CULTIVATING A CULTURE

Venture Capitalist Gib Myers Is Leveraging Silicon Valley's Most Valuable Assets--Money, People, And Talent--

Gib Myers, MBA '66 (front), planted the seed for a new kind of Silicon Valley Foundation with the help of (from left) Sterling Speirn, Peter Hero, MBA '66, and Kirk Hanson, MBA '71. Photo by Saul Bromberger and Sandra Hoover

GIB MYERS WANTS TO CHANGE THE CULTURE OF SILICON VALLEY. Ambitious as that may seem at first glance, many people in the Valley think he can do it. Last year Myers, MBA '66, established a nonprofit foundation to influence young, work-obsessed entrepreneurs into improving the community in which they hope to thrive. The career venture capitalist went about his mission using what venture capitalists know best. He consulted his network of Valley money folk, GSB alums, and other friends and then built his own startup, the Entrepreneurs' Foundation, which will use the profits from successful new enterprises to fund entrepreneurial service organizations and, he hopes, instill a sense of public service in all involved.
       "I'd been venturing for 28 years and I wanted to begin to make a transition," says Myers, a general partner of the Mayfield Fund. Over the years Myers has seen what venture capital can do. The Dartmouth engineer has nurtured many technology companies as they grew from startups to mature organizations. He has worked closely with 3Com, MIPS Computer Systems, Spectralink, and Latitude Communications, among many others. Having seen all this, he says, "I thought, how can I find a way to leverage off venture capital and make a community impact with it?"
       The Entrepreneurs' Foundation (EF) isn't Myers' first foray into philanthropy. He was heard around the Valley in the mid-eighties suggesting that since there were so many "Stanford companies" thriving there, it should be a tradition for the Stanford grads who start them to pledge 1 percent of their founders' stock to the University. A decade later he was instrumental in establishing his company's Mayfield Foundation, in which the partners contribute part of their profits to the foundation, which in turn has made sizable contributions to those entrepreneurial hotbeds, Stanford's schools of engineering and business. Nor is the Entrepreneurs' Foundation Myers' only attempt at using venture capital to raise money for a good cause. As an investment manager of the alumni-managed Business School Trust, Myers headed its venture capital investment committee from 1986 to 1996.
       Still, "I feel that I'm pretty typical Silicon Valley in that I've spent most of my time working at Mayfield and then seeing my family," Myers says. "I haven't done much for the community, and I wanted to make a contribution. Obviously, I could have gone on a couple of boards and called my friends for money, but I just didn't want to go that route. There are a ton of people who want to know how to give back and, like me, feel they don't know what to do. So I spent about a year looking for a way to do it," he says.       

MYERS STARTED CALLING AROUND. "Kirk Hanson was really helpful," he says. "Kirk and Peter Hero, who's a classmate of mine, and Sterling Speirn. Those three were probably the most influential." Besides being a senior lecturer at the Business School and director of the Sloan Program, Hanson, MBA '71, has conducted two major studies of Silicon Valley philanthropy, both funded in part by Hero's Community Foundation Silicon Valley. Speirn is director of the other large foundation that serves the Valley, the Peninsula Community Foundation.
       Granted, the land of in-office massages and luxury cars and million-dollar fixer-uppers seems an unlikely place for civic action. "The Valley's the fattest place in the world for start-ups,"

THE ENTREPRENEURS' FOUNDATION ESTABLISHES A KIND OF EARLY LEARNING PROGRAM FOR ENTREPRENEURS WHERE COMMUNITY ACTION AND FINANCIAL SUPPORT ARE, SAYS MYERS, "BAKED IN" IN THE BEGINNING STAGES OF A COMPANY

says Myers. "There's no better place to build a company. Here we have a phenomenal structure for small companies to grow and develop. But the infrastructure for families and the community we live in isn't as strong."
       He points to housing, traffic, and education as three of the biggest local problems. Barely a third of Valley households can afford to buy homes at the area's median price, as compared to almost two-thirds nationwide who are able to buy at the average price in their own neighborhoods. Valley traffic congestion is a study in road rage: Traffic delays have increased 67 percent in a decade and there's no relief in sight. And even though California fourth-grade reading and math skills are abysmal, Silicon Valley per-pupil spending continues to decrease in relation to other high-tech communities.       

"There are foundations already addressing the problem," says Myers. "And the biggest companies, the billion-dollar companies like Hewlett-Packard and Cisco and 3Com, are doing a good job. But drop below a billion and there's not much happening." Hanson's 1997 report confirms this. Although giving has risen considerably in the Valley, per-capita giving in the largest firms is more than half again as high as it is in the next largest. "What we'd like to do is tap the entrepreneurial sector," says Myers. "The vision here is to make a really substantive change in the culture of Silicon Valley."
       The idea that Myers and friends came up with is a wonderful example of philanthropy served up with a Silicon Valley twist. It involves garden-variety entrepreneurs as well as social entrepreneurs (those folks who apply entrepreneurial creativity and vigor to public-oriented ventures), venture capitalists, stock options (the coin of the realm), and networking, networking, networking. It establishes a kind of early learning program for entrepreneurs, where community action and financial support are, says Myers, "baked in" in the beginning stages of a company.
       "My goal is that every venture startup join the Entrepreneurs' Foundation," says Myers. "Why not? They have no time, they have no money, they're working like crazy to get off the ground. Yet everyone I talk to says they want to do it, they want to be part of their own culture."
       In its simplest form, the Entrepreneurs' Foundation works like this. Prospective members--startup companies that have not yet gone public--are identified for membership by a growing web of cooperating venture capitalists. The foundation then approaches the company founders and asks them to donate a small percentage of their future stock--from one-quarter to one-half percent of value at the last funding, or $100,000, whichever is smaller. They are also asked to establish and follow a three-year plan involving some sort of community service by employees of their company. ("We say, 'We're not here to make your life difficult. We can start very slowly.' We may ask for just a one-hour meeting to map out the alternatives and that's enough to get them started.") If the founders decide to join EF, they must first sell the idea to their board and later to their employees, thus increasing the number of people committed to the project. That's step one.
       Step two, which is still in the future, uses the profits from the donated stock as a venture fund to aid worthy entrepreneurial nonprofits or even service-oriented for-profits. In contrast to traditional philanthropists, EF is what is called a venture philanthropist, which will treat its contribution more as an investment than as a gift. Like a venture capital firm, the foundation will offer "mezzanine," or mid-level, financing over a relatively long term--perhaps 10 years. EF also expects to assume more of a venture-type relationship with the social entrepreneurs it funds (see sidebar) by participating on their boards and otherwise assisting and advising the young firms. The first startups they expect to support will focus on education, Myers says. Why education? Because that's the area of most concern to the entrepreneurial sector.
       To get the Entrepreneurs' Foundation off the ground, Myers has proved a master of the Rolodex. His board of directors and advisory council are a Who's Who of Bay Area philanthropy and a virtual old-boys-and-girls network of Stanford engineering and business alums. Myers leads a board that includes his fellow venture capitalists Brook Byers, MBA '70, and Isaac Stein, JD/MBA '72, as well as his classmate Hero. Among the foundation's advisors are Susan Packard Orr, MBA '70, and Colburn Wilbur, MBA '60, of the David and Lucile Packard Foundation; John Morgridge, MBA '57; Claude Rosenberg, MBA '52; and Hanson. Senior advisor is Common Cause founder John Gardner, consulting professor of education at Stanford and former lecturer in public management at the Business School.
       Myers also got financial help from his company and costly Sand Hill Road space--even as he cut back his time at the firm to 50 percent and now 25 percent. "Mayfield provided a phenomenal platform to get EF started," he says. "The initial companies we signed up were Mayfield companies. And of course the Mayfield name is an asset when you call up people. It's a valuable introduction.
       "Other venture capitalists are also really getting behind this," says Myers, who had signed up 32 individual VCs and 11 venture capital firms by the end of 1998. Each VC commits to identifying two or three young companies a year as prospects. "The VCs are my leverage. Every time they do a deal, they introduce the idea of the Entrepreneurs' Foundation. They try not to pressure. They're actually pretty careful to suggest and endorse EF but not to over-push it. And that's right, because the buy-in really has to come from the entrepreneurs themselves."
       One company that bought in is Instill, a provider of electronic commerce and information services designed to simplify supply chain management for the food service industry. Instill, which joined EF as one of its charter companies, was founded in 1993 by two Stanford grads, Ted Daley, MBA '92, and Mack Tilling. It currently serves more than 1,000 food service operators. Still privately owned, Instill counts three Stanford MBAs on its board of directors: John Lillie, MBA '64, the former president, chairman, and CEO of Lucky Stores; Thad Whalen, MBA '92, a partner in Aspen Ventures; and Gib Myers' Mayfield Fund colleague Mike Levinthal, MBA '81.
       It was Levinthal who first approached Instill on behalf of the Entrepreneurs' Foundation. The idea was greeted with enthusiasm. "Ted Daley and I had actually put a community involvement element into our first business plan," says Tilling, the company's president. The cofounders had hoped to donate money and supplies to food banks in the communities where the company did business. "We never lost sight of that, but we got so involved," says Tilling, voicing the typical entrepreneur's lament. Daley and Tilling saw EF as a way to get around the barrier of never having enough time.
       They took the proposal to their board and then to their employees, who voted 100 percent in favor of the proposition. They designated a "minister of culture" to head the "do-gooders' committee," which has been working with Myers and EF executive director Patty Burness to focus a wide range of social interests into a manageable few. Tilling looks forward to the day when Instill will be in a position to give back to the community in another way, by enriching EF's coffers. "If even one or two of their companies hit it big," he notes, "they're going to have one powerful foundation."
       Instill was one of 19 companies to sign on in 1998, bringing with them $1.7 million in stock options, and there are more than 20 companies in the pipeline. Additionally, eight firms, ten individuals, and three foundations contributed $800,000 toward EF's start-up costs and first- and second-year expenses. As for the future, the Entrepreneurs' Foundation has a goal of attracting 500 participating companies and having $200 million of appreciated stock to invest in about 15 community ventures.
       If all this sounds pie-in-the-sky, Myers doesn't think so. And neither does Kirk Hanson. "One of the reasons I'm pleased to be involved in this project," says Hanson, "is that I think this model can and should be replicated in every high-tech center in America--Boston, Atlanta, Austin, Los Angeles, Portland, Seattle. All of them ought to have Entrepreneurs' Foundations."

Social Entrepreneurship--using the tools of business and the passion and creativity of the entrepreneur to solve social problems--is an exciting new movement that is causing a stir among MBA students. That's not so surprising if you consider that the concept falls at the intersection of two of the hottest areas of GSB student interest: entrepreneurship and public management.
       Spurred by their enthusiasm and the interest of the nonprofit world, the GSB's David Brady and Daniel Kessler and Harvard visitor J. Gregory Dees developed and taught a course on the subject last year. Kessler and Dees, now Stanford's Miriam and Peter Haas Centennial Professor in Public Service, will offer the course again this year.
       "The kind of enterprising individuals we now call social entrepreneurs have set up private organizations to serve social and public purposes for years, but few have studied just what their role in society is," says Kessler. "In Social Entrepreneurship we introduce internally consistent ways to evaluate different strategies for achieving public-interest goals in a business context. First we examine the intellectual underpinnings of social good and explore alternative meanings of social entrepreneurship."
       They then turn to organization. Noting that there are many ways to design social enterprises--as straight nonprofits or for-profits or a hybrid of the two--they examine the strengths and weaknesses of each model and discuss various methods of funding them. Gib Myers and Patty Burness present the Entrepreneurs' Foundation as a "living case" of venture funding, and several other venture philanthropists--the Fund for Social Entrepreneurs and the Roberts Enterprise Development Fund (REDF)--also are studied. Under Kessler's supervision, Melinda Tuan, associate director of the Roberts fund, and Lauren Dutton, both MBA '97, wrote a case about Asian Neighborhood Design, one of the social enterprises that REDF supports. In addition, REDF executive director Jed Emerson collaborated with Dutton, Kessler, and Tuan to write a case on the fund itself.
       The third and final segment of the course is devoted to the practical problems inherent in creating and managing social enterprises, paying special attention to the pros and cons of blending business methods with social objectives. Students are encouraged to make contact with one or more of the enterprises studied and develop class projects that assist the organizations in solving some of their real-life problems.