With charitable set-asides becoming standard elements of initial public offerings in the tech sector, one company that provides merger-related financial services is experimenting with a new vehicle for corporate philanthropy.
SRS Acquiom, which provides financial and management help on merger-and-acquisition deals, has a new partnership with corporate-giving campaign Pledge 1% that directs a portion of interest accrued in escrow accounts during corporate marriages to charity.
Called EscrowUP, the program has the potential to drive significant sums into the nonprofit world if it catches on, says Amy Lesnick, chief executive of Pledge 1%. “It’s one more way for us to unlock philanthropy in the tech sector,” she says.
Corporate escrow accounts — not to be confused with real-estate escrow accounts — are commonly used in M&A deals. When one company acquires another, the buyer often puts a percentage of the purchase price into escrow to pay for unexpected expenses during the transition. Money in these accounts, which are typically managed by a third party, gains interest during the one to two years it remains in escrow.
Technology companies in Silicon Valley and elsewhere have already shown themselves willing to build charitable giving into the legal structure of IPOs. In 2014, Chinese e-commerce giant Alibaba set aside 2 percent of the company’s pre-IPO shares, an amount worth billions of dollars. Snapchat parent company Snap Inc. earmarked up to 13 million shares for charity when it went public in February 2017.
Pledge 1%, started in 2014 and modeled on Salesforce’s “1-1-1” philanthropy model, encourages participants to commit 1 percent of their equity, product, and employee time to charity.
The idea for EscrowUP came from Paul Koenig (no relation to the reporter), chief executive of SRS Acquiom. According to the company, he appreciated the mission of Pledge 1% and noticed that many of his clients were involved with its work. He pitched the idea to leaders of Pledge 1%, which worked with SRS Acquiom to identify beneficiary nonprofits.
For EscrowUP accounts, SRS Acquiom gives Pledge 1% 16 “basis points” — a measure of the return on the money held in escrow. The donation roughly equals .16 percent of the amount in escrow multiplied by the number of months it is held in the account, then divided by 12. Pledge 1%, itself a charity, takes a cut and distributes the rest among nonprofits that focus on tech skills and entrepreneurship: Girls Who Code, Patriot Boot Camp, Endeavor, and Springboard Enterprises.
The service is still young, and it is impossible to predict how many companies might take it up. But because of the large size of many acquisition deals, EscrowUP donations, when aggregated, could be substantial, says Mr. Koenig.
For example, if one company purchases another for $1 billion and puts $100 million in escrow for 18 months, up to $240,000 would go to charity.
Salesforce was the first company to use the service, opting to incorporate the escrow giving into its acquisition last fall of data-management company Krux, a Salesforce spokeswoman said. A spokesman for SRS Acquiom said the merger manager has encountered little objection to the concept from clients and plans to build EscrowUP into all of its future bank-deposit escrows.
Because the donated money comes from accrued interest, it doesn’t affect the bottom line of either merger partner. Seth Levine, managing director at venture-capital firm Foundry Group, a Pledge 1% partner, is optimistic that the idea will appeal to companies looking for an easy way to incorporate philanthropy into the process of doing business.
“It is literally free money to do good,” he says.
