High impact philanthropyHigh impact philanthropy

Steve Kirsch

www.kirschfoundation.org

www.skirsch.com

MISTAKES HAPPEN

Philanthropy is like DragnetPhilanthropy is like Dragnet

• Lot of stuff going on in the world

• Sometimes, things go wrong

• When they do, I go to work

• I am a philanthropist

DISCLAIMERDISCLAIMER

• I am not your typical donor

• Do not try these techniques at home

• If you are thinking of trying this, you should seek professional help

AgendaAgenda

• About our foundation

• About giving

• Strategic philanthropy

• Non-traditional giving

• Mistakes

• Results

About Kirsch FoundationAbout Kirsch Foundation

• 501(c)(3) Supporting organization; $50M endowment• Give $4.5M to $8M/year, ~100 to 150 grants, 6 full time

staff people; Medical advisory board• Goals we could accomplish in our spare time

-Ensure world safety-Cure all major diseases-Restore the environment-Improve politics-Improve education-Support the local community-Encourage philanthropy-Battle the forces of evil: government stupidity/arrogance

My secret motivationMy secret motivation

• To see my smiling faceon the cover of the Rolling Stone …

• …and buy 5 copiesfor my mothing

Why give?Why give?

• To benefit everyone (including ourselves)

• To achieve certain goals we think are important to make the world a better place

• Ideal investment is both- High leverage (ROI) and- High impact

Example of high impact giving: Carnegie Foundation

Example of high impact giving: Carnegie Foundation

• Donated $5.2M 100 years ago

• Built 65 public libraries

• Still in operation today

• Moral: A small one time donation can have a bit impact

Some things that make us different

Some things that make us different

• Invest in people, not projects• Long term commitments• People dedicated to environment, medical, politics• Invest endowment in private for-profit companies• Involved in politics when needed to achieve goals (e.g., ZEV

program)• Encouraging collaboration between foundations• Look for “market opportunities” such as NEOS which have a

great ROI but little visibility• Fund “gaps” (e.g., experienced researchers, stem cells)• Fund hair loss research

AgendaAgenda

• About our foundation

• About giving: A personal perspective

• Strategic philanthropy

• Non-traditional giving

• Mistakes

• Results

Giving statistics in Silicon Valley

Giving statistics in Silicon Valley

One of the richest areas on the planet, but…

For high net worth households (assets >$1M not including their home) :

• 45% give < $2,000/yr

• 6% give $0

Source: Community Foundation Silicon Valley

United WayUnited Way

• Sept 99: $11M shortfall• Richest place on the planet (65,000

millionaires in Santa Clara County)• We waited 2 weeks for something to

“happen”• We were the first to step up with a $1M

donation• Only 2 other individuals matched it: Gates

and Moore• Only 15 people gave >$1,000

“I worked really hard to make it”

“I worked really hard to make it”

“… we’re talking REALLY hard

…nights…weekends…holidays…

gave up sex for 2 years…

(not that I was getting any before the startup)

“Now you are asking me to give it away?!?”

“Are you nuts?”

Why don’t people give?Why don’t people give?

• Just earned it/want to enjoy it• Want to ensure have enough to have lavish lifestyle for rest of life, even if

something goes wrong• If I don’t, someone else will, so why should I?• Lack of time• Focus all cycles on business• Greedy/ego• Like writing your will or going to dentist; it’s good for you, but low on the

priority list• Lack of knowledge of how to do it• Never really thought of a cause that resonated• Lack of understanding of the benefits of enlightened self interest• Lazy/afraid…”hit reply key if you support clean air”

How it is supposed to workHow it is supposed to work

• You start an Internet company

• At IPO, you are worth $2.5B, but you can’t sell any shares

• So you donate 10% ($250M) to a charitable fund

• You get a nice writeoff and you get to make donations to your favorite causes for the rest of your life without an additional investment

A tale of two Larrys(a true story)

A tale of two Larrys(a true story)

• Larry #1- Worth $2B at IPO in 1999- Too focused on his business to make a gift to charity- Stock has gone from 240 to 1.7 today. He’s now worth

<$10M.

• Larry #2- Also a billionaire- Gave $100M to endow a charitable fund. Asked top

scientist in aging to donate over 5 years- Largest private funder of aging research in the US - Business doing fine. He’s now one of richest people in

the world

Giving strategyGiving strategy

Make periodic small donations as your stock rises

Many notable philanthropists regret not having taken advantage of this strategy. Don’t make

the same mistake.

How to donate to charities when your stock is locked

up

How to donate to charities when your stock is locked

up• Your stock seems to always peak when you

are locked up… but...

• You donate the stock; the charity shorts other shares

• Allows you to give charity lots more money AND gives you a bigger writeoff

• Typically done through a community foundation so you can decide later where to give and how much to give

“Where do you want your estate to go tomorrow?”

“Where do you want your estate to go tomorrow?”

CHOOSE ANY TWO:Family

Taxes

Philanthropy

Who would you rather invest your dough?

You? Or the government?

The best things in life aren’t all that expensiveThe best things in life

aren’t all that expensive• House

• Car

• Vacations

• Subscription to Fortune

• Replay/Tivo box

• Private jet

• Assets for guaranteed income for rest of your life

So now what?

So we had a choice...So we had a choice...

• Sit on our assets

or

• Put those assets to work in a way that will benefit:- ourselves- our kids- future generations of our family- our friends and community

Why give youngWhy give young

• No tax advantages to giving after you are dead

• No personal satisfaction to giving after you are dead

• Giving can ultimately benefit you or your family

• Reduce current tax burden

presbyopiahair losssleep apnealactose intolerancepsoriasisreceding gumsnear sightedtorn ACLtype I diabetes macular degenerationtinnitus

ExampleExample

• Ten years from now, you might be diagnosed with:- Heart disease/stroke- Cancer- ALS, Parkinson’s disease, …

• At that time, starting a giving plan will be too late to have an impact on your health

• In hindsight, would you think keeping your assets sitting in stocks was the right move?

Take an objective look at yourself

Take an objective look at yourself

What kind of person do you want to be?

In “A Christmas Carol,” did you like Scrooge better

BEFORE

or

AFTER

?

Virtually all who try philanthropy stick with it

Virtually all who try philanthropy stick with it

• 100% donor satisfaction at CFSV:-No donor advised endowment funds have closed (except if the donors move)

• Problem is that it takes them a while to “break the code” to figure out that giving early is good.

- Bill Gates is very smart and it took him years to figure this out.

Giving can be pragmaticGiving can be pragmatic

• Doesn’t need to be altruistic; can be totally pragmatic

• Example- We give because we get a higher return on our

assets - Our one-time $80M donation may cure cancer,

diabetes, or arthritis; save the world; help reduce pollution; …

- Was that a good use of $80M? Or should I have invested it in stocks? For whose benefit?

Giving can be purely in your self-interest

Giving can be purely in your self-interest

• Or giving can be in your self-interest

• Example: donate to causes that affect or may affect you or your immediate family

-aging research-heart disease-asteroids

“Why Give?” Summary“Why Give?” Summary

• We DO give to make a positive difference in our own lives and the lives of people we care about.

• We DO NOT give -out of a sense of obligation-payback -civic duty -because it is “the right thing to do”-“to create a legacy” -because it is fun-because we have nothing else to do-because we like to see our name in print-to feed our ego-to get our picture on the cover of Worth-to win awards-to win friends or social status (keep up w/Ken Lay)-to atone for being wealthy-to get invited to all the cool fundraisers-to get preferred seating at fundraisers-to avoid income tax

Why giveWhy give

• Your wealth gives you an opportunity to make a difference

• If you don’t take advantage of it, who are you trusting to look out for your interests?

• We are the leaders we’ve been waiting for

• One person CAN make a difference

AgendaAgenda

• About our foundation

• About giving: Why give?

• Strategic philanthropy: Where?

• Non-traditional giving

• Mistakes

• Results

Traditional philanthropyTraditional philanthropy

• Donate to American Cancer Society, United Way, public TV, etc.

• “s.o.b.’s”: symphony, opera, ballet

Reactive approachReactive approach

• You wait for people to ask you for money

• You evaluate each one without a scoring system, a context, or a budget

• Semi-reactive: You say that you fund area X and evaluate proposals that are relevant to area X

Life changing adviceLife changing advice

• SK: “What is the secret? How do you separate rich people from their money?”

• LE: “You know, there are some people in this world who want to give money away.”

• SK: “Oh…so you are doing them a FAVOR!”

• I later came to the conclusion that it made more sense to be someone who knows what they want and gets it instead of being someone with a lot of cash and no purpose

Strategic approachStrategic approach

• Figure out the areas important to you• Create a vision and a set of annual goals• Create a strategy/plan to achieve the goals• Fund and/or initiate projects consistent with

the strategy• Create your own criteria for evaluating grants

(I have 13 that total 100 points)• Make a long term commitment• Realize that results are often hard to quantify

How it works in real life(sometimes)

How it works in real life(sometimes)

• I read in Time about how we just had a near miss from an asteroid

• Say to myself -Wow! That is really brain dead that they aren’t spending $50M to save 6B lives. -Someone should do something!

• Look in mirror• Bottom line: I get pissed off and use

philanthropy to combat the stupidity and/or arrogance.

3 top criteria3 top criteria

• Fit with our goals?

• Will outcome be really useful or solve a problem that pissed me off?

• Are they likely to achieve their goal-People-Funding outlook-Track record-Approach

My historyMy history

• Started with a donor advised fund at the local community foundation 10 years ago

• Added to it over the years

• Switched to a supporting organization so we could invest assets more aggressively, hire a staff, and lobby

To apply: Some rulesTo apply: Some rules

• Don’t bother us if you don’t fit our criteria- The spreadsheet we post is for your benefit- Ignoring it wastes your time and ours

• Keep inquiries simple and short and compelling.

-Don’t bombard us with information.

How to make me feel truly valued

How to make me feel truly valued

• I don’t care about “Thank You” letters or recognition.

• I do it for results

• The best way to thank me for my contribution is achieve the goal you set out to achieve.

-Show me it worked!

AgendaAgenda

• About our foundation

• About giving

• Strategic philanthropy

• Non-traditional giving

• Mistakes

• Results

Selected charitable projectsSelected charitable projects

• NEOs• Catalyst for a Cure• Curing cancer• Junk faxes• Terrorism• Environment/Energy• K-12 education• Political reform

NEOsNEOs

• NEOs=“Near Earth Object”• Your chance of dying from asteroid hit is 1 in

20,000; ~ same as a plane crash• Your chance of winning the California state lottery: 1

in 41 million.• Therefore, asteroids are a certainty • #1 most likely reason the earth could end tomorrow• When a 6-mile-wide asteroid slammed into Earth 65

million years ago, it wiped out the dinosaurs, about 80 percent of the world's plant species, and all animals bigger than a cat.

NEOsNEOs

• What I don’t understand is this:-People buy lottery tickets...-Our government spends BILLIONs on missile defense but virtually IGNORES the statistical certainty of an asteroid hit that is PREVENTABLE if we spend the $2M/yr for the next 10 years

• Someone should do something!

Catalyst for a CureCatalyst for a Cure

• Collaboration with Glaucoma Foundation

• Brings together scientists from different fields to collaborate on new approaches

• Pick areas where there is potential for a breakthrough

• Replicate in other areas (spinal cord)

TargesomeTargesome

• Large molecule technology for targeted delivery of drugs

• Chemo therapy can be delivered only to sites of angiogenesis resulting in a quick elimination of cancer without any side effects

• Same technique can be used to image cancers which are too small to detect

• Today have fantastic lab data, partnerships with leading drug companies, and NCI

• I provided initial funding. Unlikely to have received funding without a charitable investor

• The whole donation resulted from follow up from a chance meeting, not proactive research on my part.

Junk faxesJunk faxes

• Fax.com sends out 4 million junk faxes a day, all in clear violation of state and federal law..wake you up… tie up your resources

• I got pissed off at getting 4 faxes for an illegal credit repair scheme from a company that keeps changing its name and location. “Now only $99!”

• Got pissed off and did a lot of research and phone calls and e-mails. I am responsible for:

- a comprehensive website on the topic- getting the California state AG to sue fax.com- getting ….. to file a class action against them- filing 20+ lawsuits on behalf of my company- getting their Sacramento lobbyist to drop them as a client- getting key California Senators to change their vote to support the federal ban through arguments tailored to them

Junk faxes…so why should YOU care?

Junk faxes…so why should YOU care?

• Plan to sue them for $250B and…

• … donate the recovery to charity!

• We tried to get a hospital or university to be a plaintiff. Judge would award $50K participation fee.

• So I thought this is a nice way to be like Robin Hood… legally steal from the bad guys and give to the poor guys

• Result: Most can’t make a decision.

National securityNational security

• How many terrorists are in the room today?

• Way too expensive and inconvenient to secure every resource

• Much cheaper to keep terrorists from entering the country

• A reliable “lie detector” that can give you an instant, unambiguous result can save billions of dollars

Environment/EnergyEnvironment/Energy

• Cars are the #1 contributor to oil use, pollution, and GHG• Washington’s plan: “Business as usual, but we’ll invest in

FCVs and provide incentives and try to keep secret who we met with.”

• Why so secretive about energy when Republicans said we MUSTNOT be secretive about national policies developed by a Democratic President?

• We need more. -Can you imagine what would happen if there were no standards on electrical voltage or the shape of the plug?-Why not apply the same strategic planning process you do for winning elections?

• We need a clear goal, some clear decisions, and all the wood behind one strategy and one plan: H2 direct FCV’s.

• Gephardt and Lieberman were the first to “get it.”

EducationEducation

• TIMSS: 42 countries. We did better than South Africa and Cyprus.

• Our top 10% kids = Singapore’s worst 15% kids

• Urban HS dropout rates: 50% typical

• So how do we get to international parity? Piecemeal changes?

Bush approachBush approach

• High standards, testing, accountability, and local control.

• If you do all of these things, does it work?

• Let’s look at Texas…

K-12 educationK-12 education

• Washington: “Accountability is the answer.”• My response: “You are insane. That has never

proven to work in the past, so why should it work now?”

-US teachers are under paid and unqualified, there is no pay for performance, principals can’t fire a bad teacher, you have no national standards, and insufficient resources to get the job done. -You cannot hold anyone accountable who you haven’t given the resources, training, experience, and authority to succeed.

• This isn’t rocket science. Why not just copy what works in other countries? DUH!!!

Financing the Bush planFinancing the Bush plan

• What they say:-“Education is the #1 most important problem in America today.”

• What they do:-Spend $1.6 trillion on a tax cut to benefit the rich but only increase education spending by $4.6B which is too small to have any impact and still aren’t funding special ed as required by your own law (“unfunded mandates”)

Why we get involved in politics

Why we get involved in politics

• To accomplish our goals:- Medicine: Stem cells- Environment: CAFÉ, ANWR- Political reform: McCain-Feingold/Shays-Meehan- Asteroids: Funding for NEOS- World safety: Nuclear arms control- Education- Energy

• Huge leverage• To balance special interests• I also have a 501(c)(4) for additional political advocacy

beyond that allowed by (c)(3)

Political reformPolitical reform

• Difficult to get some key legislation passed if there are special interests influencing votes

• Public financing is the best solution and is working in 4 states

• Our job: -Put Clean Money on the ballot in 2004 in Calfornia-Get rid of or increase term limits to eliminate the brain drain.

• All of this is not sufficient. We still seem to struggle with electing effective leaders. How is it possible that in 2002 America still does not have a long term energy plan?

AgendaAgenda

• About our foundation

• About giving

• Strategic philanthropy

• Non-traditional giving

• Mistakes

• Results

Our biggest mistakeOur biggest mistake

• We were too aggressive. Our endowment went from $50M to $95M then to $30M

• New policies:- Never put more than 5% of equity in any single stock and 25% in a sector.- Always keep 12 to 18 months cash on hand

AgendaAgenda

• About our foundation

• About giving

• Strategic philanthropy

• Non-traditional giving

• Mistakes

• Results

Did we make a difference?Did we make a difference?

• Hard to measure- Funding NEOS discovery- Funding nuclear disarmament- Funding medical researchers- Funding campaign finance reform; now focused on

California initiative- Kirsch medical investigators

Did we make a difference?Did we make a difference?

• Medical- Cured cancer in rabbits- Got CFC funded/started- Swayed some votes on cloning

• Helped clean up the air- Passed AB71 and designed the sticker- Got CO2 bill passed Assembly- Got key US Senators to think differently and strategically about energy- Got 20 leading energy experts to develop an energy business plan- Swayed votes on CAFÉ standards- Got tow-away signs posted at SFO EV parking- Free parking for EVs in San Jose

• Helped fund various charities• Reduce junk faxes• National security/Durbin bill new provisions• Helped education; Funded buildings at MIT and DeAnza

My approachesMy approaches

• Promote responsible plans with goals and credible strategies

- Energy

• Encourage people to “copy what works” and make the obvious decisions

- Education

• If it isn’t working, try something different- Medicine/Catalyst for a Cure in glaucoma

• Keep an eye out for market opportunities- NEOS- Targesome

SummarySummary

• Start now, no good reason to wait• Easiest way to start: DAF at a local CF• Spend the rest of your life spending someone

else’s money!• Be strategic; set measurable goals• Hold yourself accountable for results• Pick a cause you are passionate about and

get involved• One person can make a difference

Reforming politicsReforming politics

• Cranston: “Campaign finance reform”• Powell: “The other systems are worse”• Wyden: “They think this is on the level”• No politician in Sacramento has said “let’s uphold the

intent or letter of the law.”• Politicians act in a way that their constituents

perceive is in their best interest (or based on polls), not in their true best interests

• Key:-Campaign finance reform-Helping to elect candidates you believe in through $ contributions, independent expenditures, research, …

Giving optionsGiving options

• Charitable Lead Trust (income to charity now, later assets pass to heirs)

• Charitable Remainder Trust (income to you now, later assets pass to charity)

• Donor advised fund

• Supporting organization to a community foundation

• Private foundation

Which option?Which option?

• Smart estate uses a combination

• CRT: Secure income stream for you

• CLT: Pass money to your heirs

• Donor advised fund: Under $1M assets; minimizes tax bite and maximizes charitable giving

• Supporting org: >$5M in assets; you can influence investments and donations

Easiest way to donateEasiest way to donate

• Gift appreciated stock to a donor advised fund at local Community Foundation (typically $25K minimum)

• E-mail* them whenever you want to make a grant

• After you make the donation, you spend the rest of your life giving away someone else’s money!

* For any progressive community foundation

Charitable fund advantagesCharitable fund advantages

• You can add stock (and liquidate) when your stock is locked up

• Can donate to fund when stock peaks; decide on recipient later

• Gift to charities at anytime from the fund

• Less hassle (no personal recordkeeping, no periodic stock transfers, e-mail donations)

Advantages of charitable fund

Advantages of charitable fund

• Endowment compounds tax free forever

• You get to give away an infinite amount of OPM and your annual grants will typically increase each year

• All this from a ONE-TIME donation!

Kirsch FoundationKirsch Foundation

• Hired CEO

• Recruited world-class medical advisory board (including Gordon Gill from UCSD)

• Currently- $80 M in assets - Donate $6M per year - Total staff of 5, including program officers in

medical and environmental areas

My recommendationMy recommendation

• Start NOW with a small donor advised fund

• Add to it as you become comfortable with the results and as your estate grows

• 10% of your net worth after taxes is a good starting amount

• Supporting organizations beat private foundations on every single metric

Education: copy what worksEducation: copy what works

• Spend 11 years studying what works in other countries. Create program that will work in America.

• Result: NCEE’s “America’s Choice”• Systems solution; adapts to local school• CPRE measured 50% to 100% test score

improvement after just 12 months in 3 states (takes 5 years to implement)

• In use today at over 200 schools• Trick to national adoption is in the packaging: large

monetary incentives for adoption, implementation, performance for any qualifying educational program.

• We must de-politicize this.