Case Study: Corporate 1% Distributed - Twilio

Alicia_Schmidt — Tue, 05 Mar 2024 23:52:07 GMT

Jeff Lawson, CEO and Co-Founder

Committed 0.1% of company shares a year for 10 years post IPO.

"One thing that we didn’t consider when we started Twilio was the role that we could play in helping nonprofits improve the world.”

• Pledge 1% member: since August 2015 (Builder)
• Pledge Types: Equity, Product, Time
• Stage: Public (IPO 2016)

Timing of commitment:

Late Stage. < 6 months pre IPO

Vehicle:

Equity source:

Corporate: 1% Distributed Model

Funding schedule:

0.1% shares transferred per year for 10 years; begins on 1 year anniversary of IPO

Investor dilution:

1% spread over 10 years post IPO

% Upfront:

NA (timing close to IPO)

“Top off”:

N/A

Donor-advised fund:

Yes - Tides

Background

Twilio CEO and Co-Founder, Jeff Lawson, wanted equity to support Twilio.org until it could be self-sustaining (a portion of profits generated as a result of sales to nonprofit, education, and government verticals are earmarked to fund social impact activities). Twilio’s Board was generally supportive, but concerned about the 1% dilution, especially since Twilio was within months of filing their S-1. (Twilio’s Board actually approved their social impact equity commitment during the same Board meeting as their S-1 filing approval, just months prior to IPO).

Strategy

Jeff and the Board essentially pioneered the Pledge 1% Distributed model. Together, they creatively invented the concept of spreading out shareholder dilution over 10 years. Additionally, by committing to transfer 0.1% of their social impact equity a year (for 10 years) to their donor-advised fund, they also enabled Twilio.org to benefit from the rise in Twilio stock. As a result, the value of Twilio’s social impact commitment today is over 4x the size of their original commitment.

Photo credit: Twilio.

Execution

Twilio reserved 780,397 shares of common stock (1% of total shares at time of board vote) to fund Twilio.org. Twilio committed to allocate 0.1% of shares a year for social impact for a period of 10 years post liquidity. To avoid any potential stock volatility around the lock up expiration date, Twilio specified that the first transfer of these shares to their corporate donor-advised fund would occur on the 1 year anniversary of their IPO.

Pros/Cons of This Approach

✓ Minimizes shareholder dilution (spread out)

✓ Social impact fund benefits from stock upside

✓ Annual vote keeps Board engaged

⌧ Social impact legacy risk (especially if a change of ownership or leadership is likely); not legally binding

⌧ Possible future friction: An annual Board vote is required to issue/transfer social impact shares

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