Founder: 1% Pre-Exit - Atlassian

Alicia_Schmidt — Tue, 05 Mar 2024 23:51:13 GMT

Co-founders committed personal equity equal to 1% of company; Ownership transferred pre exit.

“We want to help other founders make what we believe will be one of the best decision of their lives.”

• Pledge 1% member: since Dec 2014

• Pledge Types: Equity, Product, Profit, and Time

• Stage: Public (IPO 2015)

Timing of commitment:

Early stage. >9 years pre IPO

Vehicle:

Equity source:

Co-founders: 1% Pre-Exit Model

Funding schedule:

Full 1%+ shares transferred to Atlassian Foundation in 2010; Social Impact also funded via profit pledge and company revenue from “Starter Licenses” beginning 2009

Investor dilution:

None

% Upfront:

100%

“Top off”:

N/A

Donor-advised fund:

No- Atlassian Foundation

Background

Scott Farquhar and Mike Cannon-Brookes founded Atlassian in 2002. They were both very passionate about giving back and wanted to share a piece of the company’s future success with the community. In 2006, Scott and Mike publicly announced that they would be using 1% of Atlassian’s equity, profit, time, and product for good. In 2008, they created the Atlassian Foundation and in 2010, just prior to raising money from external investors, Scott and Mike transferred slightly in excess of 1% of their equity to the Atlassian Foundation.

Strategy

Since Scott and Mike were the primary shareholders in the company, they were in total control. No other investors were impacted. The co-founders also wanted the Atlassian Foundation to be funded pre-liquidity. In 2009, Atlassian created a “Starter License” program that directed 100% of revenues to the Atlassian Foundation. In 2014, as part of a capital raise by Atlassian, the Atlassian Foundation sold some of its shares to a venture capital fund.

Execution

In 2010, the co-founders transferred their equity to the Atlassian Foundation via a legally binding stock transfer agreement. They hired a seasoned executive to run the Foundation and a professional investment manager to create and manage a more diversified portfolio.

Today, the Atlassian Foundation’s funding sources include 1% of Atlassian profits, proceeds from the gradual sale of part of its shareholding in Atlassian, investment income from a diversified portfolio and revenue from Atlassian’s Starter Licenses.

Pros/Cons of This Approach

✓ Founders in control. No board approval needed.

✓ No other investors diluted.

✓ Company demonstrated commitment beyond founders by directing other revenue to Foundation.

✓ Founders and company demonstrated tangible commitment early.

⌧ Lower personal tax benefits for founders since shares were transferred pre-exit.

article Founder: 1% Pre-Exit - Atlassian in Equity Case Studies