Baruch Lipner discusses how Tmura facilitates Israeli companies donating options to charitable organizations.
For 20 years, some 800 Israeli companies have pledged options on their shares to Tmura. When these companies achieve exits, Tmura exercises its options and donates the proceeds to registered Israeli charities.
Baruch has helped build a charitable ecosystem in Israel. Venture capital firms encourage their portfolio companies to pledge options to Tmura. As many of Tmura’s supported charities are directed to the youth, more young people become coveted employees for Israel’s high-tech sector.
Exercise triggers, grant sizes, tag-along rights, cashless exercise, charity selections and much more are discussed in detail during this podcast. Baruch has advised organizations in other countries on establishing such charitable networks.
Baruch Lipner, Executive Director, Tmura
Baruch Lipner is the Executive Director of Tmura. Baruch has advised organizations in other countries on establishing such charitable networks. Previous to forming Tmura, Baruch was the Co-Founder & COO of Promique Technologies, an analyst with the Israel International Fund, and an analyst at the Tikvah Fund.
00:00:59 – The advantages of the model in terms of being able to contribute when you have nothing to contribute are equally relevant
The charity donations that we make are only two Israeli nonprofits. However, we do have many companies that are incorporated or domiciled or abroad, whether it’s in the States or Gibraltar or the UK or wherever it is basically anyone who’s interested at the end of the day in supporting Israeli nonprofit.
It could be Israeli entrepreneurs who happen to live in New York or Jewish entrepreneurs in the Valley, or others who are Christians from the US who are interested in supporting the nonprofit sector here in Israel.
The advantages of the model in terms of being able to contribute when you have nothing to contribute are equally relevant for an entrepreneur outside of Israel as they are inside of Israel. So we certainly have many companies from abroad as well. We don’t have a presence on the ground abroad, so our networks aren’t quite as robust as they are in Israel. But as I said, we do have several companies from the different high tech sectors in the US, whether it’s in the Valley or Boston New York area that have contributed as well. Okay.
00:09:48 – And one of the important things that we’re pitching to the companies also is basically having them set up a donor-advised fund.
Today we’ve received donations over time from over 800 companies. So we really have from the broad range of every industry in every sector. But to your point, there are at times companies that will say, look, our whole raison denture of our company is giving back. So perhaps this isn’t something that we look to do because we’re giving back in other ways already.
That does come up sometimes. However, maybe I’ll use this question as a bit of a segue into how we give out the donations.
And one of the important things that we’re pitching to the companies also is basically having them set up a donor-advised fund. In other words, the companies are able if they’re interested in doing so, they’re able to allocate the charity from their own exit to nonprofits of their choice. So they can say to us, look, we’re giving you options, but our company works in the field of environment. And if and when one day there’s an exit, we’d like these funds to go to help some organization, some nonprofit that’s working in this sector. So while they could say, again, as you said, our whole company is around the idea of doing something for the broader good, this is a chance, I think, to supplement to that and even offer additional resources to nonprofits that are working in sectors that are very important to the people running those companies..
00:28:23 – Sometimes you have to go through many sectors with different incentives and find a way to align
Technically, in the event of an M and A, if there’s a merger acquisition, basically the exit is a one time event. So any options that we have, we don’t have to invest any money to receive the return on our options because it’s a back to back transaction. However, if there’s an IPO scenario.
So what might happen is we’d have to exercise our options, perhaps put out cash. But then in the event of an IPO, the shareholders are often locked up for six months before you can sell shares. And we wouldn’t want to be in a position where we put money out up front, sold our share six months later for perhaps less than we put out up front. And in that sort of scenario, what we say is, okay, let’s say we have an option to purchase 100 shares. I’m only going to use that option to purchase 90 shares. And the ten that I’m reneging on will cover the cost of what I would have had to put out to exercise. And that way, again, we don’t put any funds at risk of the foundation.
00:34:47 – So if you, the entrepreneurs are willing to do it, we’re willing to kick in our pro-rata share as well
We don’t force our portfolio companies to do this, but we certainly would like to encourage you to consider it. And of course, along with that introduction is the implicit message that we, as an investor, as a shareholder in the company, are also willing to be diluted. Right. We’ll pay to play. So if you, the entrepreneurs are willing to do it, we’re willing to kick in our pro-rata share as well. Let’s do this as a company.
And the message is a lot stronger than first of all, it’s a lot stronger than me coming as a cold call to the company. But it’s also coming from someone who’s already an investor in the company and saying, I’m willing to do this as well. Let’s do this together.
We’re not telling the entrepreneurs, why don’t you give but let’s do this as a company, which includes all the shareholders and any investors that will be on the cap table at that time as well.
00:40:16 – We have very tight relationships already with most, if not all, of the Israeli law firms that work in tech..
So first of all, it’s option is not shared, so we don’t have voting rights in the company. We’re not looking to become part of the company’s decision process, and we certainly don’t want to be a burden to them on anything related to their business. The paperwork is fairly straightforward. We have very tight relationships already with most, if not all, of the Israeli law firms that work in tech.
They’re familiar with our forms, they’re familiar with the process. The lawyers are happy to help walk the companies through the process. It was very important to us as part of what we’re doing to make sure that it is as little a burden as possible to the companies because they’re all busy, they’re all short-staffed, they’re working long hours.
And it was clear to us that if this was a hassle to get done, it wouldn’t get done as often as we’ve been successful in doing so. It was very important to us to keep this simple. It’s not a new class of shares. It’s fully diluted, similar to all other options or common shareholders. So it’s really straightforward from that perspective.
00:48:46 – We have quite a network within the community, whether it’s lawyers, service providers, angel investors…
We’re very clear and upfront with the companies that we’re not here to be their business partners, and I don’t think they expect that of us. But having said that, we do try, where possible, to help.
Certainly, we have quite a network within the community, whether it’s lawyers, service providers, angel investors, and things like that. And on occasion, again, it’s not something that will stay upfront, and it’s not part of what we’re here for. But if an entrepreneur will ask me for an introduction to an angel investor, and we have a relationship there.
I’m happy to help where we can precove the days. We were also doing events once in a while to provide networking opportunities and things like that. But it’s certainly not a big side of our business providing value on their business side. And I think companies aren’t really looking to us for that either. But again, on ad hoc basis, happy to help where we can.
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