Located less than a mile from Stanford University, Silicon Valley’s Sand Hill Road is home to a number of venture capital firms with the crucial but poorly understood task of providing guidance and capital to high-tech companies with revolutionary ideas. Stanford MBA F. Gibson “Gib” Myers joined a nascent venture firm—Mayfield Fund—in 1970, and in the years since the two have made Silicon Valley history.
Mayfield Fund led the initial investment in 3Com Corp. back in 1981 (the computer networking firm currently has a market capitalization of around $10 billion) and has made over 300 investments in early-stage companies such as Genentech, Silicon Graphics, 3Com, Compaq Computers, and Cypress Semiconductors.
But the firm has been too busy for philanthropy, or at least so it seemed, and did not even have a corporate giving program until recently: “It has been pretty much ‘heads down’ for the past 28 years,” says Myers. That’s not unusual for the area. While a recent study debunks the assertion that Silicon Valley businesses don’t give to charity, the same report is frank in acknowledging that the area’s many smaller firms lag national averages by an appreciable margin.
Enter the Entrepreneurs’ Foundation. Founded in January 1998 with Myers as chairman, EF is actually a 501(c)(3) public charity that Myers hopes will do two things: first, provide a relatively painless way to entice growing companies to make a commitment—in the form of stock options—to philanthropy, and second, to provide a sustained funding stream and a generous portion of entrepreneurial know-how to help “scale up” local programs that have demonstrated their usefulness. Philanthropy spoke with Myers at his Sand Hill Road office.
PHILANTHROPY: What is the Entrepreneurs’ Foundation?
MR. MYERS: We are a group of people who want to change the culture of Silicon Valley. There’s been enormous financial success in the Valley, and that success is not being shared. Meanwhile, we have lots of community problems, and we have an enormous untapped resource—entrepreneurs and small companies—that have done relatively little in terms of giving back to the community. Our mission is to get entrepreneurs in Silicon Valley to reinvest in the community.
PHILANTHROPY: How are you going to accomplish that?
MR. MYERS: The first step is to involve small, venture-backed companies and show them how they can adopt a community orientation in their company. These companies will grow, and some of them will succeed. But at the beginning they are all working seven days a week getting their product out. They get larger, and they still don’t have time. Out here, only the largest companies do anything for the community.
PHILANTHROPY: Give us an idea of a sample conversation. A startup firm comes to you—let’s say three engineers are selling you on their idea for using the Internet to track the inventory of a rental car company. They are hoping that their idea will make them all fabulously wealthy, and they need you to help them raise the money they need. The last thing they are thinking about right now is helping the poor and downtrodden. How do you work philanthropy into the discussion?
MR. MYERS: Well, we don’t do it just then, because at the time they are raising money that is the only thing on their mind. We don’t want to interrupt that. Our strategy is to go to the company after the first or second venture round. We explain what the Entrepreneurs’ Foundation is trying to do, and how their company can develop a community orientation and yet devote very little time and no money at the early stages. We’re going to them and saying: “We know that you don’t have time to do this, but here are some simple things that you can do right now, and we’ll help you as you grow. As you have profits, you can also do this or that piece.”
PHILANTHROPY: How much equity do you ask for?
MR. MYERS: We ask for $100,000 equity in a company, which is considerably less than 1 percent in a typical financing deal. So far, we have raised $850,000 from ten companies, although the equity is illiquid and it will take some years for it to appreciate. Our startup costs are being paid entirely by another group in the service sector: lawyers, accountants, and the investment bankers, and banks. I’m going to each of them and asking for $75,000 in cash—real money—to cover our startup costs, which are $300,000 for the first year. We have two staff members right now and we’ll grow some, but we also want this to be a small organization that leverages other resources.
PHILANTHROPY: The stock isn’t actually given to the Fund until later, right? How does that work?
MR. MYERS: We actually have a stock option which we can then exercise after it has appreciated, which is nice because we don’t have to lay out the capital early on.
PHILANTHROPY: How did you come up with the idea?
MR. MYERS: Just recently, Mayfield set up its own foundation and has made some investments in the community. That’s great, but venture capitalist that I am, I was looking for some more leverage. I knew I could join the boards of two or three nonprofits, help them raise money, and my dance card would be full. But I thought, we do all these things to help make an entrepreneur successful. Why not do the same things for a nonprofit?
PHILANTHROPY: Like what?
MR. MYERS: What we’re thinking about is a small number of ventures per year. We want to support leaders who have proven an idea on a small scale, that with our support and money we can grow that organization to bring that service to the whole Bay Area. We want to work with what’s already out there, such as the community foundations. They are doing terrific work, but their outlook is short-term. So we want to work with them and when they have found someone who has a good reading program, we can work with the existing organization and apply a lot of capital to it. We need to involve all these startup firms who are supporting the Entrepreneurs’ Foundation. We need to get on the board of directors, share our networks, do all of the things that we do in our entrepreneurial world that make a venture successful. But let’s do it for this nonprofit.
PHILANTHROPY: That sounds like a lot of personal involvement.
MR. MYERS: That’s what makes these things work. And that’s what doesn’t happen right now. If a nonprofit is going to expand into San Jose, we call the mayor and say, “OK, we’re going to do this. What’s the right way to do it?” We do that for our companies. If I know the president of XYZ computer company, and one of my clients has a new product, I call them up and say “Here, I want to introduce you to this small company. Please pay attention.”
PHILANTHROPY: Are you going to solicit proposals?
MR. MYERS: Probably not. As venture capitalists, we get thousands of proposals in the mail. We look at them, but we don’t usually back them. We back people based on relationships. We are working with the community foundations, the [David and Lucile] Packard Foundation, the [James] Irvine Foundation, to see what they identify as the good programs and the good leaders and build on that. So it really is relationship based, not proposal based.
PHILANTHROPY: Why do you think community foundations have a short-term orientation?
MR. MYERS: It seems to me that the whole philanthropy community takes a fairly short-term view. [Foundations will provide] funding for a couple or three years of proving a new program, and then you’re on your own. Also, the government used to play a bigger role here. Once you got things started, if you made the grade, they would come in and take it over. We don’t want to do that at all. We want to build strong organizations that can stand on their own.
PHILANTHROPY: You have been in business for about six months now. What is your batting average at this point in terms of getting companies to agree to contribute? When someone says “no,” do they say why? Also, what are your projections in terms of number of companies and capital levels five years from now?
MR. MYERS: Knock on wood, so far we have no “no’s.” We have ten “yes’s” meaning that we have full board approval. We have another eight or nine companies that are in the pipeline. Our goal for this year is to sign up 25 companies. Our five-year goal is 500 companies and maybe $100-200 million in capital value. Right now there are 600 startups in the Bay Area, so if we get 100 per year that is pretty reasonable.
PHILANTHROPY: You want companies to be “community involved,” but some—like your own Cypress Semiconductor CEO T. J. Rodgers—would say that their job is first and foremost to avoid being eaten alive by the competition, provide jobs for their employees and of course generate value for investors—who are then free to spend their earnings on charity. Does a nascent high-tech startup firm really have time to worry about being “community involved”?
MR. MYERS: I know T. J. and I understand his arguments, but I don’t happen to agree with them. I think corporations need to get involved and set a leadership tone for their employees.
PHILANTHROPY: On the front end, your ideas about raising capital are very innovative. Your mission statement refers to an “innovative approach to philanthropy” and supporting “social entrepreneurs with bold ideas.” But looking at your executive director, who has made her career in public education and in promoting public schools at the George Lucas Educational Foundation, and people like Common Cause founder John Gardiner on your board of advisors, it looks an awful lot like ordinary foundation philanthropy. When I think of the cutting edge in education I think of Ted Forstmann, John Walton, and Mike Ovitz going out and giving $100 million to help get poor kids out of crumbling public schools. Is that the kind of program you would consider supporting?
MR. MYERS: I disagree with you. John Gardiner is the epitome of what we all aspire to in regards to leadership and reinvesting in our community. As to Ted Forstmann’s program, I’m familiar with it. It’s very innovative, but it’s just very different from what we would be involved in. We would back an innovative program, but our focus is on backing great leaders.
PHILANTHROPY: But ultimately, the leaders are going to be leading something, and that something is going to be a program.
MR. MYERS: Well, again, right now the problem as I see it is that traditional philanthropy does not do scale-up financing. When the community foundation out here has a great new reading program, they back it for a couple of years, but then after that it’s up to the grantseeker to find the money. So then they go to [the David and Lucile] Packard [Foundation] and they ask for $100,000 to keep the thing going for another year. They’re spending most of their time raising capital just to survive. We’re going to take that off the table. We’re saying: “We’re going to help you scale up. We’re going to help you build an effective organization.” Second is support. If you’re a small nonprofit, you have a terrible time getting a board of directors. Big philanthropists don’t like to be on the board of small charities, but you absolutely have to do that kind of thing if these nonprofits are going to thrive.