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Allen Lau, CEO and co-founder of Wattpad, a collaborative storytelling platform, says his company doesn’t currently have the resources for a coroporate social responsibility program, but has found a solution with The Upside Foundation’s service.Fernando Morales/The Globe and Mail

A growing number of Canadian startups are pledging to turn some of their future equity into charity as a way to give back to society without giving away the early-stage profits needed to expand.

The pledge is being made to The Upside Foundation, a Toronto-based national charity that enables startups to donate a small portion of their equity, usually through stock options. The foundation holds the options until when (and if) the company is acquired or goes public. At that time, the foundation cashes out the options and gives the proceeds to the company's chosen charity.

It's a solution for startups that want to give back to the community, but don't have the time or money at their current stage of growth, says Jen Couldrey, manager of The Upside Foundation.

The foundation encourages companies to pledge about 1 per cent of their early-stage equity. The idea is that the pledge value grows as the company grows. "Hopefully, in the long run, the impact is greater. That's the goal," Ms. Couldrey says.

About 90 companies have made a pledge to date and the foundation is aggressively seeking to sign up at least 60 more by the end of the year as part of its recently launched 150x150: Turn Equity Into Charity campaign, based on the celebration of Canada's 150th birthday this year. Some recent sign-ups include Toronto-based startups Wattpad, Wealthsimple and Overbond.

Wattpad co-founder and chief executive officer Allen Lau says his company doesn't have the budget or resources right now to run its own corporate social responsibility program or charity initiative. The pledge allows the company to donate to charity when it has more financial means.

"All I have to do is focus on building an amazing company, and the charity would benefit from that," says Mr. Lau.

Ms. Couldrey says companies can pick a charity when they make a pledge, or wait until the options are triggered by an acquisition or IPO. Some companies choose the charity based on an obvious alignment with their business model. For example, real estate startup RuListing Inc. made a pledge and has designated Habitat for Humanity as its charity recipient.

Wattpad has yet to pick a charity, but Mr. Lau says it could be in the education sector, which is a fit with his company's focus on reading and writing.

Mr. Lau first heard about the charity through a former colleague, Mark Skapinker, co-founder and managing partner at Brightspark Ventures, where Mr. Lau worked early in his career. Mr. Skapinker founded The Upside Foundation alongside Rob Antoniades of Information Venture Partners and Janie Goldstein, its current executive director. The foundation was inspired by similar charity models including Israel-based Tmura and U.S.-based Pledge 1%, which was founded by the Salesforce Foundation and other organizations.

The Upside Foundation has seen two of its member companies sold so far, including digital-education company Understoodit and more recently technology software company BlueCat Networks, which was recently sold to Madison Dearborn Partners LLC for about $400-million.

According to the foundation, BlueCat CEO Michael Harris donated the proceeds from a portion of his stock options to the Enbridge Ride to Conquer Cancer, which benefits the Princess Margaret Cancer Centre, while Understoodit, acquired by EventMobi in 2013, donated to the East York Learning Experience and to Mentoring Junior Kids Organization.

While the foundation owns the options pledged by a company, Ms. Couldrey says it doesn't get involved in the day-to-day business. "We want to stay out of the operations of the company," she says.

Overbond CEO Vuk Magdelinic learned about The Upside Foundation from Mr. Antoniades and wanted to pledge as part of the 150 campaign.

"It really resonated in terms of what they're trying to accomplish [from a charitable-giving perspective] and the community effect that we are able to achieve," says Mr. Magdelinic.

Both Mr. Lau and Mr. Magdelinic say their companies have no plans to trigger a "liquidity event" in the near future. Still, Mr. Magdelinic believes getting 150 companies, or more, to pledge by the end of the year will increase the odds of another exit or IPO being converted into charitable giving.

"It's a very smart concept, to help communities and charities in a meaningful way," Mr. Magdelinic says. "It's quite a unique program. I hope it grows beyond 150."

Daniela and Alexa Roeper are in their twenties, and the sisters already have experience getting an idea off the ground.

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