Since the article ends my mentioning Missouri, it is worth mentioning that his cofounder Jim McKelvey used his Square success to found Cultivation Capital, which is a VC focused on parts of the midwest often ignored by the coastal VCs (e.g. Missouri, Indiana, Southern Illinois, etc.)
Can anyone who's been though an IPO comment on what happened to the early employees with their 0.1% stake (of the original 10 million shares)? Everyone understands that they'll get diluted with new rounds, but when I read that Dorsey's giving away 40,000,000 shares I wonder what happened to the poor sap who started with 10,000. Do companies typically issue more options or RSUs to existing employees? How many?
Varies from company to company. But every startup I've been in, and a couple of larger companies, gave "refresher" grants to folks annually. That keeps employees from being fully vested and helps skew equity toward the employees who are contributing the most.
Updated title on original source:
"Jack Dorsey is giving up at least 50% of his stake in Square to help underserved communities"
Update: This post has been updated to correct that Dorsey will commit 10 percent of the entire company, not just his equity as previously stated. In addition, our calculations were off and I regret the error.
This is commendable. Actually intending to making the world a better place (in the non HBO-Silicon-Valley-Show-way).
Depending on how he does this and the basis of the equity, this move may be an amazing tax shield, worth WAY more than it seems.
{edit} - I actually think this is exactly the strategy being applied by him and his team of tax strategists - He's using this "donation" as a tax shield and keeping the money in a foundation, which he can use to help "the underprivileged" as he pleases, instead of just paying an amazing amount of tax like Zuck did.
Any tax benefit from putting money into a foundation is limited to the money put into the foundation. So if you put $1 into a non profit, the government forgoes collecting the tax on just that dollar.
The way this can be used to protect money from taxes is to establish a foundation that then employs you and your descendants. The money paid out is taxed, but the principle can sit there untouched.
Exactly true, however he's donating STOCK not money. So he's avoiding the taxation on the stock gains that he would have seen, which could easily have been upwards of 50%. Then, yes, he can be employed by and can expense costs to his foundation - so that money that he's not being taxed on is still within his control.
However, the bigger deal is that he can use that foundation to wield significant power and to distort public policy to his benefit.
Isn't this what Sarah Palin did for her daughter... they setup a non-profit "foundation" for teen pregnancy awareness or some such and then paid Bristol Palin some absurd salary as the head of the NP.
It's not a tax shield if you don't get to keep the money.
Of course, if you were going to donate anyway, then sure, it's more tax efficient to give appreciated stocks. But calling it a tax shield makes it sound like you can stand to gain personally by doing this.
Define "keep." This much money does him no good sitting in a bank account. I'm sure he intends to invest it. One option would be to cash out, take a huge tax hit (in CA) and then reinvest. That is pretty foolish if you have this kind of money. The better option is to form a company. Even better, form a non-profit. Sign over the stock to the non profit. The non-profit then re-invests the money. Make yourself an employee. Set your own salary and make yourself the CEO. Now he has reinvested the money and hasn't taken any tax hit EXCEPT on his income (which would have been taxed regardless of what he did). The other billions he has are sitting there earning interest tax free until he decides to take some out.
On that taking some out bit... So, as the CEO of this non-profit, he could have the company buy a jet, build an office, schedule company retreats, etc... All of this would be tax free.
I could go on, but I think that the point is clear. Non-profits are an EXCELLENT way to avoid tax hits in this sort of scenario. It's a numbers game. Once your net worth has a B at the end of it, forming an entirely new business just to avoid taxes becomes a much more sensible solution.
> But calling it a tax shield makes it sound like you can stand to gain personally by doing this.
One (with that much wealth) absolutely stands to gain a ton from it.
A family member of mine works in financial trusts / estate planning for multi-millionaires (many times over) and this is one of the things I've heard from them used to limit tax exposure while maximizing the most typical goal - not personal wealth (these people have more money then they will ever be able to spend, that isn't the concern for them) - but rather maximizing family wealth.
And once you're extremely wealthy, it's amazing how large your family becomes.
Essentially - many charitable foundations are absolutely charitable in their fundamental mission, and best case are helping thousands of people with most of the money directly helping - however what happens in practice, is this foundation then has family members work for it earning somewhere between a reasonable to a completely insane salary depending on any number of factors.
I must be hugely cynical because my first thought was "what has this guy done to commit so much to public benefit." There is an unnatural or questionable amount of money for people to give up isn't there?
Jack Dorsey's net worth is approximately 2.4 billion [1]. Back when Bill Gates stepped down as CEO of Microsoft, he did so not to retire, but to take on the responsibility of spending his money in the best possible way for society. [2]
It's pretty easy to imagine a situation in which increasing your net worth can't really earn you more to experience or nice things. I'd wager Dorsey's already at that point, but maybe still wants to create things.
Does anyone else feel like it's the government's responsibility to help all the needy sections of the society, and billionaires intervening only abets and condones all the deliberate/unintentional mistakes of the former, and lets them escape it?
Volunteering and donations are a much bigger thing in the US than in Sweden. Here we just tax everybody more, and that mostly takes the place of benevolent billionare philanthropists.
So you'd rather have a middleman coercively distribute funds or amass more debt, and take some of the funds in overhead, rather than be able to direct your money where it's deserved, especially in an age when you can use the internet to set up payments and research deserving institutions? If you abdicate responsibility -- the poor are some distant entity's problem -- you are not being virtuous. By the way, it's not ONLY billionaires that can help with the needy. Your time is also valuable--for example, you could visit some lonely elderly people in a nursing home. If you pay it forward, people will help you out when you're in need. Your friends and family become your "social safety net."
The government is too bird's-eye-view to understand the details of different communities. I do think, however, the government should have some kind connection with a group of people in each state to get a status on things. And each state should have groups in different communities representing it to report up to the state-level group.
I feel like USA is already kinda designed that way, but something is making it not work... at least, it's not working for the poor.
Surely both can and should do their bit.
Governments have the scale and power to run systemwide education, healthcare and crime reduction programmes; wealthy entrepreneurs have the freedom to try experimental schemes or artistic programmes that many people think sound like a waste of money.
No. The assumption that government should fix everything is selfish and lazy. It absolves us of personal responsibility, and gives us someone to blame when things go wrong. I'd feel sorry for the politicians, except they do more than anyone to perpetuate this.
My first reaction was that funding artists, musicians, and business is probably not the greatest charitable good that can be done with his money... but then I reconsidered -- It might not be the greatest good, but it is more good than leaving the money in the bank. So... OK, I'll give it a mild thumbs up.
Is there an honest belief that wealthy people keep their money sitting idle in bank accounts? That would explain a lot of the hyperbolic language around the politics of envy - it's a pretty easy (although nonsensical in reality) leap to assume the wealthy accumulate money just to keep it out of the hands of "the people."
If someone gives a fortune away for something that deems noble, I would give it a double thumbs up even if I don't completely agree with the recipient. Myself, I would have probably directed that money somewhere else, but I still plaud Jack's initiative.
In addition to that, I've always had mixed feelings about him: yes, successful entrepreneur and apparently smart person, but I saw him in person at an event and I made my (bad) opinion about his personality. This gesture somehow fights against that opinion. I might start to like him after all.
Funding artists, musicians and businesses, especially in underserved communities is absolutely the best way to reduce poverty.
The world doesn't have a jobs problem, it has a funding problem. It requires capital to accomplish most tasks of notable quality. Plus it circulates the money better.
It appeals to me personally. My personal income in NYC is much higher than the average for the area I live in, and it seems to me that many younger people around me have aspirations modeled on those they see in popular media/instagram/youtube. Photography, sound production, graphic design, illustration... these are real, if difficult careers.
Part of helping underserved communities would be to move some of the business outside the Valley and major metro areas. Find the mid to small cities and spread the wealth.
...well, the line between spreading the wealth and gentrification is a bit fuzzy.
I'm not convinced what's happening in SF, and starting to happen in Oakland, is actually desirable by the residence that were there before tech people showed up.
I think it's much better that Jack donates to help public schools, libraries, arts & crafts, other recreational activities in underserved communities.... without sending the gentrification catalyst into them.
This is quite true, the way companies hyper-concentrate is not really given much thought it seems. There are obviously benefits to concentration when it comes to fostering innovation but like everything I imagine there is a point of diminishing returns beyond which the benefits turn to negative.
A similar phenomenon can be seen in the DC area, all the companies are hyper-concentrated in NoVa creating a miserable commuting situation for hundreds of thousands of area residents, meanwhile a city like Baltimore a mere 40 miles away is completely ignored when it comes to locating offices.
Readit News
Update: This post has been updated to correct that Dorsey will commit 10 percent of the entire company, not just his equity as previously stated. In addition, our calculations were off and I regret the error.
This is commendable. Actually intending to making the world a better place (in the non HBO-Silicon-Valley-Show-way).
{edit} - I actually think this is exactly the strategy being applied by him and his team of tax strategists - He's using this "donation" as a tax shield and keeping the money in a foundation, which he can use to help "the underprivileged" as he pleases, instead of just paying an amazing amount of tax like Zuck did.
The way this can be used to protect money from taxes is to establish a foundation that then employs you and your descendants. The money paid out is taxed, but the principle can sit there untouched.
However, the bigger deal is that he can use that foundation to wield significant power and to distort public policy to his benefit.
Of course, if you were going to donate anyway, then sure, it's more tax efficient to give appreciated stocks. But calling it a tax shield makes it sound like you can stand to gain personally by doing this.
On that taking some out bit... So, as the CEO of this non-profit, he could have the company buy a jet, build an office, schedule company retreats, etc... All of this would be tax free.
I could go on, but I think that the point is clear. Non-profits are an EXCELLENT way to avoid tax hits in this sort of scenario. It's a numbers game. Once your net worth has a B at the end of it, forming an entirely new business just to avoid taxes becomes a much more sensible solution.
One (with that much wealth) absolutely stands to gain a ton from it.
A family member of mine works in financial trusts / estate planning for multi-millionaires (many times over) and this is one of the things I've heard from them used to limit tax exposure while maximizing the most typical goal - not personal wealth (these people have more money then they will ever be able to spend, that isn't the concern for them) - but rather maximizing family wealth.
And once you're extremely wealthy, it's amazing how large your family becomes.
Essentially - many charitable foundations are absolutely charitable in their fundamental mission, and best case are helping thousands of people with most of the money directly helping - however what happens in practice, is this foundation then has family members work for it earning somewhere between a reasonable to a completely insane salary depending on any number of factors.
It's pretty easy to imagine a situation in which increasing your net worth can't really earn you more to experience or nice things. I'd wager Dorsey's already at that point, but maybe still wants to create things.
[1] https://en.wikipedia.org/wiki/Jack_Dorsey
[2] http://money.cnn.com/2006/06/15/technology/microsoft_news/
The government is too bird's-eye-view to understand the details of different communities. I do think, however, the government should have some kind connection with a group of people in each state to get a status on things. And each state should have groups in different communities representing it to report up to the state-level group.
I feel like USA is already kinda designed that way, but something is making it not work... at least, it's not working for the poor.
It's also unreasonable to think everyone that's in a difficult situation got there by their own mistakes and have the ability to get out without help.
In addition to that, I've always had mixed feelings about him: yes, successful entrepreneur and apparently smart person, but I saw him in person at an event and I made my (bad) opinion about his personality. This gesture somehow fights against that opinion. I might start to like him after all.
The world doesn't have a jobs problem, it has a funding problem. It requires capital to accomplish most tasks of notable quality. Plus it circulates the money better.
I'm not convinced what's happening in SF, and starting to happen in Oakland, is actually desirable by the residence that were there before tech people showed up.
I think it's much better that Jack donates to help public schools, libraries, arts & crafts, other recreational activities in underserved communities.... without sending the gentrification catalyst into them.
A similar phenomenon can be seen in the DC area, all the companies are hyper-concentrated in NoVa creating a miserable commuting situation for hundreds of thousands of area residents, meanwhile a city like Baltimore a mere 40 miles away is completely ignored when it comes to locating offices.