Everyone’s heard the story of the little old lady who 60 years ago bought stock in a little company called IBM, or the one about two guys who started their computer company in a Silicon Valley garage. The updated version of that story for the new millennium centers around two young men who started an online video-sharing Web site and sold it within two years for more than $1 billion.
When YouTube was purchased by Google for $1.65 billion last year, it instantly turned its founders into 20-something multi-millionaires. It also yielded a healthy return for foundations and endowments around the world.
The New York City-based Ford Foundation was among the biggest winners in the YouTube transaction, getting almost 220,000 shares of Google, according to a recent filing with the Securities and Exchange Commission (SEC).
Most foundations declined to talk about the transaction, citing policies regarding not discussing financial strategies. Though it’s unclear what Ford’s initial investment was, the 220,000 shares would be valued at more than $100 million, based on a $495 per share price as of Nov. 16, 2006. The foundation was the largest limited partner (LP) of venture capital firm Sequoia Capital Partners, the Silicon Valley firm that also invested early in the likes of Yahoo!, Google and Apple. Ford’s share was almost a quarter of Sequoia’s total 941,027 shares received, which had a value of $465 million.
It’s not uncommon for foundations to go into business as limited partners with venture capital firms. “They have investment advisors that are keeping them on the front lines of high-return investments, so I’m not surprised that they would find their way into venture capital investments,” said Rick Cohen, former executive director of the National Committee for Responsive Philanthropy. Google’s February SEC filing listed numerous foundations, charitable trusts and universities that received stock from the YouTube sale, most valued in the millions of dollars.
The Sherman Fairchild Foundation in Chevy Chase, Md., ended up with shares valued at almost $12 million, the Rockefeller Foundation more than $9 million, and the J. Paul Getty Trust, $1.7 million. The Boston-based Barr Foundation yielded $7.1 million from its investment.
Though it’s unclear what the initial investment was for each investor, a look at the James Irvine Foundation’s filing with the Internal Revenue Service provides a glimpse of the astronomical return. According to its 2003 Form 990-PF, the San Francisco-based foundation had a $275,000 stake in Sequoia Capital XI. Three years later, the Google purchase resulted in almost 15,000 shares for the foundation, valued at $7.2 million.
Universities throughout the United States, as well as abroad, were rewarded for being early investors in the video-sharing Web site. Oxford University received more than 3,400 Google shares, a value of more than $1.6 million. American universities also were among the early investors, including Princeton, Massachusetts Institute of Technology, Dartmouth, Columbia University, Brown University and Northwestern, Minnesota, Rensselaer Polytechnic Institute and the University of Southern California, in addition to smaller colleges such as Grinnell and Wesleyan.
As part of its $200 million endowment, the San Francisco Symphony has a diversified portfolio of investments, said Gary Ginstling, director of communications and external affairs. The nonprofit has an endowment policy and an investment committee appointed by the board that is responsible for managing investments. The symphony was rewarded with more than $800,000, based on the 1,700 shares of Google received.
“A certain percent of our endowment is allocated for investments and those kinds of funds,” Ginstling said, adding that it is probably a little more conservative than other nonprofits and endowments. He estimated about 22 percent is allocated to “alternative investments,” a category that would include venture capital funds. NPT
