Dee Dee Mendoza

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The 5 Truths of Pre-Exit Philanthropy

Pre-Exit Philanthropy represents a new fundraising practice area. In our day-to-day work as fundraisers, we’ve historically had little need to understand the world of startups and venture finance.

But things have changed. Pressure to increase giving, recognition that entrepreneurism drives wealth generation, and the fight for donor attention in an effort to build engagement — these things are forcing fundraising to evolve. As a result, we’ve developed ways to leverage social media, sophisticated screening tools, tactics to earn the loyalty of young alumni, and art- and science-driven professional development rubrics. 

This new frontier includes pre-exit philanthropy. For many fundraisers it’s an unfamiliar hybrid of alumni relations, gift planning, and major gifts. As I noted in an earlier post, it’s not always an easy fit; we’re usually not structured to operate with this kind of interdisciplinarity. This means a steep learning curve on how startups work and how to make them work with higher ed.

As you design your program, you may feel a lot of uncertainty around the choices at each step. Plus, you may not know how to tell if it’s working as intended. These 5 principles will help to guide you on both fronts.

Remember the asset that powers this philanthropy.

Pre-exit philanthropy is designed to work with a very specific type of asset:

  • privately held (and therefore illiquid) stock

  • which is expected to rise in value quickly

  • and become liquid in the next 5–10 years.

All of these conditions must exist for an asset to be a good match for a pre-exit philanthropy pledge. What does this asset look like out in the wild? It looks like what we colloquially think of as ‘startup’ stock. Startups or growth stage companies are young companies who hope to grow fast, and possibly get acquired, go public, or achieve other liquidity. They may grow to hundreds of millions or even billions of dollars in value in just a few short years. They might have venture capital backing, but not always

The three conditions above are the only necessary hallmarks when you’re evaluating whether a donor might benefit from this type of program.

It’s for everyone with this asset.

Our task here is not to decide who’s going to be a successful entrepreneur. As fundraisers, we have finely honed instincts to sift, sort, and tier. But in the primordial ooze of startups forming, hitting their stride, and growing like crazy, our traditional instincts fail us. We wind up missing a lot of folks and being forced to play catch up in the relationship-building.

This is because our skill in evaluating prospective donors is based on factors that don’t apply until late in the game, or even AFTER the core pre-exit asset has matured.

Therefore, in order to position ourselves to build relationships with more successful alums, we want to keep it open at a basic level with this asset, regardless of their stage, industry, or our personal judgement on their chances of success.

This doesn’t mean you have to actively court everyone! Decide where you’ll put your outbound energy, but keep the inbound gates as open as possible.

This brings us to the third essential truth of pre-exit philanthropy.

It’s a communications channel.

Entrepreneurs don’t typically make it a priority to update their contact info in our databases. And they find it hard to connect with institutions in the ways that would help us stay up to date — giving or volunteering. 

If we don’t know them, we can’t understand and celebrate their professional trajectory, or communicate our own goals and successes as an institution. 

A pre-exit philanthropy program gives you that communication channel with alumni entrepreneurs. With this program in place you have a way — and a reason — to connect with them. You’ll find pretty quickly that this in turn opens many new doors. As you become better attuned to startup dynamics, you’ll learn about your alums’ businesses, their challenges, and their networks. Qualitative info like this can spark not only refined Advancement strategies, but also referrals, connections, and something truly magical — innovation itself. 

It’s not just philanthropy you’re building here.

When you have a communications channel, a way into the primordial ooze of startup genesis, and you use it — you create a special kind of electricity. In fact, the Kauffman Foundation, a leading grantmaker and think tank on entrepreneurship, believes this function is so critical that the Foundation has launched a major initiative to codify the field of Ecosystem Development: the art and science of building entrepreneurial communities that drive innovation and economic activity.

I was fortunate to attend the first Kauffman Foundation ESHIP Summit in 2017. it was both a revelation & a call-to-action. You had to apply to join, & I wasn’t sure if A nonprofit fundraiser had the qualities or experience they needed. But I was invited, & almost immediately I knew I’d found my tribe. There was a name for the magical ‘side-effects’ emerging from my pre-exit philanthropy work! But it was also a revelation that I was the sole fundraiser there, among 450 attendees. The other academic leaders came from the entrepreneurship centers or from the research enterprises of universities.

I realized this was a gap in Higher Ed’s functional portfolio; the philanthropy teams are ideally positioned to spark connections in a university ecosystem without taking a moment away from their primary mandate of raising funds. In fact, a university’s ideal ecosystem only takes shape when Advancement is an active part of the equation. I felt inspired to encourage others in our industry to learn these tools, too.

If you can broker connections or resources that add even a little value to your entrepreneurs’ work, you are fostering innovation. This could be as simple as connecting a first time founder to someone who’s done it before. It could be connecting a faculty member with an exec who needs technical perspective. I’ve personally intro’d several individuals who later founded companies together. And more! 

With a little knowledge, we can match assets that go to the very core of entrepreneurs’ business needs. While this is not a KPI that we track as fundraisers, I can guarantee that it will enhance your fundraising practice. 

A formal program is just a way to highlight a path.

The overall arc of a pre-exit philanthropy program is a path that every alumni entrepreneur can follow. What would it mean to your institution if they did so? Every startup alum stays connected. All of your community’s innovators and ecosystem players exchanging valuable and serendipitous knowledge. Everyone giving back. This is such a desirable state that there’s literally a body of scholarly research on how to create the conditions for this kind of ecosystem. Even marginal improvements could have powerful returns for your community.

Drive toward that outcome with your program design, events, marketing, and core interactions. Use these elements to highlight the path for entrepreneurs, and celebrate those who’ve taken it before them. Eventually a greater proportion of your startup alumni will follow them, whether or not they choose to join your founders pledge.

It’s not so much about the program itself—it’s not about big or ‘technical’ your school is, or how many founders pledge members you have. It’s not about how many alumni you have in the startup world, or about whether you consider your alumni base to be very ‘entrepreneurial.’ Rather, the program itself is a way to build a culture, and better define the path for your all of your alums who might fit this model.

These 5 truths form the very essence of pre-exit philanthropy. When you have questions about program design, benefits, stewardship, marketing, target audience, etc., try referring back to these principles. Beyond them, customize your approach to fit your organization and your ethos. It’s hard to move toward a destination when the terrain around you is unfamiliar. A compass like this can keep you oriented every step of the way.

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