Will Omidyarism Conquer Philanthropy?

Remember when Pierre Omidyar was seen as an odd duck in the philanthropy world?

People used to scratch their heads, wondering just what the heck this eBay billionaire was up to as he and his wife Pam melded traditional grantmaking with for-profit investments. Omidyar was routinely referred to as a “philanthropist” who ran a “foundation,” but that’s not how he saw himself. Sure, his Omidyar Network, created in 2004, included a nonprofit foundation, but it also had an LLC—and, boy, did that throw people for a loop. It was hard even to find a term to describe the Omidyar Network. What was this thing?

To some, it was a threat. Omidyar was the Silicon Valley barbarian at the gates of philanthropy—a market fundamentalist with a heart so cold he was ready to profit off of micro-loans to the poorest people on Earth and challenge the thinking of the saintly Nobel Laureate Mohammed Yunus.

Today, all that seems like ancient history. Omidyar’s model for using his fortune to improve the world now seems pretty darn obvious: namely, that wealthy do-gooders should use whatever approaches are best suited to solving a particular problem. In some cases, that might mean backing a traditional nonprofit with a grant; in others it may make more sense to invest in for-profit enterprises with a social mission.

"If you’re trying to make the world a better place, doing so by only focusing on tools in the nonprofit sector is like operating with one hand tied behind your back," Omidyar told the Chronicle of Philanthropy in 2011. In the past decade, the Omidyar Network, which calls itself a “philanthropic investment firm,” has made a long stream of grants and investments worth hundreds of millions of dollars.

To be sure, Omidyar didn’t invent this hybrid model; nor has he been it’s only high profile apostle—Jean Case has also been preaching this gospel for a long time, while Acumen has been investing in for-profits to fight global poverty for nearly 15 years now. I could name other pioneers, too. But Pierre Omidyar—tapping a vast eBay fortune that currently stands at $8 billion—has brought more resources to this new frontier than anyone else, scaling the model globally and across multiple issue areas.

Along the way, his approach has moved from the fringes of the philanthrosphere to the very center of the current conversation about how to use money to advance social change. One funder after another now embraces this thinking, and we’ve been writing about a lot of them lately at Inside Philanthropy. These include newer outfits like the Pershing Square Foundation and the Michael and Susan Dell Foundation, but also older foundations—most notably the Heron Foundation, which we wrote about the other day.

Impact investing and program-related investments may go back three decades in the foundation world, but any number of legacy foundations are now wondering whether a sideline pursuit should become a central instrument to advance their missions. As of now, most are still far, far away from putting for-profit investments on an equal par with grantmaking.

Rather, it’s been the new money that’s led the revolution. Maybe the closest high-profile emulator of Omidyar in recent years has been Laurene Powell Jobs, whose philanthropic vehicle, the Emerson Collective, is an LLC. With a fortune of $20 billion, I suspect we’ll be hearing a lot more from Powell Jobs in coming years.

But the most recent (as well as famous) converts to Omidyarism—and the reason I’m bringing this up at all today—are Mark Zuckerberg and Priscilla Chan, who announced this week that they would invest 99 percent of their Facebook shares, currently valued at $45 billion, to make the world a better place. Their principal vehicle for doing their good works will be the Chan Zuckerberg Initiative, which is an LLC. Like the Omidyar Network, it will invest in both nonprofit and for-profit enterprises. As we’ve reported, Zuckerberg has already been involved in several major impact investments, including to International Bridge Academies—in addition to the growing stream of traditional grants that he and Chan have made, including for Ebola, a public hospital, and education. In other words, the couple has bought into the hybrid model for a while now.

Lots of questions have been swirling around in regard to the tax implications of their latest move, as well as how transparent their new entity will be. These are important questions. But the bigger picture, here, is that Omidyarism is continuing to spread rapidly through the loftiest reaches of philanthropy. Indeed, in other big news this week, a who’s who of mega donors got behind a major new effort to invest in clean energy.

It’s maybe not surprising that within 24 hours of the announcement by Zuckerberg and Chan, the Omidyar Network put out a statement noting that the couple had embraced its model and, in effect, took a bow—one well deserved, I’d say.

Let’s face it: The traditional model of philanthropy is ridiculously limited. Decades from now, we may look back in disbelief at how the biggest foundations in America kept the vast majority of their assets sitting on the sidelines as they tried to pursue hugely ambitious goals using one limited tool for social change, while ignoring the potential of for-profit social enterprises, and abiding by conservative payout rates.

I understand the reasons why moving away from the old model is hard, slow, and scary. Even more so, I sympathize with the ideological discomfort with allowing market-based thinking to penetrate to the heart of the social sector. In a world where too much is already for sale, it’s not an appealing thought that business types may colonize yet another part of society.

But the thing to remember is that Omidyarism is not about throwing out one tool chest and summarily replacing it with one more to the liking of Milton Friedman. It’s about drawing on a much wider array of tools to have impact.

Put that way, Omidyarism is not so threatening—and is, in fact, so obvious as to be elementary. Just as obvious is the idea that do-gooder institutions should bring all their capital into play, as opposed to leaving most of it in the hands of portfolio managers who don’t care one whit about getting a social return. Indeed, one could argue that the current foundation model actually gives more power to the MBA crowd than Omidyarism—since those are the people who actually manage most of the assets of foundations.

I’ve written a lot in the past year about how new philanthropists are challenging the established foundation model—by staying lean and making bigger bets on fewer change agents. Really, though, the biggest challenge to the old order is the fast-rising hybrid model that Pierre and Pam Omidyar have helped scale and that Mark Zuckerberg and Priscilla Chan have just embraced.

Let’s hope that challenge keeps rising.

And, P.S., all that power in the hands in Zuckerberg and Chan still scares the hell out of me.