Philanthropic Thinking

Creating a Flywheel for Impact

Published on
2022-10-18
Written by
David Goldberg
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Image adapted from Wikimedia Commons.

I’m excited to share that we believe we’ve uncovered a truly transformational and innovative way to fund Founders Pledge into the future, one that reimagines how charities might be able to support their operations.

When Founders Pledge was born and the first pledges signed back in 2015, there were two of us working from a literal broom closet. Fast-forward to October 2022, and we're a team of sixty working across four countries, providing a global community of almost 2,000 members with everything they need to maximize the impact of their charitable giving. While much has changed since 2015, we remain committed to our ultimate goal of doing the most good possible in the world.

It would be hard to overstate our ambition when it comes to impact.

We care about making the world a better place by achieving tangible outcomes, which is why we prioritize data and evidence in everything we do. It goes without saying that we could achieve much more impact if we were able to scale. What if we had 10,000 members? What if every successful entrepreneur committed to giving to the most effective charities? What if they were coordinated and could effect change at scale? The opportunity is huge, but we’re currently constrained by the need to raise every dollar we spend.

As our team has grown to serve our expanding community, so has the amount it costs us to run Founders Pledge. Because of this, a huge amount of our time and resources are dedicated to fundraising. This year, it has been harder than ever before. Despite the incredible work of our stellar fundraising team, when there is uncertainty or volatility in the markets - or downright macroeconomic correction - our fundraising becomes, unsurprisingly, significantly more difficult.

So why don’t we take a cut of every pledge or charge our members fees?

It’s a complicated answer but the short version is: if we saw and treated our members as ‘customers’, paying for a service, we might lose the space we've worked so hard to create for two-way, open and honest conversations about effectiveness. In addition, I’m proud that we’ve decoupled membership from the ability to pay for it. We welcome entrepreneurs at different stages of their journeys, some having built and sold multiple companies, some running the gauntlet for the first time.

We’ve explored - and will continue to explore - different ways to build recurring, sustainable, and diversified revenue into our operations, but have found few models that stand the test: we don’t want to create barriers to entry; develop transactional relationships with our members; or incentivise ourselves to grow our assets under management (AUM) rather than getting money to our high-impact funding recommendations, where it is needed most. If we introduce new revenue models, we want them to align with our values and have impact baked in from the start.

One thing’s for sure: we couldn’t be more thankful to all our incredible donors, partners, and sponsors for helping us get to where we are today. No matter what new models we try, we’ll continue relying on their generosity long into the future.

In August 2021, I had a eureka moment.

I was in the middle of what has become an annual existential wobble about fundraising, when a fundamental question hit me: what if a different type of economic engine could help power Founders Pledge? One that spurs good behavior and nurtures our motivation to maximize impact; what could that look like?

The idea that emerged from this internal discourse was a Founders Pledge-aligned venture fund, one that invested in hot, oversubscribed rounds that our members’ companies were raising, and donated fees and carry to fund the operations of the charity.

We asked ourselves what would’ve happened if we’d launched a venture fund four years ago, when we’d grown large enough as a community to be able to do so. I wanted to understand how such a fund would’ve performed if we’d invested exclusively in Founders Pledge member companies with a set of rules designed to limit downside risk and maximize upside potential. The data painted an exciting picture - exciting enough that we started to dedicate a meaningful amount of time to exploring it further.

At the end of 2021, I embarked on a listening tour.

I asked a bunch of smart founders and investors to interrogate the concept and tell me why it wouldn’t work. I wanted to stress test it, and uncover the unknown unknowns. One of the first people I chatted to was Andreas Haug, the founding partner at Headline Ventures (formerly eVentures). Andreas has been a member and supporter of Founders Pledge since 2016, and is one of the people I respect and admire most in the VC world. On our first call, Andreas embraced the idea, and committed to helping us bring it to life.

Over the course of conversations with about seventy people, I unearthed several things that we hadn’t previously considered and at the same time, found clear ways to deal with the challenges that emerged. Rather than disproving my hypothesis, I ended up honing the approach. In fact, not one of the people I spoke to told me not to do it; quite the opposite, almost everyone loved the idea and encouraged me to pursue it. I was blown away by the response. I haven’t experienced anything like this level of enthusiasm since I first started talking about the idea for Founders Pledge back in 2014.

2022 has been spent turning the idea into a reality.

We brought in a Managing Director in Ben Gammon, who is an experienced investor in tech startups, to help us chart the path forward. For months we worked through a long list of open questions with lawyers, advisers, and accountants in pursuit of a model with the right incentives baked in.

We’ve learnt so much in the process. Setting up a fund to benefit a charity doesn’t come without challenges. Anyone who has ever dealt with an industry regulator will understand how complex, and at times frustrating, it can be. Both charities and venture funds are overseen by a number of regulators in different jurisdictions. This concept would sit at the intersection of multiple regulatory regimes in a way that no venture fund or charity has done in quite the same way before.

We quickly came to understand that Founders Pledge couldn’t actually control or run a venture fund. We settled on a structure that would allow the charity to be the largest - though not majority - shareholder in the fund parent company. Founders Pledge could have a seat at the table but the fund would be independently managed, with its own investment committee and decision-making structure outside of Founders Pledge.

In practice, Founders Pledge would own 45% of the parent company and be able to form a simple majority if acting in alignment with any of the other shareholders. And importantly, only Founders Pledge and I (David) would be able to create a supermajority and make major changes. To avoid any conflicts of interest, all shareholders would pledge 100% of proceeds stemming from a liquidity event for the fund itself (however unlikely) to Founders Pledge. What’s more, no charity employee (e.g. me!) would be able to profit from carried interest. The unbreakable integrity of the mission and purpose of the fund would be embedded in its DNA from the outset.

By now the idea had a name, Pledge Ventures.

In the short-term, up to 50% of the management fee would be donated to Founders Pledge, but the real game-changer would be the ability for Founders Pledge to participate in carry. 85% of the General Partner (GP) carry would accrue to Founders Pledge, and over several fund cycles, we could build up a long-term capital endowment for the charity, allowing Founders Pledge to scale its impact far beyond anything we could’ve achieved with our existing fundraising model alone.

In addition to the obvious financial benefits to the charity, we think a partnership with a project like Pledge Ventures is on mission for Founders Pledge. Our members represent a subset of the best technology companies on the planet, and either are already or will become some of the most successful entrepreneurs of our generation. Members who have enjoyed success with their own companies supporting a fund that exclusively invests in Founders Pledge member companies is the kind of virtuous circle we want to promote. It allows impactful entrepreneurs to invest in the next generation of founders committed to doing good - a flywheel for impact. If our future Limited Partners (LPs) do well and then choose to take the pledge to donate a meaningful chunk of their upside to charity, even better!

Implementing this kind of innovative solution to our fundraising challenge will take time, no matter how determinedly I try to drive it forward, and once in place it would take years before Founders Pledge might see meaningful revenue. This means we need our traditional OpEx donors - our Foundry and Sustaining Partners, and our corporate and foundation partners - now more than ever.

And so, I couldn’t be more thrilled to share this first update about a partnership between Pledge Ventures and Founders Pledge. My Chief of Staff, Niki, and I are going to be dedicating a meaningful part of our time to helping Ben ensure we hit a home run. We’ll both be reducing our hours and salaries at Founders Pledge by a third so that we can spend time bringing Pledge Ventures to life. We hope you’re as excited as we are that Founders Pledge is embarking on this journey to safeguard our impact long into the future with a new model for charitable funding.

David Goldberg

David is the co-founder and Global CEO of Founders Pledge. He moved into the non-profit sector from an eclectic commercial background. Having run the gauntlet of finance, start-up, and academia, he started Founders Pledge to make it absurdly easy for entrepreneurs to do good in their work and lives. Following high school, David joined Mortgage Capital Associates, one of the largest privately held mortgage banks in the U.S., where he launched the secondary marketing department. After that, he worked as a mortgage and investment banker at CS Financial in Beverly Hills. David also founded and ran a boutique real estate firm in Germany and was the general manager of Urban Motion. David is a graduate of UCLA and the University of Cambridge.