Frequently Asked Questions

Where does this idea come from?

The Entrepreneurs Foundation model was developed in 1998 by some of the leading venture capitalists in Silicon Valley. It has expanded across the country so that EFs exist in Silicon Valley, Austin, Dallas, Boston, Colorado, Israel, Atlanta and Portland. Over 210 companies have given equity to EFs around the country.

EFNW has the benefit of lessons learned, networks created and materials developed in other Entrepreneurs Foundations. The Silicon Valley EF has options from 52 companies, helped more than 6200 employees from EF companies volunteer in 85 Bay Area non-profits, and has donated over $1.2 million to community non-profits. Austin has 102 options in their portfolio. These are companies and people who are new to community involvement-approximately 80% of them have had no prior community involvement experience.


What is EFNW's structure?
EFNW is an independent foundation operating as a supporting organization to the Oregon Community Foundation and is housed in their offices. John McLaughlin (former CFO of the North Face and Smith & Hawken and Stanford MBA) founded the NW office. Founding board members include John Calhoun, Bill Campbell, Les Fahey, Rick Hawkins, Don Krahmer, Hugh Mackworth, Kandis Brewer Nunn, and Derek Ridgley. Virtually all major venture capital, law, accounting, and banking service providers in Portland are involved. (see Who we are)

The EFNW goal is to promote this concept. We do not wish to duplicate existing community capabilities. We will minimize structure and overhead, and work with existing community organizations as much as possible.


What are the benefits for the company?
Participating companies will enjoy increased visibility in the community and a richer corporate culture. They benefit from improved employee pride and morale, an edge in recruitment and retention, and a committed workforce, which are all key characteristics of high performing teams. Visibility and community network and relationships improve.

There is a tax deduction for a charitable donation. For an option, it is based on the valuation at the time of exercise. As the stock appreciates in value, the tax deduction gets larger. EFNW has obtained a private letter ruling from the IRS confirming this treatment.


What happens to the stock?
The stock options (or stock) are simply held by the Entrepreneurs Foundation of the Northwest until a liquidity event. At that time, at least 75% of the value will be put into a fund set up at the Oregon Community Foundation for direction by the company to support their community activities. A portion of the proceeds is held in EFNW to sustain the Foundation (sales, community involvement consulting) and to make grants to non-profits.

Tell me about the community involvement idea.
EFNW's programs will help shape the corporate social responsibility of Northwestern companies that will be the Nikes, HPs, Intels and Tektronix of tomorrow. When a company wishes, EFNW will help the company develop and sustain a customized community involvement program. Each company program is based on the philanthropic interests of the company and its employees. The goal is to "bake" community involvement into corporate culture at an early stage. As these emerging companies grow and become successful, community involvement by the company and its employees will also grow in scope and impact and include significant long-term partnerships with a number of community organizations.


Why would the board or future investors approve this concept and accept the dilution?
We've found that this seems to be more of a concern for the entrepreneur than for the actual investors. Remember that this program was started by the venture capital industry. Although your investors/board members have a fiduciary responsibility to their limited partners and fellow shareholders to maximize value, they recognize that a company with a strong culture of community involvement is a better company.


What happens if the company is acquired?
If a company is acquired by a non-Northwestern company, it is the EFNW policy that the funds are to be used for qualified Northwest charities or distributed by a committee of Northwest employees. Administrative contact for these circumstances will be with the top Northwest management of the successor company.


We are focusing all our energy on reaching our benchmarks. Can we make the option grant now and start the community involvement activities later?
Yes. Our goal is to meet the company's needs and to promote community involvement. We totally support your priority of achieving success, and understand the focus required to achieve it. Simply stated, we want to be a resource to you. We can be your "outsource provider" to provide you with a realistic, effective community involvement program when you begin to build it into your culture. We can help clarify values and goals, get employee input, plan and conduct a teambuilding volunteer activity, publicize activities, and help with selection of non-profits to be supported.


How much employee time will this take per year?
Top management gives EFNW the parameters. In most cases we start with a short discussion with a few employees/management of values and interests and organize one activity per year, which may or may not be on company time, just to get started.


What is the expense to the Company?
There is a charitable expense to be recognized at the time the option is granted. The accounting value of the option at the time of grant will be a fraction of the fair value. Your CFO or accountant can develop your cost based on the Black-Scholes option-pricing model. There is no P&L effect at the time of exercise.


What kind of options are you asking for?
They would come from your existing option program. They would be a charitable donation of non-qualified, fully-vested, net-exercisable options. Common stock may also be donated. In that case the valuation for the tax deduction is the fair value at the time of donation. Founders stock, warrants or cash may also be considered.


What does our company need to do to get started?
Certainly it would be useful to contact EFNW to make sure your questions are answered. We suggest discussing the donation with senior management and the Board. Once a decision has been made to donate a stock option, have your CFO review the existing plan to insure it allows charitable donations of this type of option (non-qualified, fully vested, net exercisable). Most do. Use your existing option grant documents, or those supplied by EFNW. Have the Board approve the option grant (perhaps along with others).

Some companies' board meetings are very full of critical agenda items. A good strategy is to discuss the option grant with key board members and approve it with a resolution outside formal board meetings.


Can non-profits apply to EFNW for grants?
No. EFNW will not make grants in its early years. Our role is to assist companies in working with the community. As companies select issues of interest and ask for our assistance in selecting non-profits we will work with existing community databases. Due to our lack of time and resources, we will not take meetings with non-profits at this time.


What non-profits will participating companies work with?
Based on issues of interest to the companies EFNW will, if requested, help companies review various non-profits. One of the interests in many companies is for group volunteer activities to build company teamwork. If non-profits have effective, educational group volunteer activities they may contact EFNW. Contact us.



How is EFNW funded?
Due to the cyclical nature of the venture industry, it may be three or more years before liquidity events will provide funding for Foundation operations. Our goal is to secure at least 60% of our seed capital from corporate supporters and 40% from foundations. If funding and community support are strong EFNW may expand its work to assist additional companies in the development of community involvement programs. We expect that in three to five years, EFNW will be self-funding. EFNW budgets will be held at a low level until community response and investment market opportunities are clearer.


What are the Foundation's expected outcomes?
EFNW's model is highly scaleable and provides tremendous leverage. It will connect new companies and individuals to the community. These people will contribute both dollars and time to a wide variety of community organizations. The Foundation's five-year goal is to engage 150 early-stage Northwest companies in community involvement. While some of these companies may not achieve long term success, we believe those that do will yield the following benefits to the Northwest:

  • More than 3,000 employees from EFNW participating companies will volunteer time and expertise to help nonprofit organizations grow and have a significant impact on the community.
  • EFNW participating companies will establish more than 50 active partnerships with local non-profits.
  • Upwards of $10 million will be in company funds or contributed to the community.


Summary
By taking concrete steps to institutionalize corporate community involvement programs, EFNW and its participating companies are weaving social responsibility and philanthropy into the fabric of their organizations. They are creating a new generation of individuals who are connected to and contributing to the community. They are helping create the social glue that is fundamental for a healthy community.