February 04, 2015

Shake Shack IPO Is Charity’s Gain

NYSE/Valerie Caviness NYSE/Valerie Caviness

Shake Shack’s public offering last week exceeded all expectations, leading a company that began as a hot-dog cart and grew to $85-million in sales last year, to attract investments now worth $1.7-billion.

Understandably such a Cinderella story has received enormous attention. But what most people didn’t hear about is that one of Shake Shack’s early investors realized the potential of the company and decided to give our nonprofit organization, Share Our Strength, a stake. His foresight and generosity has the potential to become the story that affects society over the long haul.

Last year, a longtime Share Our Strength supporter became an investor in the Union Square Hospitality Group (the parent company of Shake Shack) but immediately transferred $1-million worth of his stock to our anti-hunger organization, after making sure that the privately held company was comfortable with a nonprofit holding an equity stake.  (Union Square Hospitality Group CEO Danny Meyer has been on the board of Share Our Strength for more than 20 years, and his restaurants have supported Share Our Strength over the years.) The investor, who prefers anonymity, believed the stock’s value could increase and achieve a greater return on investment than many of our traditional fundraising approaches.

It’s not clear yet what the ultimate valuation will be of the Union Square stock we hold. But it looks like even a small equity stake in a growing company will enable us do more to curb childhood hunger than some other forms of nonprofit revenue generation. Earlier pioneers of such a concept include the Entrepreneurs Foundation in Silicon Valley, and the 1-1-1  model of “integrated corporate philanthropy” being promoted by Salesforce founder and CEO Marc Benioff, who urges that companies donate 1 percent of their funds, time, and equity to nonprofit organizations.

The stock market enables those with capital to leverage their resources by aligning with market forces that drive growth. Fortunes have been made that way, but capital-constrained nonprofits are rarely able to participate, relegated instead to being on the outside looking in.

While we would never put contributions from donors at risk in anything as speculative as an IPO, it is wonderful to see a savvy investor risk personal funds on behalf of a social return instead of on personal financial rewards.

I hope other investors and nonprofits will come to see the potential in such relationships and a body of best practices will build to guide and inform future efforts. This is still virgin territory for investors and nonprofits alike. But the issue is not whether such transactions should be done, it is how best to understand the most appropriate and effective way to do them.

The original impulse behind the first Shake Shack in Madison Square Park was to help serve the surrounding neighborhood and build a stronger sense of community. Both Danny Meyer and Shake Shack CEO Randy Garutti have described one of their goals as creating a new kind of wealth called “community wealth” that not only enriches individuals and corporations but also makes communities stronger.

What better place to start than ensuring that every purchase of a burger, fries, or shake translates into a school breakfast or summer meal for hungry kids who may never have even heard of Shake Shack. That’s the vision of our generous anonymous investor, and that’s Share Our Strength’s promise to keep.