YC and Founders Pledge | Hacker News Reader

YC and Founders Pledge

blog.ycombinator.com

149 pointsdwaxe90 comments

I'd like to encourage founders who are participating in this to consider directing at least some of their pledges to support open source software. I don't think there are any YC companies which would have existed if it hadn't been for a large amount of open source software; if you want to maximize the impact of your donations, helping the projects which build tools the next generation of startups will rely on is a pretty good way to go.

(At Tarsnap, I mostly fund the FreeBSD Foundation and other BSD-related organizations, but that's primarily because those are the groups whose work I am most familiar with and can judge most effectively. There are plenty of other organizations doing great work with open source software which can benefit from funding; but of course I'd love to see everybody here supporting the FreeBSD Foundation too.)

I would similarly like to encourage founders to build a ethos of "giving back to the community" in their day to day companies. Even if the start up does not set the world (and stock market) on fire, the accumulated talent and energy would be of immense use in hack-a-days, in food shelters and of course in open source projects and conferences

We want your money tomorrow, of course, but just in case you don't make any, we will take your time and energy today :-)

Right. And at Tarsnap I do exactly that -- but Tarsnap is designed to be profitable. For startups which lose money hand over fist, it may be hard to justify making such contributions until after they're acquired.

And thank you for both of those things -- making a small profitable business and giving back to the community!

I am going to backtrack wildly here - I did not mean to imply your (very large) OSS contributions had not happened. I think your track record speaks for itself.

On reflection I was speaking from a worry that the majority of companies I have worked for did not / refused to allow OSS contributions, and that a lot of engineering talent was squandered on proprietary work of dubious value.

Fixing that seems like it would unleash enormous value across the economy / society.

As such startups are perhaps less relevant to the solution, but startups can be the sexy blueprints of the future, copied by others, so it might help.

Don't worry, I think I understood what you meant. I was just offering a possible explanation of why some startups might be better positioned to contribute later rather than right now.

For example, I don't think I saw any code contributions from WhatsApp to FreeBSD, and I know Tarsnap donated more to the FreeBSD Foundation than WhatsApp did pre-acquisition -- but when they were acquired and Jan Koum suddenly had money available, he made the largest donation the Foundation ever received.

So, if you can contribute now, great; if not, well, keep doing what you're doing, and if you're lucky enough to have a big exit hopefully you'll remember us at that point.

I'm glad to hear about the BSD donation.

And, I guess the status quo is ok, it's just we live in societies built off investments in open science and open standards and yet we privatise the value this created as if the prior foundations were just a natural phenomenon

This is approaching the crux of the GPL vs BSD philosophical divide, actually. Some people say "you used my work and made money from it? You should share", while others (myself included) say "you used my work and made money from it? Awesome, great to know that you managed to make something people wanted out of it".

I think this is a neat idea but I wish they would explain this in a simple sentence on their site instead of all the mumbojumbo.

Something like

This is a Donor-Advised Fund that is completely free to participate in. Donor-Advised Funds are the best way to give when you have a major liquidity event because: Reason 1 Reason 2 Reason 3

Join a community of people who want to do the same. This is useful for you because: Reason 1 Reason 2 Reason 3

> Donor-Advised Fund

This sounds more like mumbojumbo to me

It's a common term in this context, but would agree it's not completely Plain English either:

https://en.m.wikipedia.org/wiki/Donor-advised_fund

It's a common way to claim tax benefit now, but control (to some extent) giving in the future. E.g.,

* https://www.vanguardcharitable.org/

* https://www.fidelitycharitable.org/

These are great avenues for any employee that receives equity to 1. maximize their tax savings, 2. give to charities they care about (in the US). Any stock that's held for over a year that qualifies for long term capital gains can be transferred to a DAF like with Vanguard or Fidelity and you won't be taxed on it at all. Especially if you have a set budget for giving to charities this is a great way to maximize your dollar and extend your budget.

Yeah it wasn't clear from reading this article whether or not doing this up front has tax or other benefits that allow the ultimate donated amount to be larger, or it is just a precommitment device.

It allows you to significantly mitigate tax in high-income years (e.g., an exit) while providing a steady flow of money to charity even in lower income years.

Does the timing of the pledge have benefits or only the ultimate donation?

The tax deduction happens when the money (or stock/equity) leaves your (direct) control and is deposited in the DAF. Later suggested donations from the DAF to charities are not tax-deductible.

Dovor Advised Funds recently came under fire for having an overall poor track record of fund disbursement.

I wonder what mechanisms (if any) will be in place to make sure disbursements are made in a timely manner. Otherwise this runs the risk of being branded as a "tax avoidance maneuver by ever greedy SV billionaires".

I understand giving to charity is great and all but what about employees 10, 35, 97? So someone works hard at a start-up but they weren't among the first dozen or so to join then they likely get next to nothing from an exit. So how about, instead of a pledge to give to charity, founders pledge to give more equity to later employees so only a small handful are not the only ones to profit.

Everyone takes a risk joining a start-up. Many times employees use the equity as part of their compensation (right or wrong many do this). If you're joining a start-up that has taken this pledge then you know going in you're likely not going to get as much as another start-up.

I don't know this just feels like a way to neuter the company making it less attractive to future employees. How about, instead of counting our chickens before they hatch, we get founders who had a big exit to donate money to charity?

Came here to say the same thing. Donating to charities is great but why not donate and invest into your employees who may also happen to be your neighbors.

YC also encourages companies to spread more equity among the employees, and eliminate restrictions on exercising options when employees leave. http://blog.samaltman.com/employee-equity

Andrew Mason/Detour proposed something along those lines, but I haven't heard anything more about it since:

https://news.ycombinator.com/item?id=9336392

Ben from FP here. To be clear, founders aren't giving away equity - they are pledging a percentage of what they personally receive on exit. This doesn't reduce the equity that is available for other shareholders.

> To be clear, founders aren't giving away equity - they are pledging a percentage of what they personally receive on exit.

Which could be construed as equity for later employees.

> To be clear, founders aren't giving away equity - they are pledging a percentage of what they personally receive on exit. This doesn't reduce the equity that is available for other shareholders.

I never said they were giving away equity. A founder is taking a percentage of their money and, instead of giving it to their employees (like they should especially if you follow many of the YC essays and blog posts about giving more to your employees) they are pledging it to a charity.

Charity is important but this is just the wrong advice. Why would an employee join Company A over Company B when they know Company A's founders are donating some of their money to charity versus investing it back into the company in the form of, say, more generous employee equity package (because you can't have both).

I feel like this is equivalent to saying that if a founder decides she will buy a house if she exits, that she is denying employees of equity. Have I missed the point?

I suppose the difference is that it's pledged: everybody including the founder knows that they're reducing their share by X amount up-front. A house isn't publicly earmarked in that kind of way, and of course, it's money spent for the founder's direct benefit rather than given away.

So there's a temptation for people to say, "well clearly you're OK with reducing your compensation for [purpose X], why not for [arguably superior purpose Y]?"

I'm not sure it really makes sense to think of it that way but there is a distinction.

Now, a deal is a deal, and if they are not entitled to equity then so be it, and if you happen to be a little too late to the party then too bad, but employees work hard to create that value.

I'd probably feel bummed, envious and left out if a founder with their double digit (or multi million dollar) equities flat out proclaimed to give a portion of that to charity, essentially burning that cash from my point of view, when they could've just as well rewarded the employees. And in the startup world they are probably not even paid proper market value.

Classic case of the socialists' mindset that is rapidly getting prevalent in the valley; take from producers (employees/shareholders) and give to non-producers. That incentive structure is messed up; I know a great deal of people who would rather be on the receiving end of that equation without putting in the sweat equity and guess what? It's never ever going to be enough to appease them.

I know others already hit on it but since you replied to me: I would say those are not equivalent. With buying a house on exit you're planning on taking your money and doing something personal with it. When you're giving it to charity it's money you didn't need. If you didn't need the money, why wouldn't it go to the first employees (or even later employees) in the form of equity since they helped build the company? Surely many of them joined possibly at lower salaries to gain equity and now the founder(s) are simply giving it away to others?

See the difference? Emotionally this feels awful. I was involved in something roughly sorta similar and the amount of emotion and resentment is awful. I'm now convinced more than ever that EQ (emotional intelligence) is one of the biggest parts of running a business while keeping your best talent.

I see the good that can come from Founders Pledge but I also see it putting a company in a disadvantage in finding and retaining talent.

It's kind of disturbing to see (what I presume to be) a member of one of the best compensated demographics in one of the richest countries in the world suggest that while it's OK for a cashed-out founder to buy houses with their money (at least that's personal), before any of that money goes to a worthy charitable cause, other software developers should get dibs on it.

I feel like you could not have fully thought this statement through.

> It's kind of disturbing to see (what I presume to be) a member of one of the best compensated demographics in one of the richest countries in the world suggest that while it's OK for a cashed-out founder to buy houses with their money (at least that's personal), before any of that money goes to a worthy charitable cause, other software developers should get dibs on it. > I feel like you could not have fully thought this statement through.

I'm not sure I follow. Are you referring to myself being white, a male, my industry, the area in which I live? Why would my post, because of my race, gender, industry, area or country, make it disturbing whereas it may not have been otherwise? Where did I say other developers should "get dibs on" another founder's equity? Who mentioned "worthy charitable cause"? There are so few but I get the general impression you chose your words to try to make my comments appear worse than what they are.

When you give to charity you give money you do not need, correct? So when you pledge X percentage of your equity to charity while, at the same time, paying less than the average salary for your workers who are hoping to use their equity as another way of compensation should everything go well, you're saying that because it goes to charity and because of their demographics, everyone should feel fine?

I only talked about the emotions of such a decision. If someone tells you that they don't need a certain amount of money that they only made because of your and your team's hard work and you're being underpaid, you don't think you deserve to feel slighted? Because that's exactly what happens.

Next time, instead of trying to make me look like a monster for talking about feelings, how about we try to understand each other's view point and talk this out?

I don't think you're a monster; I meant what I said. You seem to be proposing not only that it's a better idea to give money to software developers than to charities, but that founders who give money to charities are somehow violating some norm or ethic --- after all, any dollar they donate to charity is a dollar that could have gone to a developer on their team.

I totally believe that's not what you're saying, but I'm struggling to find a logic in your argument that doesn't lead there. Help me out!

Maybe: pay your (startup) software developers enough to be able to donate to charity themselves.

Virtually all SFBA software developers make more than enough to donate to charity themselves.

Your argument is premised on the assumption that startup employees are being underpaid. If they are really being underpaid, why did they agree to join the startup in the first place? Why not pursue other career options where they won't be underpaid? We aren't talking about big companies like Google or Amazon, which have tremendous negotiating power; we're talking about startups, which by definition, possess little market power through which to distort wages. The idea that someone can point to a very competitive marketplace, and unilaterally declare that the goods are being "undervalued", goes against all free-market/capitalist principles.

> With buying a house on exit you're planning on taking your money and doing something personal with it. When you're giving it to charity it's money you didn't need.

And the founder could've easily continued to live in their parent's house. They don't need to buy a house either. And sometimes donating to charity is personal and necessary as well. Not everyone feels okay with swimming in giant piles of cash while other people need it more than them -- "other people" meaning charities. I don't work at a startup, but I pledge a significant portion of my salary towards many charities and free software projects. Why don't you do the same? It's not that I don't need my money (if you intend to invest your money then you technically always need more money), it's that they need money more than I do.

It is effectively the founder saying "I don't need/want as many shares as were allocated to me, but I value <charity X> more than the people who helped me reach this outcome." It's a big screw you to the later employees.

Do you feel the same about the Gates Foundation or executive managers who donate to Doctors Without Borders? To me both are admirable ways of treating private wealth, while splitting money with employees, investors, family etc is the step that happens before you end up with the private sum.

This is a classic case of expropriation from producers (employees and a corporation's stakeholders) to give to non-producers. What sort of incentive structure is being proposed here? This is bad bad bad.

If anything, Gates, Altman and the likes remind me of James Taggart from Rand's novel. A corporation has no duty to anyone other than employees, customers, shareholders and immediate stakeholders. It is hard enough to do right by that group of people and all forms of charity should be voluntary. What I'm getting from this is that will become some form of defacto obligation and this must be resisted lest we end up with a dystopian world while in pursuit of 'eutopia'.

No, there's a clear difference. One is precommitted to up-front, the other is how someone responds to an unexpected or unlikely outcome.

I know that "employees get screwed" is the hn conventional wisdom, but it's generally false. If a startup is huge success, there will be many wealthy employees. Companies like Google and Facebook created thousands of millionaires. Uber and Airbnb will likely do the same. Of course if the company exits for less than money raised, then yes, common will likely not be worth much, but that's the risk of startup equity.

Most successful startups aren't huge successes.

Most startups aren't successful period. If you're the 100th employee at a startup that sells for $30M, then no, you're not going to make a lot from that exit.

The economics of startups are such that the vast majority of the returns for both investors and employees are from the big successes, so if you're looking for $$, that's where you need to be.

> I know that "employees get screwed" is the hn conventional wisdom, but it's generally false.

It's generally true. 90% of start-ups fail within 5 years. If any employee banked on their equity as a form of compensation (which, yes we know you shouldn't, most do as start-ups typically pay below average salaries) it's now gone. Successes are rare.

> Companies like Google and Facebook created thousands of millionaires.

Source? I had heard it was a few dozen at Google and a few hundred at Facebook. Thousands seems a little high but I could be remembering the data wrong.

If a start up fails then the equity is worthless. That's how equity is _supposed_ to work.

As for Facebook and Google, you heard wrong. I worked at both companies and know quite a bit about how much equity employees got.

> If a start up fails then the equity is worthless. That's how equity is _supposed_ to work.

Correct. I never said anything to the contrary...

> As for Facebook and Google, you heard wrong. I worked at both companies and know quite a bit about how much equity employees got.

Data? I'm fine with being wrong but being told that and given nothing is...a bit unsatisfying.

http://www.nytimes.com/2007/11/12/technology/12google.html

Yeah but in your examples, the founders became multibillionaires. Quite a ratio there between founder and employee.

Beats me why Altman is steering the yc brand towards this socialism nonsense. First UBI,now this. Just build great companies and reward employees who make significant contributions and you'll have the eutopia you're so eager to create.

I really commend YC for supporting this. If my startup ever succeeds, I definitely have a duty to give back to the world which has given me incredibly luck (and benefits).

I just took the pledge and realized it would be nice to have a sliding scale based on exit size.

If I have a relatively small exit (<$10M), I would prefer to donate substantially less (maybe 10%) but for a larger exit I would scale up closer to 50%. Obviously I can still donate more if I want to, but it would be nice to pre-commit.

Also, it would be nice to include an option for employees.

This is amazing. However, what we need even more is a pledge for e.g. responsible disruption.

So companies could devote say 1% of their resources to modeling their effect on the world and compensating for (or designing away) the negative externalities they unintentionally impose. I know that is a much harder problem though, and I hope lessons from Founders Pledge can be applied toward it.

Kudos to the team for putting this together though — it's a great initiative.

This is an interesting idea. Are there good examples you could point to of analyses of externalities of a company? Other than an oil, or chemical company.

For a pure software company, is the answer ever much different than the amount of electricity they use?

Definitely. Here's a small sample.

Craigslist unintentionally decimated newspaper revenue from classifieds. http://www.forbes.com/sites/jeffbercovici/2013/08/14/sorry-c...

Twitter unintentionally created opportunities for crazy levels of harassment that bleeds dangerously into the offline world. https://www.buzzfeed.com/charliewarzel/a-honeypot-for-asshol...

Facebook unintentionally created an industry of hyperpartisan factless discourse that may be fueling demagoguery worldwide. http://www.nytimes.com/2016/08/28/magazine/inside-facebooks-...

That's just off the top of my head, without getting into companies like Uber & AirBnB, or ad targeters, etc.

All of these companies provide incredible value, and I mostly prefer to live in a world with them than without them. But it would be great to see more effort put toward mitigation of their unintentional excesses (and to their credit, all three are trying at least a little in various ways).

I wish Founders Pledge wouldn't break scrolling or include gratuitous, contentless animations. I also learned far more about what they do from Sam's blog post than from their website.

I can't view any of the individual donors on Chrome. I scroll to the section, see the top of a couple heads, and as I keep going down the page it reverse-scrolls a white bar and it's all gone.

What is this style of page? I see it everywhere, most egregiously Medium, where the title and some enormous graphic take up the first full screen and I have to scroll just to get to the content. I can't imagine it converts well, but I also can't imagine so many people using it if it doesn't.

Really similar to http://pledge1percent.org/ (with Marc Benioff of Salesforce and Scott Farquhar of Atlassian backing it).

As well as pledging a percentage of your equity, they're also pushing making room to donate 1% of your product and free up 1% of your employee's time to put towards good causes, so that it's part of the culture not just a happy side-effect of a possible exit.

Out of curiosity why are religious charities banned? https://founderspledge.com/faq

"The only restrictions are that the charity can’t be political or religious."

That adds quite a bias to the whole "YC and Founders Pledge" idea.

It would be quite amusing if a founder pledged to the Church of Scientology. I still sometimes forget that they actually do have tax-exempt status.

https://en.wikipedia.org/wiki/Church_of_Scientology#Classifi...

Why not donate it to your employees?

If I had to make a list of people whose lives would be most improved by some extra money, engineers in Silicon Valley would probably not be at the very top of the page.

I really like the idea of a pledge for founders but worry about the particular features available here.

The biggest red flag for me is that Founder's Pledge is touted as "completely free," but makes no mention of investment options being available for your assets.

So, while it may not be deducting an administrative fee, keeping your charitable assets with them is akin to leaving your 401(k) assets in cash, which will normally result in you having less funds to donate than if you had used a traditional Donor Advised Fund.

Unless a founder plans on distributing all of their charitable assets immediately (which I believe is atypical), I hope Founder's Pledge discloses that it may be in their best interest to transfer their funds to a Fidelity Charitable or Schwab Charitable DAF where assets can grow.

My (limited) understanding is it can be tax-advantageous for founders to give equity rather than cash. They can avoid capital gains taxes. So if a founder will give, best to do it this way. One can say they should be generous to their employees, but at some point they will still have wealth to spread around. And if you're giving it to charity, you might as well do it this way.

Similarly, when Warren Buffett and Bill Gates give their fortunes away, they do it via stock.

I haven't figured out a way to find the actual text of the agreement(s). Does anyone have it?

When I explored doing something like this in the past (a binding pledge via 3rd party under US law), one issue brought up by lawyers was that there needs to be some "consideration" http://www.nolo.com/legal-encyclopedia/consideration-every-c... ; I'm curious how they worked around that.

Once you click "I'm ready to make this official" in the signing flow, you'll see the full legal document pre-filled with your information before you sign anything. The consideration is access to our post-deployment resources, recognition on our website and invitations to our events.

Hmmm. Well, I just got to that point in the flow. It first required giving all your personal information (I put in fake stuff; also FYI the email went to my spam folder on gmail). There was no obvious way I could see to save the actual contract and show it to a lawyer before submission. I could only copy the image files of the text! I understand that you are working across multiple jurisdictions (so different templates), and using a 3rd party signing service, but I'm curious if there are plans to improve this. Let me know if you want UX etc. support for that; am happy to help!

Thanks for clarification re. consideration. (similar to what I considered for my binding pledge project, though yours is better!)

Thanks for the feedback - noted. In the meantime, can you send me an email (ben@founderspledge.com) and I'll email you the document as a pdf?

Are the donors creating a legally binding obligation when they sign up?

That's right - every founder involved has signed a legally binding contract. Ben, FP.

What is the consideration?

EDIT: Actually, I just saw the "English" version of the contract. The fact that you can give the contribution to charities other than what were selected would be a deal-killer in my mind, even through that scenario is unlikely to actually occur. I did not see consideration laid out clearly. It seems to say that your providing the service IS the consideration, but that feels weak to me. It feels to me like you are saying "If you give us X% of your assets, we provide the resources to let you, and use your name on our site to market it!"

Obviously, you have plenty of people who did not agree with me. And I applaud the spirit of it all. It just seems like the details need work.

I think Hampton Creek has had enough scandals that I'd avoid mentioning them for testimonial/social proof reasons.

Are we to take away from this that founder charitable giving is more important than employee equity compensation in YC's eyes? Wouldn't make me want to work at a YC company.

> charitable giving is more important than employee equity compensation

You are probably assuming that employees are definitely under compensated.. what about the case when founder owns only 5% and still wants to donate a part..

> You are probably assuming that employees are definitely under compensated..

Seems like that would be pretty typical. Start-up companies, especially YC start-ups, pay under the average for engineers. At least that's been my experience shopping around for a job. So I would expect them to all be under compensated.

> what about the case when founder owns only 5% and still wants to donate a part..

Seems pretty atypical.

> You are probably assuming that employees are definitely under compensated

This is a reasonable assumption about startups.

This is a good initiative. Muslims like me have to already give out a fifth (%20) of their earnings every year called Khums https://en.wikipedia.org/wiki/Khums

We also believe from numerous Hadith's that the money comes back in double for those that give. As they say, you can't take with your palms closed.

Do you consider earnings to be "spoils of war"? Or has the tradition just evolved to include all income.

That depends, for my sect, Shia, it's solely business profit. If no profit, then no Khums.

Islam has lots of very different (from a Western perspective) personal finance rules. Just two examples:

* Lending with interest is forbidden (which also rules out investment in traditional bonds)

* Zakat is a mandatory annual 2.5% wealth tax

As you might imagine, the latter makes it very difficult to retire without some sort of pension system.

https://en.wikipedia.org/wiki/Islamic_banking_and_finance

https://en.wikipedia.org/wiki/Zakat

Planet Money did a story on a small US bank whose owner was convinced to start offering Islamic-compatible financial products: http://www.npr.org/2016/05/12/477758545/michigan-bank-discov...

Yeah.

> There are banks in the Muslim world that have thought about this, and one thing you can do is replace interest with something like a rent payment. The customer, the person who wants to buy the house, doesn't own it right away. Instead, the bank buys the house and puts it in a legal entity called a trust. Then, the customer makes monthly payments for, say, 30 years. Each month, they own a little bit more of that trust until, finally, the house is all theirs.

So that's pretty much a conventional mortgage, except you don't own it immediately. So it's not a loan because you only own the portion you've paid for, I guess.

> Now, not all Muslim scholars are OK with this. Some say this is just interest by another name. It's a religious loophole.

> "have to"

What happens if you don't or can't?

There wasn't anything stopping founders from donating to charity before, or from claiming they will in the future, so what does this accomplish other than putting a procedure in place for shameless virtue signaling?

Giving to charity is powerful. Talking about giving to charity or telling people you will conditionally give to charity in the future, is transparently self-serving.

Public pre-commitment is a basic building block of human coordination. Criticizing it as "virtue-signaling" is facile.

Reducing the friction in donating a complicated asset is useful.

"The best way to do good in the world is not to be a philanthropist. It’s to be a good capitalist. The need to 'give back' is generally chiefly a sign that people took too much to begin with."

https://www.youtube.com/watch?v=mTAE5m3ZO2E

On the other hand: https://en.wikipedia.org/wiki/Effective_altruism

If you can convince your well-off customers to give you an extra $10, which you will then give to the poor(er), why not do so?

The video implies the $10 are necessarily earned by harmful behavior, but that's just demagogy.

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