Canadian charities: ready yourselves.

In late November a new, potentially game-changing foundation launched that could spell financial windfall for many charitable sector organizations over the coming years.

Toronto-based Upside Foundation has set itself up as a national vehicle through which venture capitalists and start-ups can pledge a small percentage of stock options to charities that are “convertible at exit.” In layman’s terms, in the event their businesses become profitable and they are either bought out at a profit or go public on the stock market, they begin to pay out on stocks donated to charities.

It’s a deceptively simple model being proposed and likely very appealing to start-ups who don’t have the time to set up their own foundation structures for donating profits to charitable causes.

Charitable futures

Janie Goldstein, the foundation’s executive director, told CharityVillage the first thing to note was that her organization’s status still had to pass muster with the Canada Revenue Agency (CRA).

At the time of writing, the CRA was still reviewing the foundation’s application for certification in Canada.

“We sent in our application package, and it’s pending. They’re in the midst of reviewing it. Our accountants and lawyers are following up with them on some last questions. We don’t anticipate any major stumbling blocks,” Goldstein said.

Once certified by the CRA, how does will this giving model work?

Goldstein said that her foundation’s accountants and lawyers have created a simple process for venture capitalists and start-ups.

“We know that startups not only don’t have cash, but they don’t have time. So they need only go onto our website. There’s a section there where they can enter their company name. They’ll get sent some more information on what to expect and how to proceed. They make a decision on what percentage they want to donate in terms of [stock] options” – typically about 1%, according to Goldstein – “and we have prepared forms that the start ups simply have to run by their boards and then return. Then they’re done,” she said.

3. 2. 1…launch

The foundation chose now to launch because in talking with similar foundations in Israel and California, the foundation’s board noted a void in this form of giving in Canada.

The Upside Foundation model is patterned after those of its affiliates: Tmura, an Israeli Public Service Venture Fund and the Silicon Valley Community Foundation (SVCF). Both are nonprofits that “operate successfully in several high-tech centres,” according to the Upside Foundation’s website.

Both Tmura and the Silicon Valley Community foundation have distributed millions of dollars to charitable causes. Tmura has raised some $6.5 million for its charities since its founding in 2002, while the Silicon Valley Community Foundation bills itself as “one of the U.S.’s largest foundations, holding “$2 billion in assets under management and more than 1,500 philanthropic funds” since launching in 2007.

It should be noted that SVCF also administers a US-registered charity called the Entrepreneur’s Foundation of SVCF (EF). This charity provides consulting services on corporate social responsibility and philanthropy, for a fee, to companies looking to augment their corporate citizenship profiles. Tmura lists itself as part of the EF worldwide network.

According to EF’s website, the charity provides the opportunity for businesses to “join EF as members for access to a wide variety of services and resources, including strategic and practical support for their philanthropic efforts. They can also engage EF for fee-for-service consulting or set aside pre-IPO stocks and shares.”

Asked whether the Upside Foundation planned to join the EF network, Goldstein said her board was not familiar enough with the intricacies of the interrelationships between those US organizations. She added that her organization doesn’t intend to provide fee-for-consult services and is instead focusing on staying a volunteer organization focused strictly on signing up new donors.

“I believe that entrepreneurs and the venture capital community in Canada want to be charitable. But they don’t have cash and they don’t have time. Our board thought it was time for something like this to come up here,” Goldstein said.

The Upside Foundation began talking with the two abovementioned organizations about a year ago and started planning a hybrid model that would work well in Canada. After speaking with KPMG, Bennett Jones and MarketingWise, a boutique branding company in Toronto that donated its resources for the foundation’s website, Goldstein said she felt the time was right to introduce the concept to Canadians.

“I have lofty goals for Upside. I think we can get a high percentage of our start-ups pledging options and it could become the way we do business in Canada,” she said. “Ideally, other countries would then look to Canada and see it as one of the many things that define Canadians and how we work. We’re making it easy for the start-ups to share a small percentage of their upsides. Canada needs this.”

The Upside Foundation claims to have taken all the legal and accounting complexities out of start-up’s hands. It’s managed to obtain the services of renowned law firm Bennett Jones and national accounting giant KPMG to support it; all pro-bono, according to Goldstein.

She and the rest of her board are all volunteers and she states that 100% of any profits from stock options towards partner charities will flow through. The foundation doesn’t take a cut.

With regards to whether the foundation plans to vet potential donors or charities, Goldstein said that the foundation’s board is “experienced in the venture capital community in Canada” and directors are familiar with most of the backers of start-ups in the country. “The venture capital community in Canada is relatively small. So most of the start-ups we’ll hear from, we’ve likely heard about before.”

She said that charities need to understand that it’s hard to predict which start-ups might succeed, and thus eventually might get bought out or go public making their stock profitable and pay-out to partner charities. The foundation will advise all charities that they shouldn’t bank on this revenue in the short term or even plan on it for long term budgets. That said, since there is no cost for charities to opt-into this program, any money they do see in the future is a windfall.

However, she said if ever there were a hint that a company or charity is part of an unethical set up, some closer vetting would occur.

Speaking of charities…

Goldstein said her foundation is currently not accepting proposals from charities to be recipients.

“Given the nature of our business model, it’s going to be awhile before we’re ready to select specific charities. Because the start-ups will need to grow, mature and actually have that upside,” she said. “In the meantime, rather than have charities approach us and fill out forms and the like, we’d rather them save their energy.”

Instead, charities are encouraged to sign up to join the foundation’s online mailing list so that they can receive updates on progress and be notified when it is ready to receive applications.

Ask not what your charity can do, just wait for now

Asked whether the Upside Foundation has targeted any charities in its preliminary planning to reach out to once the program is fully operational, Goldstein said: “none specifically.”

“The important thing for the foundation to be successful is to first get the start-ups to sign on and pledge the [stock] options. We’re not looking at the charities yet; though we know the areas we want to focus on – education, poverty and technology. But again, charities should not be approaching us yet. It’s really going to take a while,” she stressed.

But would a start-up that asked the Upside Foundation to pledge stock to a specific charity be considered?

“The charities need to be unaffiliated and registered in good standing with the CRA. Ultimately, we want our donors to feel good about where their money goes. So we would make sure we work with them to make sure they feel that way,” Goldstein said.

Consult-a-rama

Is the Upside Foundation consulting with other foundations or charitable organizations in Canada? Goldstein wouldn’t go into detail. However, she said that part of the foundation’s work now is to benchmark and get advice from established players in the nonprofit sector about how it might best fit into the landscape as a new organization and new model for giving.

“We’re happy to learn from anyone who can give us some advice out there in the sector,” she said.

So is this a good idea? Do you think charities will benefit from this? Could this revolutionize how charities and for-profits coexist and help each other in Canada?

Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com.

Photos (from top) via iStockphoto. All photos used with permission.

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