Helping tech founders to give now

Antonia: This podcast was recorded on the land of the Gadigal People of the Eora Nation. StartGiving acknowledges the Traditional Custodians of the hundreds of First Nations across this richly diverse continent. We pay our respects to their elders, past and present, and extend that respect to all Aboriginal and Torres Strait Islander peoples, including to those listening.

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Daniel: Hello and welcome to the StartGiving podcast. I’m Daniel Petre, I’m the chair and founder of StartGiving.

Antonia: And I’m Antonia Ruffell, the CEO of StartGiving.

Daniel: Our organisation has a core mission that’s dear to both our hearts. We want to inspire a new culture of philanthropic giving in Australia. Specifically, we want to generate millions of dollars of additional charity funding from the tech sector. 

Antonia: We know it can be daunting to get started. Our goal is to help successful tech founders start their giving journey. We’re here to support you in launching your personal charitable foundations. We can make giving in the innovation sector the default and the expectation. 

Daniel: This podcast series is a way for us to bring you into the process. Over five episodes, Antonia and I will be speaking with leaders in the technology and philanthropic space, people like Bill Gates and philosopher Peter Singer. 

Antonia: In this episode, Daniel and I talk about the StartGiving origin story and we discuss the big questions we’ve discovered are important to founders who are thinking about establishing a personal foundation. 

Daniel: My journey into philanthropy really started back in the early nineties when I was a vice president on the campus at Microsoft. I’d gone over there after being MD of the Australian operation and I went over to run a product group for three years. I went over as a very normal human being, having not really been exposed to wealth or wealthy people. And one of the first things I noticed when I reached campus was how wealthy people in America were philanthropic. It was the norm and not just nice wealthy people, but not so nice wealthy people were really quite philanthropic.

I remember distinctly being on a plane with Bill, with Bill Gates who was my boss, and talking about philanthropy, and he talked about what his mother said, Mary Gates, his mother, who was a great philanthropist in the Seattle area and chair of United Way. And she had this sort of view, if you’re successful in life, it should be your responsibility, not your choice, to give back. I can distinctly remember the time on that flight to New York and him saying that to me and how much sense that made and how obvious it seemed to if you have ended up with more in your pocket than others, then you should feel this responsibility to give some of that back.

When we got back to Australia in the early nineties, we came back because my sister was killed in a car accident, I felt a need to come home to help the family. The first thing we did, my wife and I, Carolyn and I, we moved around 35% of our net worth into our foundation, the Petre Foundation, and we just started giving from that to causes we cared about. Again, me thinking it’s probably pretty normal, that’s what people did.

Same time, we also started doing research into philanthropy because I wanted to understand why is it that nobody in Australia talked about philanthropy? Whereas when I was in America, everyone was talking about philanthropy.  If you went to a dinner party, the conversation wasn’t about house prices as it is in Sydney, it was about what charities you were supporting and why you were supporting them.

So we started the first iteration of this research, and each of the research iterations has been undertaken by universities, so it’s proper scholastic research. It wasn’t just ad hoc stories. And what we found then and found most recently in the most recent iteration, which we funded and released a few months ago, maybe some Australians don’t want to hear this, but Australia’s not a philanthropic nation. If you look at our giving levels as a percentage of GDP, we rank well below comparable nations. By that I mean the US, the UK, Canada and New Zealand. So we are the lowest in giving as a percentage of GDP.

Probably more upsetting than even that is that when you look at the giving of our wealthy, so those people with a net wealth of over $20 million, they’re considered in sort of global wealth management areas as high net worths, that in America the average high net worth individual allocates about 15% of their net wealth to philanthropy. In Australia, our most wealthy, so now we’re talking about the top 1%, not people with just 20 million, allocate less than 1% on average to philanthropy.

And so I spent really from the early nineties while I was in my venture capital career up to sort of 2021, focussed on doing our personal philanthropy through the Petre Foundation and then also trying to get rich old white guys to give and failed dismally at that goal. And it occurred to me in the back part of 2020, early 21, that I didn’t want to continue my venture capital career. I wanted to try and do something else as my third act.

So that’s kind of how I got here. How did you get here? 

Antonia: Well I’ve been working in the philanthropy and social impact space for well over two decades, and particularly over the last 10 years, was the CEO of Australian Philanthropic Services before I came across to join you at StartGiving. And Australian Philanthropic Services is the leading not-for-profit provider of philanthropy services in Australia. So in that role I worked with hundreds of really wealthy individuals and families to help them structure their giving and have more impact in their charitable giving as well.

But the sad reality is that philanthropy could do a little bit better in Australia, and I really saw the opportunity with StartGiving to try and move the dial on philanthropy and do something a little bit different.

And that’s why I made the decision last year to come across and join the mission to try and create a thriving culture of philanthropy amongst successful tech founders. 

Daniel: So my experience from nearly 30 years working in venture capital and working with literally hundreds of tech founders is that wealthy, successful tech founders have a very different approach to many aspects of their life than traditional old rich white guys. And in four specific areas that I think are worth mentioning.

Firstly, as a group, tech founders are far more socially progressive than their counterparts in the traditional economy across every aspect of the socially progressive agenda, whether it’s marriage equality or anything else.

Secondly, I’ve yet to meet a founder in nearly 30 years of being a venture capitalist that believes that the wealth that’s been created through their company is something that they deserve. They have all acknowledged and, rightly so, sacrificed careers, sacrificed income, committed enormous amounts of energy and time to their start up. But they do not equate that with the hundreds of millions of dollars or tens of millions of dollars they have earned in equity in their company, which, again, is very, very different from the experience I’ve had talking to rich white guys who’ve made their money either through very, very high salaried roles or equity in companies they’ve started in a more traditional economy.

Thirdly, and maybe it’s a flow on from the second, but there is this distinct discomfort with inequality within the tech founder community. They don’t look at the inequality equations being one where, oh, well, everybody had the same opportunity I had, or if everyone just worked as hard as I do, which are both pretty lame excuses for what’s occurred with inequality, they see that luck’s played a role and they’re uncomfortable with the inequality that’s resulted and they want to do something about it.

Which leads to that fourth key point, which is they are problem solvers by their very nature. Tech founders see a problem and believe they can solve it better than anyone else can. So they bring that sort of problem solving and problem solving now, framework to philanthropy. 

Antonia: And of course, another reason it makes sense to work with this group of tech founders, is there’s been a massive tech boom in Australia over the last two decades, and that’s creating lots of very wealthy founders who’ve got the potential to do something really impactful with their philanthropy. And there’s precedent around this overseas.

If you look to the US, for example, of the top 50 givers in the US, over a third of those are actually founders of tech companies. So we know this from international experience, is a group of people that are really primed and ready to do something with their philanthropy. 

Daniel: When you were at APS, you would have met some tech founders. Did they seem different to you from the traditional wealthy people? 

Antonia: Absolutely. I think there’s some key differences really, between, if you like, tech founders and traditional philanthropists I’d have worked with. So traditionally you tend to find people come to philanthropy either because they’ve inherited a lot of money or they’ve built a lot of wealth over sort of a long career in the corporate sector, during which time there’s been this growing expectation that they sort of deserve the wealth that’s coming to them.

I think there’s something very different in the tech sector that these are young entrepreneurs who’ve often come from a very normal background, generally not from a wealthy background. They’ve had a great idea, they’re great problem solvers and they’ve created this business.

They’re very entrepreneurial, and often they’ve decided to sort of set a philanthropic structure up at the point that they might’ve sold that business, come into a lot of wealth, but it’s their money. They’re not kind of enslaved by the ideas of creating a legacy and looking after the wealth of their parents or their grandparents. It’s money that they’ve made and they’ve got the power and the ability to decide to give that away for good. And that’s what many of them want to do. 

Daniel: But also, I think that’s the difference about StartGiving, other than its focus on the tech sector, is also about doing it early, about starting your journey early not as, as in your case, we talked about your experience with APS, just doing it when you’re on the, the latter part of your career. How do you think we’re going with our conversations with founders?

Antonia: Yeah, no,  I mean really well and I think you’re exactly right in your point you make there, that the big difference with tech founders is that there’s a real opportunity to start getting involved in giving sooner. People aren’t waiting until they sort of retire from a big corporate career. They’ve made their money and now they’re going to do their giving. There’s this opportunity for them to be both earning money and giving to the community at the same time.

Many of the founders we’ve been talking to might be sitting on 20, 30 million dollars or even more of unlisted equity, unlisted shares in the company that they founded. But the interesting thing is at the moment, that equity isn’t liquid. So most of them, because every effort and every bit of money’s gone into building that business, they’re paying themselves at the moment a pretty modest salary. Many of them won’t have bought their first home yet. They’re living a pretty modest lifestyle, but they know that they’ve got this sort of paper wealth that they’re sitting on that eventually is going to become liquid. So they’re aware that they’re going to become wealthy, but as yet, they haven’t got a lifestyle that’s sort of grown to sort of in line with the level of wealth that they’re one day going to have.

And I think there’s a real appetite in that group to be able to do something sooner. And they’re able to do that by setting up a charitable foundation and moving a portion of the equity in the company they founded across to the foundation, which allows them to start their giving sooner than they would do sort of otherwise or traditionally.

So we’re building an organisation fully funded generously by you, Daniel. So we’re not taking any fees for what we do, but we’re really working to guide tech founders through the process of setting up a foundation and to get them giving now, that’s our whole goal in what we’re doing.

We really want to get more money to more charities to do more good sooner. So specifically what we’ll do at StartGiving, if you’re a founder who wants to set up a foundation is we’re there to make it as frictionless and as easy as possible, and we will help guide you through literally every step of the process from the very beginning when you’re thinking about what it is you might want to support, what the values and the purpose is that drives you right the way through to the really practical things, we’ll help work out how you’re going to donate that equity into the foundation.

Anything you need to do with discussions with your co-founders, VCs, your shareholder agreements and that sort of thing, I will introduce you to the right people to help set up your PAF and we will subsidise the fees around actually setting that PAF up and the ongoing administration.

And then once the PAF is set up, we’ll hold your hand as you start working out what your giving strategy is going forward.

I realised as well, we’ve spoken a fair bit about private ancillary funds or PAFs, as we’ve been talking today, but a lot of listeners might not actually be familiar with what a private ancillary fund or a PAF is. So I may just touch on quickly what the PAF structure is that we’ve been talking about.

So, a private ancillary fund is a type of charitable trust. It’s a very simple way to put a structure around your giving. So how they work is an individual moves some assets, either cash or in this case, equity in the company that they founded into the foundation.

The beautiful thing is they get a tax deduction for anything that they donate into the private ancillary fund. The assets are then held in the PAF over the long term, and that’s locked away. You can’t get the money or the equity back once it’s in there.

And then every year a minimum of 5% has to be given away to eligible charities. And there’s over 20,000 charities in Australia that people can choose from to distribute funds from their private ancillary fund. 

Daniel: So we talk about the use cases that we’re, we’re sort of trying to focus on, it’s easy to talk about, as we have, you know, spoken with a founder who’s had a 300 hundred million dollar exit and they called us up on the phone and said, hey, they want to set up a PAF. And I remember I was talking to them and they’re moving a third of their money into a PAF which is an extraordinary, extraordinary gesture and obviously a really good human.

But I think the sort of the lowest use case is someone who hasn’t got equity in a liquid form yet, as you just mentioned. So they’ve got maybe 20 million dollars in equity. And what we sort of suggest, I think, is why don’t you think about just taking a million dollars worth of shares of your equity and moving it into your own charitable trust, which the private ancillary fund is a structure. So now you have 19 million dollars still in your control for your personal life and a million dollars of equity sitting in your PAF. You still control both from a shareholder control, you’re still controlling effectively 20 million dollars worth of shares, but now this million dollars of the shares can be used to give.

The two things about that: one is they get the million dollar tax deduction on the way through held personally, and that can offset any capital gains they’ve got and any future gains they’ve got to use up that million. But then with the million dollars worth of shares sitting in the PAF, they can sell down 5% per year because 5% is the minimum requirement to produce 50 thousand dollars worth of giving per year.

And it seems that when you talk founders through this, as you just mentioned, you have these founders who are often still in you know, two bedroom rental, not paying themself a high salary. And you say for a pretty much de minimis amount of movement of paper shares, you have a 5% reduction in your potential net wealth, but you’re giving 50 thousand dollars away today. They do seem to be quite amazed at the magic of that maths.

So they’re not trading future giving for current because one of the things that we’ve seen and you’ve seen more of is that people wait till they’ve got all the money at the end.

And the thing that I find interesting about that is if you’ve got the capacity to give now, we’ll talk about the founder with 20 million, a million of shares goes across sell down 50K per year versus not doing anything for three or four years, you’ve got to then be comfortable, you’re happy that someone’s going to suffer for this next period while you decide not to do something given that’s going to not hurt you in any way. Do you think that’s overly harsh in that view? 

Antonia: No, I think it’s right.

And I think that is the opportunity that excites people to be able to do something and start having an impact now. The founders are hungry to make a difference in the world. That’s why they’ve been driven to set up their own company.

Generally, they’re avid problem solvers, and the challenge that people often face is if you suddenly come into a lot of wealth and start giving at a very high level immediately and you haven’t even dipped your toe in the water before, it can be difficult to know how to deploy that giving to the community. But I think there’s this great thing that happens if people can move some of their equity across and sort of start a bit smaller now, is they’re really building their MVP of giving, if you like.  So they’re starting to work out exactly what it is they want to, want to fund.

And so that as their wealth increases and the value of their foundation increases, then they’re able to deploy at scale further down the track because they’ve already worked out what it is they’re passionate about, what has an impact and what it is that they want to do? 

Daniel: Yeah, I think the MVP model kind of works well because most companies, most founders think about the MVP, minimum viable product in their own use case in their own industry or service offering. And so saying or how you can think about your initial PAF with 5% of your shareholding as being your MVP for giving in and giving away, while $50,000 can have enormous good, do enormous good, it’s not so much money that you have to distract too much of your time away.

There’s one story I tell, we do a fair amount of work in Africa through the Petre Foundation, and one of the things we do is we fund this thing called epicentres, which are these sort of village centres that take seven years to build and they have a grain store in them, they have a massive water, commercial water bore, a school, a medical centre and they are usually placed within a group of maybe 10 to 15 villages to provide services, facilities for people living in the villages around and usually the catchments about 20,000 to 30,000 people.

So when we were visiting, my eldest daughter and I were visiting Uganda, which was the next epicentre we were funding, we went and visited some of the villages and what we noticed was that someone in each family in these villages was spending between seven and 10 hours a day getting dirty water from the stream or the river, and that someone would more often than not be a girl because the boys were in the fields.

And we thought that was kind of what a waste, because that’s wasted time. But also, babies were dying through waterborne diseases brought back in the dirty water. Women were dying of bacterial infections. Now, menstruating at a time they needed water, the dirty water was being used. That wasn’t very helpful. And this lost, the lost time of the kids at school, particularly the girls.

So we put the bores in and each bore only cost $10,000 per village. So for a village of maybe two or three thousand people, you could fundamentally change a life with a $10,000 bore.

What we found out subsequent when we got the first reports back about how these are going because I was interested in the longitudinal benefit. Yes, we’re getting clean water with what’s actually going on. And the reports came back and they talked about how, yes, you know, the death rate of babies had declined rapidly because guess what? No dirty water for babies. Women weren’t dying of bacterial infections. And in the report, you know, girls were going to school and girls weren’t being raped. And I remember going back to Daisy who was the head of The Hunger Project in Uganda saying, what do you mean girls were being raped? Because that never came up in conversation.

She outlined, well, of course, it’s the young girls going to get the water because they are less able to work in the fields. And there are predators waiting on the riverbank for these young girls and they’re going to rape them. And so you as a dad in the village know you can’t send your son because you’re a subsistence farmer living on some $1 a day. You’re sending your daughter to the river to get dirty water, which you know will bring disease back to the village, but also she’ll get raped. It’s horrific.

And yet, with a very small amount of money, you could fundamentally change that environment.

Now, of course, is not the end case. You still need to get drought tolerant seed, you need to get education. I think it’s a good example of two things.

One, for not a lot of money, you can have quite a high impact. But the other thing about it is this sense of giving now versus later.

If, I think about this a lot, that if we didn’t put those water bores in those villages, then a girl was being raped today.

And when we talk about, you know, setting up the PAF, we you know, we’ve been engaged in conversation with founders where they’re not ready yet. They want to learn about the process, learn about PAFs, go away and process it and come back. So we’ve got lots of conversations that will end up in PAFs being created in maybe 12 to 18 months time.

So any founders listening shouldn’t think they have to be ready to sign on the dotted line today if they just want to understand a bit more of what’s going on and how they should think about it, they’ve got some questions.

You know, we’re here to help them through that process, help them work out when is the right time for them.

We’re also quite engaged with all the major VC companies, venture companies who have been extraordinarily supportive to help us in this journey of talking to founders about how to help the founders start their philanthropic journey in concert with the venture capital firm still funding and helping them grow.

At one level, it is this idea that if you’ve got wealth that is in excess of what you need and what you think you need, then you probably can start to think about how do I move that equity or that asset or some cash, whatever it is, into a structure and start giving now.

to really then maybe close out, at least from my side on the importance of the now, you know, I reference the water bore case, but you can think of use cases all over the place, including even funding medical research.

If you do want to give 100 grand for medical research, if you give it today, chances are the outcome that it will help fund. You may have pulled forward a medical therapeutic intervention forward six months. Well, that may save someone’s life. S

o I think in any charitable use case, whether it’s education or whether it’s health or whether it’s water, there seems to be a pretty strong argument to doing something, at least something now and then learning from that, as you said, learning from that, and then building your philanthropic muscle as you’ve built your sort of business and product muscle in your own start up.

Antonia: I think that’s exactly right. And the other place that I think I’ve seen a lot of tech founders are interested in is the environment and climate change. And everyone knows that you can’t wait 50 years to fix environmental issues.

So I think particularly those people as well who’ve got a passion to do environmental philanthropy or philanthropy that’s somehow going to help move the dial on climate change. You know, the time to act is now. It’s not in 50 years when you’re retiring. 

Daniel: Well, we hope this first episode of the StartGiving podcast has given you a sense of what we’re trying to do, and how we’re trying to affect change in charitable giving in Australia. 

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Antonia: This podcast was written by Catherine Feeney, Antonia Ruffell and Daniel Petre. It was produced by Audiocraft. Visit StartGiving.com for show notes and to learn more about what we do. You can subscribe to the StartGiving podcast wherever you get your podcasts.