When it Comes to Pre-Exit Pledge Forms, Less is More.

One of the most common questions I get form Higher Ed practitioners deals with pledge forms for pre-exit philanthropy commitments. How exactly do you word the gift language? What are the gift tiers that we lay out for our donors? Do you require a specific designation at the time of the pledge? 

These are important questions, but I worry a bit when I hear them. These questions assume a donor mindset and financial process that is the same as that in a major gift transaction to an organization. In fact, they are quite different. 

Why do we document pledges anyway? 

A pledge agreement has several key purposes. 

• It helps an organization predict revenue — therefore helping the org to plan program and spend.

• It records the commitment the donor has made in its entirety, even when the cash may not be transferred to the org for several years.

• It lays out any key protocols about administration of funds, or contingencies in the effect of a program closure. 

In short, a pledge instrument regulates the behavior of each party when there is already an asset to deploy. What does it do when the asset does not yet exist — when it cannot be spent, invested for income, or displayed on a museum wall, for example? Frankly, nothing. If you try to apply a pledge instrument to startup stock, none of the purposes above are addressed. 

One could argue that it’s an opportunity to educate donors on what’s likely ahead of them as philanthropists. Ok, well, why not simply educate them on the elements of a gift agreement? Why tie it to this highly speculative proposition, when all available information on this emerging practice area points to the advantage of building large programs, and reducing barriers to joining a pre-exit program? 

Another concern from gift officers — and usually this comes out with some hesitation — is the worry that donors will renege on a pre-exit commitment if it’s not in writing. This may happen, certainly. But don’t think that a written contract is going to be the thing that binds them to the commitment. 

There are several technical reasons for this, but just think of it this way: if fundraising were a football drive, a pre-exit philanthropy pledge gets you great field position. You start in the red zone, but you still have to get all the way to the goal line (and so does your donor, in terms of guiding the startup to a liquidity event). You still must do your usual good fundraising work as a member’s company grows. Your fallback — in the case of the reluctant philanthropist or a failed cultivation — is a field goal, a sub-optimal gift. At this point, you can try again with the donor and strengthen the relationship through the next cycle, or you’ll know that you’ve maximized giving from an otherwise disinclined donor.

Making the pledge public should give you a solid foundation in reducing non-fulfillments, AND you get the network effects that attract other commitments.

Keep it simple, keep ’em coming. 

But you do need to create an opt-in. The most critical thing is that the gift officer and alum have a conversation backed up by an email, just so that everyone understands how the commitment works. But what info do you collect in that email or on the web?

There are endless articles, courses, blogs and even companies devoted to teaching startup marketers & product managers how to increase their ‘conversion rates’ or user engagement. Optimizely has grown to a $600m valuation with software to do just that.

In order to convert, I think you have to keep fields to a minimum, unless they help you convert interest to opt-in. I generally just ask for Name, Title, Company, Email, + a headshot request in follow up. Optional fields for industry, social profiles, philanthropic interests, etc, can also be part of the forms, but monitor that carefully. I believe more aspirational fields propel a donor towards conversion, while fields designed to extract information should be kept to a minimum.

One reader asked whether it might be good to ask how many shares a donor wishes to give, and how many shares/options the donor owns. I haven’t asked this, but it’s interesting. My sense is that most would be reluctant to share this information, but it would be incredibly valuable information to the organization. I encouraged him to test it with early adopters before deploying this field. 

This reader also asked whether it might be good to specify a period of time to make the gift after the liquidity event. Exits vary quite a bit. An IPO will subject many shareholders to a 6-month lockup, while executives will be on a schedule of stock sales. Acquisitions vary wildly — all cash, cash + stock, earnouts, incentives, etc. But typically a 2–3 year period seems “reasonable” — and if anything, that’s the word I’d actually use. 

The thing is, none of those guardrails really matter. Two things matter: 

1. The individual simply saying they’re going to do X (give to your organization) upon Y (exit). I have not seen other parameters materially increase the spirit of commitment or gift size, but I absolutely HAVE seen them scare founders off.

2. The quality of the cultivation process.

It is our natural instinct to want to get in on the ground floor of these companies. We get FOMO. We want to lock in the wins. Who doesn’t? But a pledge form which deals in certainties does not address the wildly uncertain outcomes of the startup path. Your donors will feel this tension. Some won’t be able to resolve it, and you risk losing them.

Over time, this dynamic may very well change. As pre-exit philanthropy becomes more common practice, potential donors’ comfort with the model will increase, and the use of pledge agreements to elicit information and certainty may also be more acceptable. In reality, we are in the earliest days of a new practice area, and you can write your own rules that work best for your organization and your donors. 

But for now, I advocate using a simple 4-field opt-in: Name, Title, Company, Email, + a headshot request in follow up. I suggest using a full gift/pledge agreement only when it’s warranted — when your pre-exit philanthropy donor’s exit is near or just completed, and they’re ready to fulfill their earlier promise to you with an actual transfer of assets.

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“These questions assume a donor mindset and financial process that is the same as that in a major gift transaction. In fact, they are quite different. ”