Philanthropy has returned to the hi-tech sector as eBay and others dig deep in their pockets to help their local communities, and now venture capitalists are also getting in on the act.
When eBay decided to raise capital last year by asking the public to invest in its stock, it decided to return the favour. "We recognised that our community has been such a strong part of building eBay that we wanted it to also benefit from the stock offering," said cofounder, Jeffrey Skoll.
He and fellow founder Pierre Omidyar, set up a foundation with some 96,000 shares of stock as seed capital. Worth nearly $2 million when the company went pubic last September, the foundation's endowment is now valued at more than $20 million.
The eBay fund is managed by the Community Foundation of Silicon Valley which is one of the main sources of philanthropic spending from the technology industry. While the scale of eBay's giving may be unique, the concept is not.
Netcentives of San Francisco, which uses frequent flier miles to attract Internet shoppers has pledged a slice of its business, worth about $100,000, to a new entity called the Entrepreneurs' Foundation (EF). Established by Silicon Valley venture capital investor Gib Myers, EF asks newly funded startups to commit stock options to the foundation as they raise capital.
The theory is that such a commitment is relatively painless for a young, expanding firm, but could be worth several times the initial amount when the company goes public or is bought by another company. The concept is known as 'venture philanthropy', a term originally coined by the Stanford Business School and developed by foundations in Seattle and San Francisco.
Initially EF helps develop mission statements and community plans according to the values, interests and time restrictions of each participating company. For example, early programmess for startups focus on volunteer projects and goodwill drives that have impact but require minimal time. As companies become established and profitable, EF will help develop more substantial efforts such as payroll deductions, matching employee contributions and the establishment of company foundations. One of Myers' converts is Russell Howard, president and chief executive of Maxygen, a two year old biotech firm.
Early in June, Howard and his 30 employees helped decorate a Silicon Valley homeless shelter for four hours. "More wealth is created per square mile here than anywhere other than Wall Street," Howard said. "Yet the Valley has a terrible history of not helping those inside our borders," he said.
EF appeals to entrepreneurs like Howard because it makes minimal demands. As a public service project it requires a commitment of $100,000 of the company's stock at the venture capital value, which is generally between 0.25 and 1 percent of the shares. But if the company goes public and the price soars, it could be a windfall.
Second, EF promises to apply the principles of venture capital to philanthropy. It will "invest" substantially in a few innovative nonprofit organisations run by leaders with visions of growth. And whether an innovative curriculum or a programme for at-risk kids, EF's focus will be on education and youth development. Myers said, like a venture capital firm: "We look for great leaders with bold ideas who want to have a broader impact on solving complex social problems."
He projects that "within five years we will have involved 10,000 employees in the community, invested in 15 community ventures and created a community reinvestment fund with a value of $200 million."
EF has grown to 33 member companies with 1,000 total employees and is projected to double by the end of the year. With $3.2 million value in stock and $1.4 million in gifts from sponsors, the foundation will announce its first investment in the autumn.
Patty Burness, EF's executive director, believes that although the generosity is there, the new entrepreneurs simply lack the time and know-how to devote to philanthropy.
EF began with ten entrepreneurial companies as charter members and a network of supporters that consists of a "who's who" list of approximately fifty leaders from the fields of business, academia, venture capital, law, banking and the non-profit community. The founding board of directors includes Myers, and Burness, who previously directed The George Lucas Educational Foundation and the board of advisors includes representatives from Harvard University, the David and Lucile Packard Foundation, Gordon Moore from Intel and John Morgridge of Cisco Systems.
EF is not alone in stimulating philanthropy and some high tech companies are going it alone. America Online for instance has recently established the not-for-profit AOL Foundation, which seeks to improve education through the use of technology. The foundation is headed up by AOL co-founder Jim Kimsey, who chose education as its logical cause choice.
There are signs that the technology industry is loosening its purse strings for good causes. Hi-tech philanthropy has risen 69 percent to $49 million between 1994 and 1997, according to the Stanford Business School, and now exceeds the national corporate average.
Yet according to the study, tech firms are four times as likely as others to make their contributions in the form of products. Such "non cash" donations account for 48 percent of tech firm giving, so it's not uncharitable to say that half of what tech companies think of as philanthropy could just as accurately be called inventory clearance. And much of it is linked to furthering the use of technology.
Despite the figures from the Stanford study, what the new rich have given away has been far from spectacular. The majority of America's four million millionaires, and most notably the 170 billionaires among them, have been slow to make significant gifts and slower still to use their wealth to try to reshape society, according to scholars who study philanthropy.
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