about numbers. They are very real to us. When you put a number out there, I take it seriously. And I just can’t make that kind of commitment.”

I was deflated — and surprised. As fundraisers, we understand getting a No is part of the game, but when we're surprised by a No, we’ve missed a critical piece of information somewhere along the way.

You can’t sweat every rejection, but this one stung. This alum was close to the university, and his startup did groundbreaking work. It should have been a win. But I created a hurdle that he couldn't comfortably get over, and thereafter he focused 150% on getting his company off the ground. I’d had my chance.

Redemption: Isolate the possible error(s), and iterate

Around the same time, I was talking with another founder, also with ties to the school. This company looked pretty amazing too, and I didn’t want a repeat of the last pitch.

So this time, I made sure to sit down in person with the founder. Fortunately, he wanted to bring his wife into the conversation, and we had a rich dialogue on the idea and the dynamics of my ask.

This founder talked about how “1% could be a LOT of money,” and about their multiple philanthropic priorities. He introduced me to the concept of dilution, and what it means to be a ‘capital intensive’ business. He and his wife gently explained how, in the event of a big win, 1% to a specific cause might be more than they were prepared to give to that cause. In the case of a more modest return, they’d have to prioritize and carefully allocate their philanthropy, which might be more or less than 1% of their ultimate equity value. There were simply too many unknowns. 

I got the message. My team stopped talking about a 1% commitment, but instead embraced the uncertainty, and started saying, ‘Let’s take this journey together. Neither of us knows exactly where it will lead, but we’re with you.’ This founder signed up. 

Is there no place for rules in this model? 

Yes, parameters are important for every platform. But it’s critical to design the guardrails that support the growth you need to achieve eventual returns — and not constrain it. It’s also important to let go of the notion of certainty when dealing with pre-exit philanthropy.

As this model becomes more prevalent, and programs grow, it'll make sense to introduce some well-designed requirements. Do this too soon, though, or without properly supporting any hurdles with added value, and your platform risks stalling out. 

Where are they now?

Both of the companies in this post are going strong. Both are tackling big problems. The founder who opted in is running a company that’s raised $100 million. And the founder who opted out? His company has raised $200 million. 

Post-Script: breaking it down with the founder himself

As luck would have it, I crossed paths again with that first founder recently. I asked him if he'd re-examine his thought process for readers of this blog, and he agreed. After reading a draft of this post, he offered this……..