The State of Pre-Exit Philanthropy in 2018

Five years ago, pre-exit philanthropy in Higher Ed was basically dead. Only UCLA soldiered on with continued investment in its platform, the UCLA Venture Fund. The scrappy program was a survivor, pivoting at least once from its original 1999 model. It is still the 2nd largest program in the sector. Babson’s Founders Fund also quietly survived, having achieved early success in the first dotcom boom.

Outside of Higher Ed, in the realm of corporate social responsibility, existing programs softened in the aftermath of the financial meltdown and Great Recession, but carried on.

Several initiatives from that first wave (1998–c. 2013), including the original Entrepreneurs’ Foundation of Silicon Valley, had shuttered, merged, or faded away. I’ve found evidence of about 12 in that period — there may have been more.

The second wave of pre-exit philanthropy begins (c. 2011-present)

But as the decade turned, something stirred! The stories of Twitter and Facebook caught the public imagination. It was cheaper than ever to stitch together a little code, throw up a web page, and get something going. Social entrepreneurship ignited the passion of a new generation of innovators and philanthropists, and the nonprofit sector sensed enormous potential in this shift.

In the early 90’s, Sun Microsystems’ John Gage famously said that “the network is the computer.” It was a commentary on the power of connectivity, but also on the cost of relaying meaningful information in a data-rich environment. By 2011, the ubiquity of entrepreneurship efforts/interest on campus made the university network — and a means to navigate it — a valuable asset in the same way. Conditions turned favorable once again.

A mini-boom in Higher Ed opens up the field’s future

In the last five years, we’ve seen a mini boom in pre-exit philanthropy. UC Berkeley created the Berkeley Founders’ Pledge in 2013–2014, starting with a beta period and launching publicly with 25 members. As part of the team that led the program’s development, I’m incredibly excited to see its growth into the largest program in Higher Ed.

Berkeley’s innovations on the model were two-fold . The first adjustment lowered the marginal cost of creating a new program by bolting it onto existing work in the university development office. This enabled Berkeley to tap into its vibrant ecosystem to steward alumni and solve their pain point in navigating that ecosystem. The second innovation made the commitment flexible, creating a non-specific, non-binding, good faith pledge. Growth exploded.

Basic Numbers.

Since then, five more programs have come online in Higher Ed, bringing the total number of university-based programs to eight. These programs represent commitments from more than 650 alumni (not all programs disclose their numbers), and the schools have booked gifts in excess of $42 million.

Practice Area Growth.

I’ve fielded inquiries from dozens of schools about how to implement this program, and have sorted these into four stages of progress: Inquiry, Exploring, Planning, and Deployed. There are 16 other schools in the Exploring and Planning stages. Not all will evolve into a fully deployed program, but we’re likely to see meaningful expansion of the field in the near term.

Most of these emerging programs maintain flexibility — they don’t require a percentage of equity, or pre-determine an area of support. This positions them well for growth.

Common challenges and stall points.

Even with the current small sample size, trends emerge. These trends largely validate the principles outlined in this blog, but we can’t yet embrace them with academic certainty. A common challenge is choosing the program’s home. Without a champion in the Executive Director through VP ranks, teams may feel uncertain about how to pull the pieces together, and their authority to do so.

Related to this, the concept’s interdisciplinary nature poses a challenge for some schools. In Advancement teams with highly specialized roles, even motivated individuals working a few hours a week may be unable to find the critical path to launch within the typical gestation period. This is a risk for the model as a whole, because staff turnover may disrupt program development.

The most vibrant programs address these challenges by having an official or de facto executor — I call it the ‘Chief Architect.’ This person is rooted in development but can comfortably cross boundaries on occasion in order to marshal resources for engagement, stewardship, member solicitation, etc. Often this Chief Architect is intrinsically motivated, curious, and comfortable with both fundraising and startup vocabularies.

Another set of challenges arises if an organization chooses to gate membership around minimum commitment or membership requirements. Akin to the equalizers on a sound system, these factors can profoundly affect your results. Without going too deep here, I’ll simply point you to some posts on minimum commitment and membership requirements.

This chart briefly summarizes the current programs in HigherEd:

Independent programs build a new corporate philanthropy model

Among the independent programs — Pledge 1%, Founders Pledge UK, etc. — a new model of startup philanthropy is growing. These programs are cousins of the Higher Ed model, but are quite distinct, varying in nature of commitment, intended audience, and more. However, they’ve recorded at least 2,200 commitments from individuals or companies for equity, product, or employee time.

Creating an independent org around pre-exit philanthropy typically incurs much greater costs, but if these programs can grow fast enough — and they are growing! — they can outrun the cash flow problems that I suspect plagued first wave pre-exit philanthropy.

Outlook: Optimistic

The renaissance of pre-exit philanthropy opens new doors for the nonprofit sector. We’ll see more and more of these programs emerge, each with their own take on the model and unique dynamics reflecting the ecosystems they support.

As Drew Lindsay noted in a Chronicle of Philanthropy article about pre-exit philanthropy, these are early days. But the evolution of the tech industry, and the explosion of entrepreneurship on college campuses means that conditions are better than ever for a philanthropic movement like this. Recent academic research illuminates some of the underlying principles behind this thinking.

‘Post-exit’ philanthropy has certainly already arrived. Guiding pre-exit philanthropy to the point at which we realize its full potential is up to us. It’s why you and I are here today in this virtual conversation. I’d love to hear your thoughts as we move the field forward.