Venture Philanthropy: A different perspective

One of the reasons there are relatively few philanthropists in Silicon Valley is because, unless you really think hard about it, it seems so illogical that having worked so hard for so long to have finally "made it" that you'd turn around the next day and donate it all away to charity. What was the point in making it in the first place? Of course, the way to do this is to donate a portion of your net worth into a charitable fund or foundation. But many people are not educated on how to do this, including some of Silicon Valley's most prominent and brilliant donors, such as John Warnock, Chairman of Adobe. In talking with other CEOs, charitable giving ranks right up there on the list of "I want to do it someday" along with writing a will. It's on the priority list, but keeps getting pushed down by more urgent or immediately tangible matters like spending time with family or solving business problems or working on that next big deal for their company. People are so wrapped up in accumulating wealth that they haven't made the time to start thinking about how to best leverage their wealth.

Another reason for the lack of interest is that wealth accumulation is how many people measure their self worth. I just got off the phone with a wealthy and well connected friend who told me that all the top VCs in Silicon Valley are in a contest to see who can get to a $1B net worth first. He said it's all about ego and self worth.

So why am I different? Ten years ago, at the invitation of Richard Melmon, whom I knew from my business with VisiCorp many years earlier, I volunteered to do fundraising for a Palo Alto charity. I had the good fortune to have Leonard Ely (who also kick-started the Community Foundation of Silicon Valley) on my committee. When I asked him for advice on how to ask someone for a $30,000 donation, he told me, "You know Steve, some people in this world want to give money away." That made no sense to me at first, but after thinking long and hard about what he said, it suddenly became clear to me that people who had the basics of life covered could help people they care about (such as members of their family and community) through strategic philanthropy, i.e., you decide what you want to accomplish and use charitable giving to help you accomplish that. So Leonard's advice to me was sort of a wake up call for me, just like Ebeneezer Scrooge had an awakening in Dickens' classic A Christmas Carol. I wanted to be one of those people who wanted to give money away. His words changed me from a reactive philanthropist into a proactive philanthropist with a set of goals that I wanted to achieve.


Wouldn’t it be great if philanthropists in Silicon Valley invested in charitable causes with the same fervor that they invest in for-profit companies?

Here's the vision of the future that I'd like to see:

Internet entrepreneurs who have struck it rich have finally figured out that they have more money than they need. They already have the vacation homes, private jets, and latest Intel computers. And they STILL have lots of money left over.

Since they are always seeking to maximize their return on their assets, they realize that earning more money doesn’t buy them anything that can benefit themselves or their family in any meaningful way.

They realize that instead of sitting on their assets, they can impact causes they care about by investing in Venture Philanthropy, or VP for short.

In fact, many retired entrepreneurs, instead of starting yet another company or going into traditional VC, open their own VP firms.

Instead of bragging about their personal net worth, you see VPs bragging about the size of their charitable partnerships and how many people they helped last year.

And individual entrepreneurs brag about how much money they donated last quarter to charity. And the San Jose Mercury News, instead of publishing a list of who makes the most money, now ONLY publishes a list of those who give away the most money each quarter.

The VPs start competing with each other to see who can build the charitable fund with the most assets the fastest. The VPs who help the most people each year have no trouble attracting funds from wealthy entrepreneurs and are over subscribed. Entrepreneurs are literally throwing money at the VPs because of the incredible social impact that they have achieved.

You start to see VP partnerships who have raised funds ranging from $500M to over $1B. And they are all trying to donate ALL this money to charitable causes in just over a few years so that they can be "fully invested."

So the VPs are always out knocking on doors of non-profit agencies asking people if they need money for an idea they have.

When a hot charity walks in their door asking for money, the VPs try to convince them that the charity should take money from them instead of the other 47 VP funds located on Philanthropy Hill Road.

Not only that, the VPs try to convince the charity to accept a lot more money than they were asking for originally. The VPs try to convince the charities that their problems are really a lot harder than the charity thinks, and that there are people who really could benefit from the charity NOW so time to market and grabbing market share early, before there is lots of competition from other charities, is absolutely critical.

The VPs all make a long term commitment to the success of the company. They sit on the board and help build the management team. If the charity continues to do well after the first year after funding, the VP’s want to get other VPs involved in a second round of financing and donate even more money to the charity.

Soon, the charity goes public. This allows the charity to accept donations from the public at large, not just the VPs.

On IPO (Initial Philanthropic Offering) day, the charity is flooded people wanting to donate. Everyone wants to get in on the action because they know that their non-monetary return is the short run and the long run will be huge, much better than putting their savings in the bank or Microsoft stock. There is such incredible demand, that the size of the average donation on the first day of donating rises dramatically. Nobody wants to be left out.

While we don’t expect my VP scenario anytime soon, we’ve found that anyway you look at it, the logic behind giving is compelling. Hopefully we’ll all able to convince a lot more people to step up to the plate and establish big funds and actively manage them. Everyone wins in that scenario.

I recently spoke with Norman Lear about this. His belief is that more business leaders must step up to the plate and create an example for others to follow. And especially the young, next generation of business leaders. I agree wholeheartedly. Any volunteers?

Charity Home Page
United Way Donation