Global Policy Forum

Donations Dried Up with Tech Stocks


By David Streitfeld

Los Angeles Times
October 13, 2002

As Nasdaq declined, so too did the grand charitable ambitions of onetime billionaires.

At the end of the last century, during that unimaginably distant time when Nasdaq was stair-stepping its way to the heavens, a new age of philanthropy was declared. Driven by motives as varied as peer pressure, egotism and a sincere desire to help others, technology executives made great gifts to higher education. They established private foundations. They funded pet causes and devised charitable projects.

The remarkable thing wasn't just the amounts of money being committed, although they could be jaw-dropping. It was the scale of the ambitions. "After the so-called failures of the Great Society programs in the 1960s, there was a wariness about trying to tackle big issues," said Steven Lawrence, research director for the Foundation Center. "In the 1990s, you finally had people willing to conceive of attacking intractable problems."

One new billionaire said he was setting up an online university that would offer a free "Ivy League quality" education to anyone. Another announced his goal of preventing damage to the water, air and land. A third said he was pledging $100 million to fulfill a vision of "children in Africa asleep in safe shelters, alert in their classrooms, with hope and joy in their eyes, replacing the pain and confusion."

Although many heroic ventures were announced and some even achieved, many have been shelved or quietly abandoned. "The so-called New Renaissance of Giving was as real as Internet stocks," said Steve Kirsch, a Silicon Valley philanthropist who has seen the value of his foundation fall to $15 million from $70 million. "I don't think anyone's trying to pretend they're doing great things."

Michael Saylor's online university was one of the most-hyped philanthropic declarations of the boom, making headlines around the country in March 2000. The founder of MicroStrategy Inc., a Virginia software company, Saylor offered a remarkably detailed account of his plans. He had put up $100 million for his "cyber-Library of Congress," he said. He would be hiring curriculum experts, writers, editors, technicians. In the next few months, lectures by the world's "geniuses and leaders" would be taped. In the next few weeks, Saylor told the Washington Post, he would announce endorsements "from senators, Cabinet-level people, well-known educators."

It was all so believable. And why not? MicroStrategy was valued at $25 billion and Saylor owned half of it. The money had come very fast, most of it as MicroStrategy stock soared in the previous year. Saylor was well-known for being impatient. He would make it happen. Since Saylor's splashy announcement, however, there has been silence. MicroStrategy has crashed, along with Saylor's personal wealth. The stock market value of the company is $94 million, less than the donation he said he made to his foundation.

At the end of 2000, tax records show, Saylor's private foundation was worth $15 million. It's unclear what, if any, toll the subsequent decline in the stock market has taken on that sum. Saylor declined to be interviewed about his foundation or the university. "It's not something he likes to talk about," said MicroStrategy spokesman Marc Brailov. "When he announced it, our stock was over $300 and the economy was going robustly. Now it's a much more challenging environment. His focus is on his business."

Cutting-Edge Research

Nanovation Technologies Inc. also was keen on higher education, but made its contribution in a more traditional way.

In January 2000, the Massachusetts Institute of Technology announced that the Michigan company was donating $90 million to fund a "cutting-edge research facility" in photonic, microphotonic and nanophotonic devices. Photonic technologies enhance and speed up data transmission, offering a significant building block for super-fast Internet connections. Only $4 million of the pledge was paid, an MIT spokesman said. Nanovation filed for bankruptcy protection a year ago.

Other foundations are no longer stressing the size of their asset base. Instead, they're emphasizing the quality of their projects. Philip Berber founded online broker CyBerCorp, which was acquired by Charles Schwab Corp. for $488 million in March 2000. Shortly afterward, Berber and his wife, Donna, started A Glimmer of Hope, described on its Web site as "a global foundation that seeks to relieve some of the pain and suffering on the planet," particularly in rural Ethiopia. A news release on the site dated August 2000 says it was started with a pledge of $100 million from the Berbers.

It was an exceedingly generous gesture by a couple with an ambitious, even noble, idea. But its latest IRS tax return, from 2000, says that contributions to the foundation that year totaled not $100 million but $108,500. "How we arrived at that number, I don't even remember," said Michael O'Keefe, the foundation's communications director. "The $100 million was a pledge. How much was paid in, I don't know. My paychecks clear, and that's all I can tell you with regard to finances." In any case, O'Keefe said, all mentions of the $100 million are being purged from the Web site. "That was attracting all the attention. We want the focus to be on what we're doing, which is an even bigger deal," he said.

Among the large foundations begun with technology money, the Bill and Melinda Gates Foundation is an exception. It has held on to its value--$24 billion at last report. Others have not fared nearly as well. The David and Lucille Packard Foundation awarded $616 million in grants in 2000, making it the largest benefactor in Silicon Valley. Stung by the decline in its core holding, computer company Hewlett-Packard Co., the grants will fall to $250 million this year and to $200 million next year.

The Turner Foundation, started by AOL Time Warner Inc.'s vice chairman, Ted Turner, had been making grants to hundreds of environmental groups. Last year, the foundation paid out $70 million, leaving it with only $148 million in assets. Ted Turner's wealth is tied up in AOL stock, which has declined precipitously. With his ability to replenish the coffers diminished, the foundation recently said it would not accept new funding requests next year and in 2004 the grant process would be "by invitation only."

In 1997, Turner grabbed headlines by making an impetuous gift of $1 billion, payable over 10 years, to the United Nations. "I came up with the idea on the spur of the moment," he said in a 2000 interview with Modern Maturity. "It was a third of everything I had at the time." To date, $373 million has been paid, which means Turner is more than $200 million behind schedule. The foundation says Turner is not behind because of a decision this summer to extend the life of the charity beyond the initial 10 years and spread his $1 billion over a longer, yet-to-be-determined, time span.

Projects Scaled Back

His other large pledge also is in arrears. When the Nuclear Threat Initiative was set up in January 2001 to eradicate weapons of mass destruction around the globe, Turner committed $50 million a year for five years. Payments so far have totaled $26 million. Given the decline in AOL stock, NTI says, it would be "inefficient" to ask Turner to sell more now. As a result, the organization said, it is funding only "the most urgent and time-sensitive projects," including "facilitating the elimination of highly enriched uranium at nuclear power and research reactors in Kazakhstan."

NTI declined to discuss Turner's gift beyond its statement. No one wants to blame a philanthropist for being over-generous, least of all those who were counting on a share of it. In fact, it's almost impossible to renege on a pledge. "You know how a loan shark threatens to break your legs if you don't pay up right now?" says one university fund-raiser. "Well, we're exactly the opposite. We say, 'Oh, you can't do it in five years? Take 10.' Even if you're broke, we just pretend someday we're going to get the money."

At a September conference of Ivy League fund-raisers, reports one attendant, the talk was that "at every university, major pledge gifts were being lengthened." Stanford University is in such a position with several major donors, said Tim Portwood, director of university campaigns. MIT, which like Stanford has been the recipient of much tech largess, was even more discreet. Asked about a number of high-profile benefactors, the school said only that they were all "loyal supporters of our efforts."

During the boom years, no one was so shy. Perhaps partly as the result of media questions about whether fabulously wealthy Silicon Valley was generous enough, some of the new rich were quick to talk about sharing their windfalls.

From 1991 to 1999, the number of active private and community foundations in California increased to 4,208 from 2,702. In 2000, powered by the New Economy, the total jumped to 4,948. It was downright fashionable to have a foundation. "Some part of the growth in the 1990s was because of people saying, 'Oh, so-and-so has a foundation now, why don't I?' " said Lawrence of the Foundation Center.

Family foundations allowed entrepreneurs to lavish money and, almost as important, the resulting publicity on cherished causes. Katrina Garnett, founder of CrossWorlds Software and one of the few prominent women in Silicon Valley, started the Garnett Family Foundation to encourage young women to pursue computer science careers. In 1998, the foundation sponsored a weeklong computer camp at Stanford for high school girls. "There's no reason we can't go national eventually," Garnett said at the time.

But by 2000, her interests seemed elsewhere. The foundation paid $11,659 in consulting fees that year, according to tax records, but the only disbursement listed was $3,332 to the San Jose Tech Museum. Garnett didn't respond to an e-mail, but an associate confirmed that the foundation is being shut down.

Checks Have Stopped

The Garnett Foundation at least got off the ground. Steve Toben of the Flora Family Foundation remembers one family, whose net worth had risen from $500,000 to $100 million almost instantly, thanks to their software company. The family members were soliciting Toben for advice when the slide began.

Before they could decide what kind of foundation they wanted, their net worth was back to $500,000--not even enough to buy a house in Silicon Valley. "The money came very quickly in Silicon Valley, and it often disappeared just as quickly," Toben said. "There's a sustained interest in social ventures, but people have stopped writing the checks."

During the boom, Silicon Valley became a laboratory for more-innovative forms of philanthropy. The Entrepreneurs Foundation was designed to help start-ups develop charitable programs. In return, they would give a tiny slice of their stock to the foundation. If only a few of the companies went public and turned into the next EBay or Yahoo, the resulting war chest would fund many programs.

But of 93 companies that gave the foundation stock, 18 have died, more have merged and some are "inactive," Entrepreneurs Foundation President Steve Scheier said. "We're not paying a great deal of attention to our list of stocks now."

At Cisco Systems Inc., so many millionaires were being created that the company invented the position of "giving counselor" to help them deal with it. The position was created two years ago just as Cisco stock began tumbling from $60 a share to $15. The counselor's role has broadened into areas such as volunteerism, spokeswoman Tae Yoo said. "Before, you had money but no time. Now you have no money, so you can eke out time to do volunteer work."

When the United Way of Santa Clara County, in the heart of Silicon Valley, declared an $11-million shortfall in 1999, Steve Kirsch, founder of Internet search company Infoseek, asked, "How many millionaires came forward?" Two, he answered: himself and Intel Corp. co-founder Gordon Moore.

Most of those interviewed were much more upbeat, displaying the perennial hopefulness of Silicon Valley. "The residual effect of the boom years has been a much heightened consciousness about social responsibility," said the Flora Foundation's Toben. "They caught the bug. We're going through a bad hit now, but the bug will persist."

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.