Venture Philanthropy - What a Concept

Venture Philanthropy ” What a Concept!

Entrepreneurial innovation is a highly rated value in Silicon Valley. Just as with technology breakthroughs and new products, people here want to break new ground in approaches to community building and problem solving. Major community foundations, such as the Silicon Valley Community Foundation and the Peninsula Community Foundation, primarily work with wealthy individuals to channel some of their fortunes into designated giving based on donor choice in the community. There are also new approaches to community-building philanthropy based on problem solving and asset giving by newly created businesses. Venture philanthropy is one of those approaches in which the venture funding organization becomes actively involved between the donor and the recipient in the matching of donor interest and creation of innovative programs by the nonprofit agency.

While these approaches are still embryonic and do not account for great sums of money, they do begin to address a major issue in Silicon Valley: how to initiate newly created businesses into giving something back to the community in a way that can be systemic and ongoing in their corporate culture. The high-tech start-up culture that is so prevalent in Silicon Valley seems resistant to traditional appeals for community-based philanthropy, such as the United Way annual giving campaigns based on payroll deductions.

We sought the people who are beginning to address this issue, who are creating new approaches from within the venture capital and start-up business community. Through understanding their motivations and desires to link the high-tech business world with the regional needs in order to improve the quality of life in their communities, we gain an understanding of how individuals take initiative to solve problems. This characteristic of individuals defining a problem then initiating approaches to find and implement solutions is an important key to comprehending how things get done in the Valley.

Gib Myers, a partner in the Mayfield Group , a blue-chip venture capital firm, founded the Entrepreneurs Foundation in 1998. The mission of this foundation is both to change Silicon Valley corporate culture by bringing community involvement into the core of start-up companies, and to strengthen local nonprofits by providing access to capital resources and best business practices to aid their growth. The foundation has $10 million in assets from over 66 start-up companies that gave a one-time gift of at least $100,000 or a small percentage of their future stock ( ¼% to ½%). Contributors to the Entrepreneurs Foundation also include Credite Suisse First Boston, Hambrect & Quist Group, Silicon Valley Bank, Cisco Systems, Inc., SGI, and Intuit, Inc. Myers' goal for the foundation is to attract 500 companies to participate and accumulate $200 million of appreciated stock to invest in about 15 community ventures . ^[3]

These efforts led Myers to be the first recipient of the American Spirit Award from the National Venture Capital Association in 1999. ^[4] In addition to his work with the Entrepreneurs Foundation, Myers has been a partner in the Mayfield Group since 1969, has worked in computer systems and divisional sales for Hewlett-Packard, and holds an MBA from Stanford, where he was the co-founder of the Center for Social Innovation.

His words illustrate both the challenge and response of the Entrepreneurs Foundation. He has also emphasized that it takes more work over a longer period of time than most people realize to create and sustain these innovative efforts.

Gib Myers

The entrepreneurial high-tech sector is not contributing to the community

It seems obvious that if we are going to sustain the San Francisco Bay Area as a great place to live, there are lots of issues that need to be addressed on a regional basis, not just a particular nonprofit agency or area of philanthropic interest such as education. The entrepreneur sector is a huge part of the economy. By and large the high-tech economy has become a dominant force in the increase of wealth here. However, most of these companies do not support the community in any way.

We have an enormous concentration of leadership, money, and talent, but traditional ways of giving were not attracting the major groups of companies. If you drop below the billion-dollar annual revenue level, you see many companies not doing anything.

Another dynamic is individual wealth creation. There is a very long cycle of education of how to give back; 10 years before they start doing something. Can we cut the time lag to five years ? Our philosophy is to make a fundamental difference to start early and make giving part of the culture.

The innovative approach of the Entrepreneurs Foundation

We proposed to take stock and stock options from a private company before IPO. We wanted $100,000 or about ¼% to ½% of available stock. It would be given to us, we would hold the stock option; when the company went public, we would realize the gains. The company gets a deduction for the full value of stock from federal taxes. We have signed on 73 companies in two years.

Companies are more ready to give stock than cash. The gift comes from the corporate treasury . It is a CEO and board of directors' decision and stock is readily convertible . EF also gives back a portion of the stock proceeds, so the organization can start its own foundation; this is because companies felt better having some funds back for their control.

The other innovation EF has made is venture philanthropy. When we use this money to give back to the community, we use venture capital principles. We seek leaders in the nonprofit sector who will scale up and address problems for the whole Bay Area region. So our focus is to scale up seed projects to become major players in solving the problems they are addressing. These are venture principles applied to the nonprofit sector.

The truth about entrepreneurs, venture capitalists, and philanthropy

By and large it is true that entrepreneurs and venture capitalists don't donate to their community. I have a lot of venture capitalist friends who do contribute, but quietly . The traditional ways of giving, such as the United Way, do not interest these people. People who made money in high tech are proud of how they made their money. They want to be smart about how they invest time and money in whatever they do.

Not everything you can give to makes a difference. Entrepreneurs typically want to wait until they know the best route to take in their giving, so they often end up doing nothing. It is hard to get the money flowing ; these people are so busy, and, unfortunately , often do not get around to making it happen.

We do not work with the individuals as the community foundations do. We leverage through the companies, grow philanthropy with the companies. But, we will direct individuals for donor-advised funds and send them to community foundations.

Diminished growth shrinks philanthropy during harder economic times

This is a problem. Our kitty is much smaller right now and the economy is having an impact on what we can do. The Mayfield Fund has really underwritten much of this. A key lesson for other regions is that the driving force of a venture firm is needed to make this work.

The Mayfield Fund has set up their own foundation, a matching program, so partners ' efforts can be matched. The philanthropic heritage must be there in a venture firm or forget it. Where we are now is getting companies on line to get behind what we are doing. The public stock got up to $12 “13 million and then, with the market retreat, it went down considerably. This is one of the difficulties of pre-IPO stock as the giving currency.

The exportability of venture philanthropy

The Entrepreneurs Foundation has gone national. Austin started independently; now they have joined us. They had 60 “70 firms join in nine months. They have a much tighter, more responsive philanthropic community than Silicon Valley. In the Bay Area it is harder to get people's attention. We are also working with Dallas, Atlanta, and Boston.

You have to have a venture firm and people, venture attorneys , and receptive entrepreneurs to get the idea going. Good capital markets make this work.

Gib Myers and the other venture philanthropists who are successful, well established, and older represent one view of this phenomenon . To better understand the appeal of philanthropy in start-up cultures, we sought the viewpoint of the younger participants who are being recruited. It is their outlook that defines the future for the success of these entrepreneurial philanthropic efforts.