The Atlassian Foundation is helping startup founders ramp up their philanthropic efforts with equity pledges

Startup founders who want to do more to change the world through philanthropy now have an easier way to achieve it as part of the global Pledge 1% movement.

The Atlassian Foundation has partnered with PwC Australia, Herbert Smith Freehills, and Australian Philanthropic Services to create a Deed of Equity Gift. The Deed gives startup founders a way to easily honour a commitment to pledge equity to their chosen charities when they sell or float their venture.

The move comes a week after the world’s leading VC firms announced a new program, Boardroom Allies, will see them commit to helping portfolio companies set aside stock for social impact on path to IPO.

In the past year, more than US$1 billion in new philanthropy emerged from companies such as Coinbase, UiPath, and Unity under Pledge 1%. The goal of Boardroom Allies is to donate $6.5 billion (US$5bn) in new charity funding over the next five years.

Pledge 1% is a global philanthropic movement, co-founded in 2014 by Australian tech giant Atlassian, that encourages and empowers companies to donate 1% of their staff time, product, profit, and/or equity to any charity of their choosing.

More than 1,400 Australian companies, from new startups to tech unicorns have joined the Pledge 1% movement, including Canva, Envato, SafetyCulture, Humantix, and Blackbird.

Pledge 1% is a non-profit that helps startups bake philanthropy into their business model. The Deed of Equity Gift not only formalises a founder’s pledge of equity to their chosen non-profits, it demonstrates that commitment to employees, customers, and others.

And while equity pledges have been popular in the US, in Australia they’ve been more difficult to manage and until now, have lacked the legal backing to validate the commitment.

Mark Reading, head of the Atlassian Foundation

Mark Reading, head of the Atlassian Foundation, said that pledging equity can also complicate tax issues when Australian companies and founders make a commitment today to transfer share ownership or make cash-equivalent donations years down the track, which can act as a disincentive for startups.

“Atlassian made its pledge almost 20 years ago. As our business has grown, we’ve been able to make a positive impact on causes around the world. The pledge taken by our co-founders, Scott and Mike, has enabled us to pass A$50 million in donations this year and to have an asset base in excess of A$200 million in the Atlassian Foundation,” he said

“With the launch of this Deed of Equity Gift, we’re excited to help many other businesses make a positive impact on the world around them. It’s good for society and good for business.”

Tackling tax implications

PwC Tax Partner Jonathan Malone, who worked on the Deed project, said would-be philanthropists don’t want to be caught up in tax complications that create uncertainty and limit their impact.

“Triggering an up-front tax bill or missing out on a deductible gift are two examples that could prevent founders from pledging their support to worthy causes that are meaningful to their people and organisations,” he said.

“The Deed of Equity Gift allows founders and philanthropic shareholders to follow a process to confirm their tax position and focus on their impact for our communities.”

Malone worked with a founder that has received a private ruling from the ATO to confirm their tax position in relation to the Deed of Equity Gift.

Andrew Herbert, founder of data analytics and AI startup Cangler, is the first local startup to execute the Pledge 1% Deed, having obtained a Private Binding Ruling from the ATO.

While that ruling doesn’t apply to other companies, it offers a template and way forward for how other startups can tackle the issue without subsequent tax worries.

“We initially took the pledge in February 2019, since we always wanted to engrain social impact and giving as part of our company DNA,” Herbert said.

“We decided to execute the deed to make that promise legally enforceable. We’ve worked closely with the Atlassian Foundation, PwC, and Australian Philanthropic Services to execute the Deed of Equity Gift, which I hope will encourage other founders and organisations to follow suit.”

Mark Reading said that he’s more than happy to help and support any other founders interested in executing the Deed. You can email him mreading[at]atlassian.com