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GIVE EQUITY FAQ
Creating a donor-advised fund at the Entrepreneurs Foundation launches a company's community involvement program, helping build loyalty and pride among team members as well as recognition in their communities. At a time when companies don't usually have spare cash, they can cite their contribution of equity (usually the equivalent of a grant to an employee) in response to the many requests for funding. These equity grants also enroll founders and executive management in the EF Community of Entrepreneurs.
Smart companies plan for success. Leading companies understand that giving back to the community is good business. Growing companies, particularly within the technology sector, are uniquely positioned to benefit their community with the donation of a small amount of equity.
Leverage upside of early-stage venture. Early on, startups face constraints of time and funds, but the upside to their business success is boundless. With the contribution of corporate equity to the Entrepreneurs Foundation, a company can fund its future community investment without impacting future corporate earnings or operating cash.
Strengthen corporate culture. An equity donation allows even the earliest-stage venture to contribute to the community, literally giving the community a stake in the company's success. The donation markets the company as deeply invested in its community, creating a "culture of giving" among employees, customers and suppliers, even when current conditions do not allow for cash-based contributions.
It is the policy of Entrepreneurs Foundation to follow the recommendation of donor companies regarding distribution of proceeds, provided that the recipients are 501(c)(3) organizations in good standing.
A donor advised fund typically is a separate fund or account established and maintained by a public charity to receive contributions from a single donor or a group of donors. For the payment to qualify as a completed gift to the charity, the charity must have ultimate authority over how the assets in each account are invested and distributed in furtherance of its exempt purposes. While the donor may recommend charitable distributions from the account, the charity must be free to accept or reject the donor's recommendations.
We can accept shares of stock and/or stock options or warrants to purchase stock.
The Board of Directors of Entrepreneurs Foundation decides when shares are sold or stock options or warrants are exercised and the underlying shares are sold, in each case pursuant to its Investment Policy, which is available for your review upon request. Because the equity donated from our members companies are often restricted securities of privately held companies, we must generally wait until after a liquidity event (merger or IPO) before exercising or selling such securities. Our Investment Policy allows general input from the donor company regarding the pace of funding for the company's donor advised fund (via exercise and/or sales) as well as distributions from such fund.
Yes. In a few instances we have received donations of founders' common stock. Donors should seek advice from their counsel regarding the applicable restrictions on transfer, if any, with regards to the equity they seek to donate to the Entrepreneurs Foundation.
Note: Donors are advised to seek advice from their tax counsel as to the applicable tax consequences of their donation. If a company donates shares of stock, it takes a tax deduction at the time of its donation equivalent to the fair market value of the stock at the time of donation.
However, if a company donates stock options or warrants, the company gets a tax deduction when the stock options or warrants are exercised. Through a letter ruling the IRS has indicated that a company does not take a tax deduction at the time of its donation of stock options or warrants (a deduction is often of limited utility since the company may not have any income tax liability at that time). Instead, the company gets a deduction at the time of exercise. The tax deduction is calculated by taking the "spread" on the date of exercise of the stock option or warrant - the fair market of the shares at the time of exercise less their exercise price. In each case, the tax deduction cannot exceed 10% of the corporation's taxable income in the applicable period.
Note: Donors are advised to seek advice from their auditors as to the applicable accounting consequences of their donation. Donations of equity require the donor corporation to take a one-time accounting charge to its income statement during the same period in which the donation was made. However, in the case of donations in the forms of stock options or warrants to purchase common stock, the amount of the charge is based upon the fair value of the options at the time of issuance using an option pricing model such as Black-Scholes.
There is no minimum number of shares officially required because the capitalization of companies will vary. However, we recommend that in order to make a significant impact on the community, a company donate equity greater than or equal to one half of one percent (i.e., 0. 5%) of the company's fully diluted total stock outstanding.
The process is simple and involves three items - board resolutions, stock or warrant/stock option agreement, and a 1-page donor advised fund agreement.
First, a company intending to donate equity should seek board approval of the grant. The Entrepreneurs Foundation can provide sample board resolutions upon request.
Second, the company delivers an agreement to complete the grant. In the case of shares of stock, this is usually a restricted stock agreement, and in the case of warrants, a stock purchase agreement. We can provide sample forms of each. If a company plans to make a donation of options from a stock option plan, we also ask for a copy of the incentive plan from which the options are being donated as well as the notice of grant.
Lastly, we ask the company to sign a one-page letter agreement, which we refer to as a donor advised fund agreement. In the donor advised fund agreement, the company acknowledges that (i) the donation is irrevocable, (ii) while the foundation may act upon the recommendation of the donor company with respect to up to 80% of the proceeds, the board of the Entrepreneurs Foundation has the right to make final decisions regarding distributions from any future donor advised fund and (iii) 20% of proceeds in the donor advised fund will go to support the operations and further the mission of the Entrepreneurs Foundation.
The Entrepreneurs Foundation's Legal Council has agreed to assist with these documents at no cost (Andrews Kurth, DLA Piper, Vinson & Elkins, Wilson Sonsini Rosati & Goodrich).
The Entrepreneurs Foundation will work with member companies to develop corporate community involvement programs that enhance corporate cultures and offer valuable team-building opportunities. Working with management or their designees, we can survey employees to determine their interests and on-going involvement. Upon request and at no cost to the company, we will assist in identifying and organizing periodic or ongoing volunteer activities for team members. Through our relationships with community organizations, we can create and coordinate meaningful volunteer opportunities for team.
The Entrepreneurs Foundation welcomes the participation of member companies in our bi-annual service days. We also encourage member companies to participate in community involvement activities throughout the year and we're happy to help develop and facilitate such activities.
While there is no requirement that company make additional contributions of equity, we would welcome subsequent contributions of equity (perhaps in conjunction with future financing rounds) in order to minimize our dilution.
The level of corporate community participation varies by company, and is up to each company. We understand the demands on emerging companies to achieve business success and so we seek to be a resource, not a burden. At your request, we can help you design stage-appropriate community involvement programs that will provide valuable team-building.
No. In fact, the contribution of early-stage company stock can have tremendous impact. In 2000, Waveset, a locally venture-backed startup, donated stock options to purchase 25,000 shares of common stock with an exercise price per share of $0.18. In December 2003, Sun Microsystems acquired Waveset and the donated stock options translated into over $175,000 for local charities in the Central Texas region. By donating equity early in the lifecycle of a company, when such stock is valued low, a company allows the community to share in future success at relatively inexpensive cost.
Yes. So far, these donations of equity to the Entrepreneurs Foundation have raised over $1.7 million and we've helped raise another $1 million for local nonprofits. The current portfolio of the Entrepreneurs Foundation includes over 150 active companies.
The board and investors will likely recognize that reputation for community involvement enhances a company's culture and standing-at-large, which in turn will facilitate recruiting and retention. It is also important to note that the Entrepreneurs Foundation was started by local venture capitalists, who understand the model and small impact of the dilution. The Entrepreneurs Foundation typically asks for one half of one percent (i.e., 0.5%) of the fully diluted total stock outstanding.
We request that at least 20% of proceeds from a liquidity event go to support the Entrepreneurs Foundation on-going operations, leadership projects and other initiatives of the organization.
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