VC Confidential

Goldman to Build $1B Philanthropy Fund

Whitney Tilson noted the following in his recent email newsletter. I think this is amazing and hope that our buyout and venture brethren follow suit. I have always believed that the philanthropy tsunami unleashed by Gates, Buffett & the Silicon Valley crew would lead to new era of giving equal in impact to the robber barons. The latest move by Goldman only adds momentum to this...

"Kudos to Goldman!  Goldman really is an exemplar in many, many ways.

On the back of record profit so far this year, Goldman Sachs, the global investment bank, is starting a donor-driven philanthropy fund that aims to reach $1 billion over the next few years.

The fund, GS Gives, is initially focused on the firm’s roughly 350 partners who will be strongly encouraged to donate a fixed amount of their compensation.

If each partner gives $250,000, the fund will begin with $87.5 million. Eventually the fund will be open to a larger group of Goldman employees. Goldman’s asset management group will manage the fund free.

The program comes at a time of tremendous wealth creation for Goldman employees. The firm is one of a few that has been largely untouched by the meltdown in the subprime mortgage market and it stands out among its peers in the amount of money it has been able to make so far this year. In 2006 Goldman made $9.4 billion in profit; for the first nine months of 2007, it earned $8.2 billion.

“We know we make a lot of money, and we know that we live in this world and we have a responsibility to give something back,” said Lloyd C. Blankfein, chairman and chief executive of Goldman Sachs.

Out of Sight, Till Now, and Giving Away Billions

In yet another example of the new wave & breed of philanthropists, Feeney made his fortune in duty-free shops. In Out of Sight, Till Now, and Giving Away Billions, O'Cleary gives a taste of what is in Feeney's upcoming biography The Billionaire Who Wasnt: How Chuck Feeney Made and Gave Away a Fortune Without Anyone Knowing . I love to hear about people who become successful, give back and keep their perspective on life, values and money.

Last year, the foundation Mr. Feeney created, the Atlantic Philanthropies, gave $458 million in grants around the world, more than any United States charity except two, the Ford and the Bill and Melinda Gates Foundations. Atlantic,   and small predecessors also started by Mr. Feeney, have given $4 billion since 1982; the plan is to give away the remaining assets — now $4 billion, but growing every day — by 2017.

Despite this record, Mr. Feeney is little known, a result of the web of intrigues that he fashioned to disguise his identity, his wealth and his giving. Atlantic does not appear in the annual rankings of the biggest American philanthropies because it was set up in Bermuda, to avoid the disclosures required in the United States. A rare glimpse of Mr. Feeney’s story emerged a decade ago during a business dispute, but he quickly disappeared from the news.

Now, however, Mr. Feeney, who is 76 years old and grew up in Elizabeth, N.J., is stepping out from behind his veil. He cooperated with a biographer, the journalist Conor O’Clery, whose book, “The Billionaire Who Wasn’t,” is being published by Public Affairs. In it, he describes how Mr. Feeney and his partners went into business nearly 50 years ago selling five-pack boxes of liquor to American sailors in ports around Europe, and expanded into a worldwide empire of duty-free airport shops — often one quick step ahead of police or immigration authorities.

As told by Mr. O’Clery, Mr. Feeney’s life makes a compelling saga, a fortune built on consumption by a man who is defiantly indifferent to it; what Donald Trump would be if he led his life backward. Mr. Feeney buys clothes off the rack. He owns no homes, but stays in apartments around the world rented by the foundation. He flies coach. He rides the subway or takes cabs. His five children — four daughters, one son — worked summers as waiters, hotel maids, cashiers.

Pay It Forward

I am a firm believer that random acts of kindness are the lubrication that greases the entrepreneurial and VC worlds.  People doing good by others builds up the positive karma bank account. There is so much uncertainty in the tech world, that you never know when you will have to call in a favor or ask for return kindness. So, like squirrels waiting for winter, many successful entrepreneurs will tell you that success hinged upon a few breaks going the right way and often, those breaks came because of previous good deeds and good will they had stored up. Too often, we get so wrapped up in our own issues and challenges that we fail to look around and think about others. Why should we when we barely have enough time, money, etc for ourselves?

This approach was institutionalized several years ago by Catherine Ryan Hyde with her "Pay It Forward" program that gained attention through the movie starring Helen Hunt & Kevin Spacey as well as Oprah's "$1,000" challenge. Hyde's foundation is the Pay It Forward Foundation. In short, the idea is that you commit a random act of kindness. It could be to a stranger or to someone you know. This could be assistance, money or whatever you have to give. The only condition is that they, in turn, help someone else ("pay forward" the kindness or aid). While I was aware of and a fan of the approach, I was not aware of the program's genesis. As she said in a recent Motto interview:

"I had an experience, probably more than 25 years ago, where I was by myself in a bad neighborhood, driving late at night and I had car trouble (car caught on fire). I was stranded by myself when these two men--total strangers--came out of nowhere. They were running and running fast. One of them had a blanket under his arm, and I thought, "Oh my God!" It never occurred to me that they intended anything but harm. But they put out my car fire by hand with this blanket.

Then the fire department showed up. In the process of talking to the fire department, I turned around to thank the two guys and they were gone. I have no idea who they were or what their motivation was.

So I got back on the highway and noticed a really interesting difference: Now I am driving on the highway every day and have one eye on the side of the road looking for someone in trouble.

So the whole impetus behind the pay-it-forward idea is: What is it about receiving an act of kindness from a stranger that makes you want to give an act of kindness in return? When we have received it, we want to give it."

So, as you go through your daily routine, look for opportunities to pay it forward. It could be helping someone find a job, helping with a customer intro, giving advice to someone, helping monetarily or simply just being there for someone. Too often, we feel that our resources are limited and that using them on others means that much less for us. Ironically, there is a strange multiplier effect and you find that there was more resource there originally than you thought and additionally, the kindness seems to come back (though from a different direction). Food for thought...

TCI Chief Donates $460m to Venture Philanthropy

In addition to Bill Gates, one of the largest influencers in the venture philanthropy world is Chris Hohn, who is one of the most successful hedge fund managers in the world. His fund has been closed for some time and he donates a significant portion of its profits to his Foundation. He is known for his activist style of investing on the hedge fund, and, like the Robin Hood Foundation, is starting to do so on the philanthropy side. It will be interesting to see the direction he takes going forward as his Foundation, now at over $1.4B, has the ability to move the needle significantly in the venture philanthropy world...

TCI chief donates £230m to his charity

By James Mackintosh in London

Published: July 1 2007 22:02 | Last updated: July 2 2007 00:05

Chris Hohn gave £230m ($460m) to his charitable foundation last year, making the activist hedge fund manager one of Britain’s most generous philanthropists, with even more expected to be given this year.

Mr Hohn, founder of The Children’s Investment Fund, told investors in New York two weeks ago that the foundation – run by his wife Jamie Cooper-Hohn – had passed $1bn, less than five years after it was set up.

Mr Hohn’s donations put him at the forefront of venture philanthropy, which has seen financiers and businessmen bring entrepreneurial skills and hedge fund-style activism to charities.

His philanthropy contrasts with the aggressive activism of TCI, which helped block Deutsche Börse’s bid for the London Stock Exchange and led to the downfall of Werner Seifert, the Börse’s chief executive. Mr Hohn is credited with forcing Dutch bank ABN Amro to put itself up for sale, although last week his attempt to make Japan’s J-Power triple its dividend was rejected by shareholders.

Last year’s donation is one of the biggest single acts of charity by a Briton but pales in comparison with donations by US billionaires, with Warren Buffett last year pledging $31bn to the Bill & Melinda Gates Foundation, which already has $35bn from Mr Gates, founder of Microsoft.

The Children’s Investment Fund Foundation is understood to be worth about $1.4bn. CIFF finances projects for children in the developing world, with a focus on HIV.

The size of the donations is a result of the phenomenal returns Mr Hohn has generated for investors in TCI, which has more than $10bn under management. Last year he made more than 40 per cent, while in 2005 TCI returned more than 50 per cent.

TCI automatically gives 0.5 per cent of its funds under management to the CIFF, a third of its annual fee. Investors pay an extra 0.5 per cent to CIFF if it produces returns above 11 per cent a year, a level it has far outstripped since it was set up in 2002. In addition, Mr Hohn voluntarily donates the majority of the profits earned by TCI after paying staff.

According to documents to be filed with charity regulators on Monday, CIFF and its US affiliate were given £230m in the year to last August, and the foundation made investment gains of £94m on its investments, which are run by TCI.

Copyright The Financial Times Limited 2007

--------------------

Feared fund turns to business of charity

By James Mackintosh in London

Published: July 2 2007 03:00 | Last updated: July 2 2007 03:00

When Chris Hohn and Jamie Cooper-Hohn set up hedge fund The Children's Investment Fund (TCI) and its linked charity, the Children's Investment Fund Foundation, they hoped to make a difference to children in the developing world.

Mrs Cooper-Hohn told recipients of aid that the foundation may one day be able to give out $5m-$10m a year.

Last year, five years after starting up, they passed that mark, while the success of Mr Hohn's hedge fund has pushed assets in the CIFF to about $1.4bn (€1bn, £700m), enough to give out far more than the original target every year forever.

But the foundation does not just give out money. It has adopted the "venture philanthropy" model, pioneered by New York's Robin Hood charity, set up by legendary hedge fund manager Paul Tudor Jones.

"I was very eager that if we did this we would do it very much in the way Chris invests, making long-term, well-researched investments," Mrs Cooper-Hohn says, "bringing business rigour and a private sector approach into development."

This extends to the language used: the charity hires "portfolio managers" to keep an eye on its "investments", and is willing to step in and make suggestions when it believes a recipient of aid needs help.

"They want to know that you are efficient and effective," says Bill Clinton, former US president, whose Clinton Foundation charity is given money by CIFF. "But in general they are quite tolerant if you try something that doesn't work, as long as you stop. They are used to taking reasonable risks - that's how they make money."

Mr Hohn and Mrs Cooper-Hohn are part of a growing trend towards venture philanthropy, and are rapidly becoming one of the biggest British foundations to push business practices into the charity world.

The growth is beyond anything they expected, thanks to the success of TCI. It now has $10bn under management, making it one of Europe's biggest hedge funds less than five years after Mr Hohn left as manager of US hedge fund Perry Capital's European fund to start up on his own.

Last year TCI's concentrated portfolio returned more than 40 per cent, after 50 per cent in 2005 and 40 per cent in 2004, making it one of the world's best-performing big hedge funds. It is also one of the most feared in boardrooms, particularly in Europe: TCI is credited with killing Deutsche Börse's bid for the London Stock Exchange, and its appearance on a share register is closely watched by other investors.

But Mr Hohn, a bespec-tacled graduate of Southampton University whomet his wife while doing graduate work at Harvard,is deeply moved by the plight of children in the developed world, say people who know him.

Mrs Cooper-Hohn says that in the early days of the charity, her husband would ask every day whether the fund had generated enough to provide food aid to a particular village he had come across.

"Chris is truly passionate about kids in developing countries," she said. "His first job was in the Philippines and he saw kids scouring the rubbish dumps and I think he was deeply moved."

The extra money means CIFF can now move into areas in which it had previously decided it was too small to make a difference, such as water and hygiene. But its "portfolio" will remain concentrated, to allow it to be closely involved in each project. After intensive research it has decided not to fund some areas, including those aimed at ending sexual exploitation of children.

Some critics claim it is just a marketing gimmick to promote the hedge fund, pointing to presentations to investors about the work of the charity, including one last year by Mr Clinton. But if it was the plan, it has not worked. Almost no one invests in the fund because of the charity, Mrs Cooper-Hohn says.

So far, CIFF has spent relatively little money. However, it is now scaling up significantly but takes a conservative approach to the hedge fund's long-term potential. "We are in this phase where our assets are rapidly accumulating," Mrs Cooper-Hohn says. "You can't expect that to last for ever."

The Power of Technology & the Knowledge Economy

The most recent issue of Institutional Investor (its "40th Anniversary Issue") has a series of interesting perspectives from the pioneers and leaders of the financial world ranging from John Bogle & Warren Buffett to Arthur Rock & Henry Kravis. If you can chase it down, it is quite the interesting read. One of the pieces is from Michael Milken who is on the road to redemption. In the piece he states:

"As financial technology is deployed around the world, it has the potential to reduce poverty and the kinds of tensions that breed terrorism."

The statistic that caught my attention the most was his comparison of Jamaica versus Singapore. He wrote:

"Taking this principle (giving talented leaders access to capital...e.g junk bonds) to the national level, there are only three ways for a country to build human capital: Increase knowledge and skills, improve the quality and length of life so people are more productive or import people with specific abilities. Some countries have done this better than others. Consider the two former British colonies of Jamaica and Singapore. Back when I was in school in 1960, their economies were similar, with a gross domestic product of about $1,900 per person (in current US dollars). But they chose different paths to development. Jamaica centered its economy on agriculture and tourism and today has a per capital GDP of about $3,900. Singapore, which developed its human and social capital and created a knowledge infrastructure, is a modern technology powerhouse with a GDP of more than $30,000 per person."

In the end, it is all about "empowering" the most talented people you can find, whether in entrepreneurship or philanthropy, through both capital and resources. This is what makes the difference in your city, your region or your country. Some view Venture Capital more as a day at the casino with bets spread out across the roulette table. Others view it is the critical enabler of innovation. I like Milken's final conclusion on his piece on philanthropy (which could also cover VC)..."It always involves more than just writing checks. It takes an entrepreneurial approach that seeks out best practices and empowers people to change the world."

Garbage Social Networks

I have a friend, Frank Gerber, who writes a nice blog called Frankly Green about environmental issues and things we can all do to improve our immediate environments. He has me thinking a lot about my daily routines ranging from driving my car to throwing away trash at our house. In particular, I have been amazed by the amount of garbage that we throw out each week...even more so when I think about all of the houses doing this week after week. I am amazed we can find homes for all of this. So, enough environmental rambling...

I was also intrigued by the Nike+ program where you drop their sensor in your shoe and then upload your run data from your iPod to their community website. You can compete & compare to friends or to random people around the world. It creates social nets around running. It got me thinking about this in the environmental sense.

What if you had a similar type of site for different types of environmental factors. Interested people could, for example, weigh their garbage weekly and post it to a community site. Being environmentally friendly is becoming all the rage and people are competitive by nature while also wanting to be part of community. This would lever all of the above towards a common good. People could see how their consumption compares to other families of similar size. They could have discussion areas where they shared what they were doing to reduce consumption/waste and best practices. You could embed awards and such to this. Since it requires weighing your garbage, it is not overly invasive and people seem to be looking for ways to get green. This is not an investment idea as I don't think the purpose should be economic though you could possible generate some revenue (and donate it).

I believe that it is becoming increasingly difficult to make horizontal "social net" sites work. The barriers are too low and there is too much noise. However, using the learned dynamics of community from the first wave could benefit future efforts that embed social nets into their solution. I see social nets as a tool or enabler and not necessarily a stand alone investment concept.

Anyways, this is the random thinking of a VC...

Saving The World A Cup at a Time

" Give a man a fish, he'll eat for a day. Teach a man how to fish, he'll eat for a lifetime."
  -- Chinese proverb (surprisingly not a biblical quote as I believed)

You would have to be living in a cave not to notice the seismic change in people's attitudes and interests in helping others, especially the plight of the poor in developing countries. As I have tried to get my own compass and strategy set, I have posted on a variety of "social entrepreneurship" ideas and topics to get my own thoughts organized. My wife and I set up a foundation about 14 years ago, originally focused on early childhood development since children are often so far behind the 8 ball by age 5 that they never catch up. This is a wonderful area for philanthropy and in need of significant funds. However, I have also been looking to find a way to blend my day job with our philanthropic activities.

The light bulb went off for me while reading a recent Fortune article, "Saving the World One Cup of Yogurt at a Time." It describes the latest chapter in Muhammad Yunus's efforts post his Nobel Prize for his revolutionary work on Microcredit. His core tenants revolve around the notion that self-sufficient entrepreneurship, rather than charity, is the solution to poverty. This has lead me to defining a personal focus on giving around "encouraging and teaching entrepreneurship to tangibly alleviate poverty." My interest is more in teaching the fishermen themselves, but there is also another credible area around running entities for the benefit of charities. One of my readers, Bob Musser, at Auction Inn, is an example of this later model.

Yunu's initial work dramatically changed the landscape of the microlending world. He started off by lending $27 to people in need, particularly women, so that they could start small businesses (usually farming related). Through relying on social pressure versus collateralizing assets, he has enjoyed a 98% repayment rate which is higher than traditional banking. The borrowers would rather hit up relatives & friends to make payment rather than failing in front of their peers. You see this notion in the US inner cities where Korean immigrants will pool their capital and award it to one "winner" who starts his/her business with it and pays back the loans from proceeds. I have been surprised that this model has not been adopted by other poor groups in the very same neighborhoods.

Yunus started the Grameen Bank over 30 years ago and the microlending world has exploded to over $9B. As the article points out, this is sorely needed since over half the world's population is living in poverty while the richest 2% control more than 50% of the wealth. Yunus, Gates and others have pointed out that capitalism is the most efficient & effective market system around but that it can often leave entire populations or sectors behind in the Darwinian war. Charity has sought to address this through redistribution of the wealth, but it often just keeps the recipient fed for the day. He believes business and not government is the solution to many of these poverty issues and claims that 5% of Grameen's borrowers escape poverty each year, resulting in Bangladesh's poverty reduction rate rising from 1% to 2% each year.

Yunus has launched another revolutionary program with Danone yogurt in which returns are measured by both 1) self-sufficiency and 2) by return on "social capital". Taken to full fruition, they are talking about having companies issue "social stock" which is tracked not solely by bottom line profit but rather on social good. Investors would look at the pharma company based on lives saved by certain drugs or food companies based on "children rescued from malnutrition." People would buy and sell based on comparative results.

With Danone, the company will invest $500,000 into a new plant in the developing world (India?). It would make yogurt, fortified "to curb malnutrition" and priced to be affordable (7 cents). It would employ local people, it would use Grameen vendors for supplies like milk and would sell through through normal channels as well as through Grameen microvendors going door-to-door. It would also check the boxes on environmental issues like solar panels, biodegradable cups and such. The company would take proceeds back from this to pay back their initial investment.

This creates a win-win-win for everyone. The company can move more assets from pure charity that is often misused or wasted (say targeted already at poverty or training) to this self-sustaining model. It gains new market share in the yogurt wars in a shunned market and it gets significant good will and PR for its efforts. Local inhabitants gain employment (at the plant, selling finished product and supplying inputs) as well as address nutritional issues.

As the article concludes, now this is a BIG New, New Thing to get excited about!

Girls' Entrepreneurial Power

A friend of mine asked if I had died since he hadn't seen a post in a a bit. Well, all is well and I had a great ski outing with my son (first father-son effort). During the week, a friend of mine, Rob Albertson, forwarded on an interesting post by Vivian Wu as a guest blogger on TechCrunch titled Next Generation Entrepreneurs Compete at Google HQ. Google sponsored a business contest for 12 year old girls. I think this is awesome. I think all of the emerging efforts to teach entrepreneurship to our kids whether in the Inner City (NFTE), schools (BizWorld, Junior Achievement) or targeted at segments like girls are critical for all of us.

Entrepreneurship is critical for innovation in everything we do whether it is in non-for-profits, start-ups or within large corporations. I especially think it is key to get to our girls to instill in them the belief that they can succeed in Science, Technology, Math, Business and any traditionally male dominated fields. I see girls who love science and are good at Math fade into the Humanities because, in many cases, everything around them has told them they are not welcome.

Don't get Anne Mulcahy started on this topic. She watched her daughters bump into the double standard in math (teachers telling them it was okay if they didn't quite get the math since "they were girls"). She has told her daughters that they can do as they please after they have mastered Advanced Calculus.

I was interested to hear that there are no cheerleaders for the local New Trier High School Football team. It is now cool for the girls to be participants on the athletic field in soccer, lacrosse and field hockey rather than cheering on the boys. I don't say this to put down cheer leading, but rather to comment that girls are feeling more empowered, and it is about time. We are vastly outnumbered by China and India. We need to have every member of society feeling empowered, engaged and fully productive.

Now, I want to know how to get this program to my daughters' schools...

Venture Philanthropy Podcast

As you all may know, I continue to get more involved withe world of venture philanthropy. Much like venture capital, if done well, drives innovation and change into the corporate world, I believe that venture philanthropy can also positively impact traditional philanthropy. I'll define what I view as key principles to venture philanthropy in a later post.

Susan Herr has launched Philanthromedia in conjunction with the Community Foundations of America to discuss current topics in the world of philanthropy. In the just released premier audiocast from her new Discerning Donors series, she interviewed seven people from the venture philanthropy world (including me...as a caveat). For those of you interested in this world, this is a good feed to add.

Strongest Dad in the World

Sports Illustrated did a great piece on Dick Hoyt and his commitment to his handicapped son. There is also a link to short video on them on YouTube...

"[From Sports Illustrated, By Rick Reilly]
I try to be a good father. Give my kids mulligans. Work nights to pay For their text messaging. Take them to swimsuit shoots.

But compared with Dick Hoyt, I suck.

Eighty-five times he's pushed his disabled son, Rick, 26.2 miles in Marathons. Eight times he's not only pushed him 26.2 miles in a Wheelchair but also towed him 2.4 miles in a dinghy while swimming and Pedaled him 112 miles in a seat on the handlebars--all in the same day...."