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Tech Industry

Start-ups giving stock options to charities

Snowball.com donates $1 million worth of pre-IPO shares to a Silicon Valley charity, the fourth in a line of dot-com contributions to the foundation.

Net start-ups are starting to give back.

Snowball.com, a teenage-focused Web site, donated $1 million worth of pre-IPO shares to a Silicon Valley charity, the company reported in its first-quarter earnings yesterday.

The donation is the fourth in a line of dot-com contributions to the well-established Community Foundation Silicon Valley (CFSV), which was founded in 1954. eBay, eLoan and AltaVista have also given pre-IPO shares to the foundation in hopes of giving back to the community that has supported their successes.

"(Donating pre-IPO shares) really takes advantage of the financial structure of young, fast-growing Internet companies," said Susan Luenberger, vice president of development and marketing.

"It costs them a gift of $1 million that could be worth $10 million (after going public)--this is huge leverage," she said.

CFSV "promotes philanthropy, provides charitable giving expertise to individuals and corporations, and makes grants to local nonprofit organizations and schools," according to its Web site.

Traditionally, companies wait until they're a certain size before they have the profits to give to charity, but at that time, giving often falls to the bottom of the to-do list when a company is faced with competing in the marketplace and building its business.

By giving early on, start-ups can attract young, socially minded employees and bolster their relationship with customers and the community. And companies setting up a charitable fund pre-IPO, apart from the tax advantages, can benefit their community through the accelerating stock market.

"The opportunity is in the IPO, otherwise the company may have to wait many years to use the old model of using a percentage of pretax profits," Luenberger said.

An organization such as CFSV makes it easy and less costly to set up a fund, which the donating company often helps direct. eLoan, for example, allocates funds to local senior citizen centers through CFSV. A company such as Snowball.com would typically have to hire lawyers to set up a charitable fund, but through CFSV it takes ten minutes, Luenberger said.

Donations of this kind are catching on.

"The word is spreading like wildfire," Luenberger said.

Snowball, which began publicly trading March 20, yesterday reported that its first-quarter pro forma net loss was $18.2 million, or 67 cents per share, on revenues of $4.6 million. That compares with a pro forma net loss of $2.5 million, or 26 cents per share, on revenues of $0.9 million in the same period in 1999.

Snowball.com shares closed today down 34 cents, or 18.66 percent, to $3.63.