January 21, 2007 – They seemed so young. That’s what Peter Hero remembers most about the day, nine years ago, when Pierre Omidyar and Jeff Skoll walked into his office at Community Foundation Silicon Valley with an odd idea to give away a fortune. Omidyar wore jeans and a T-shirt; his thick black hair was tied back in a ponytail. Skoll had on what looked to Hero like a varsity jacket. He couldn’t still be in high school, could he? Hero thought they were smart kids, nice kids too, but he’d never heard of their company and he was unsure about its prospects. “I don’t know,” he said to a colleague after they left. “Would you buy something from an online auction?”
EBay was still a quirky little online network, and philanthropy a strange concept for the executives who ran it. Omidyar and his wife Pam, a college crush, shared a suburban apartment. Skoll lived in a group house while he paid off business school loans. (When he finally bought his own place, a big place, he lived in the guest apartment over the garage.) As for the company, it was profitable, but not so rich that it could divert cash to charity.
Omidyar, though, had created EBay as a tool to empower small buyers and sellers, and Skoll, the site’s first full-time employee, shared his democratic values. They didn’t talk about customers; they talked about “the community.” Shutting the community out of EBay’s upcoming IPO—a practical necessity—seemed ungrateful. So they decided that EBay would endow a charitable foundation with pre-IPO stock and share its wealth that way.
Omidyar and Skoll offered Hero $1 million worth. But nobody had ever endowed a foundation with pre-IPO stock, and none of the other nonprofit partners they had approached wanted to experiment. Foundations did things a certain way, it seemed, and it was hard to persuade them to change. “We were told no so many times, I lost track,” recalls Brad Handler, then EBay’s lawyer.
Hero wavered, but finally agreed to the pair’s only condition: Hold the stock for at least 12 months. When Community Foundation Silicon Valley sold the shares a year later, they were worth more than $40 million.
Suddenly, the idea seemed a lot less odd.
Since EBay went public in 1998, Omidyar, now worth about $8 billion, and Skoll, worth about $5 billion, have become two of the nation’s leading philanthropists. And they have done so in ways that seem likely to shape their generation’s philanthropic legacy—first poking at the firewall between the nonprofit and business worlds, then punching through and building a network of investments that cross back and forth.
Skoll runs an influential foundation that gives mezzanine funding (in venture capitalist lingo) to small nonprofits that, with infusions of cash, are ready to grow. He also runs for-profit Participant Productions, which he hopes can move public opinion with films such as “Fast Food Nation” and “An Inconvenient Truth.” Omidyar’s approach is more radical. He has completely abandoned the traditional foundation structure—endowment money managers invest in whatever will make the most profit, and 5% a year is set aside for noble causes—and is putting up his entire fortune to back both for-profit and nonprofit projects that will add up to social good and market-rate returns.
When fortunes shift, ideas tend to follow. In 1975, New York-based foundations controlled eight times more wealth than those in California, which, in terms of institutional philanthropy, was comparable to Indiana. By 2005, California had pulled nearly even. Throw in Microsoft-powered Washington state, and the high-tech West accounts for more than $100 billion in foundation wealth—40% more than New York and growing more than twice as fast since the early ’90s.
Once at the forward edge of the Internet age, Skoll and Omidyar today are at the edge of something else—a wave of new thinking out of Silicon Valley that, if the tech industry keeps minting new billionaires, could shape the way huge sums of private capital get invested in social change.
Loyalty to customers is an unlikely path to charity. But the tech economy offered guys like Omidyar, 39, and Skoll, 42, few philanthropic role models. In Seattle, Bill Gates set up a fledgling foundation in 1994 in his dad’s basement, but the Microsoft founder still had a reputation as a ruthless businessman—surely his charity served some ulterior motive. Closer to home, William Hewlett and David Packard were famous for their generosity, but they built their charitable institutions as gray-haired titans. As for the established East Coast foundations, to a cocky dot-commer they could look an awful lot like the enemy—big, bureaucratic, Industrial-era firms.
In the early ’90s, a handful of wealthy executives and investors, most of them connected in some way to the budding tech boom, began to think about how else philanthropy might work, about how they could take what made them rich in business and apply those tactics to charity. One was George Roberts, a Bay Area financier who thrived on Wall Street in the ’80s. Roberts was eager to do something about the widespread homelessness in San Francisco, but he wanted to know that his contributions would make a difference. He wanted to track his contributions the way he tracked his investments. So he hired the former director of a downtown clinic for homeless teens, Jed Emerson, and told him to find organizations that moved people permanently off the streets. “I’m going to think about this as an investment fund,” Roberts told him. “I’ll give you a checkbook. I’m investing in you, and I’m going to hold you responsible.”
“I was really shocked,” Emerson recalls. “I had never heard any of this language before.” Still in his 20s, Emerson moved easily among San Francisco’s squatter hovels and shooting galleries. He wore ripped jeans and a black leather jacket to the office. Now he began to plow through business books. He signed up for accounting seminars and subscribed to the Wall Street Journal. “It was pretty pathetic for a while,” he says with a laugh. He picked a new kind of nonprofit for Roberts to support—mostly small enterprises that would employ the homeless and feed profits back into support services such as job training. And gradually, a method emerged: focus on a small portfolio of grantees that make the most of a buck; give them large, long commitments, including money for infrastructure such as staff and computers, so they don’t spend all their time fundraising; get in their offices and work with them like partners instead of waiting for rosy annual reports; and hold the groups to quantifiable goals—or, as Emerson called it, “social return on investment.”
Down the peninsula, one of the valley’s most influential venture capitalists, John Doerr of Kleiner Perkins, had a similar take on local education reform. Up in Seattle, Aldus founder Paul Brainerd and a young Microsoft refugee named Paul Shoemaker were about to launch a venture-giving circle, Social Venture Partners, that would spread to more than 20 cities. These new-style funders were mostly unaware of each other, and the philanthropic community mostly unaware of them, until a 1997 Harvard Business Review article—”Virtuous Capital: What Foundations Can Learn from Venture Capitalists”—gave the movement buzz and cemented a name: venture philanthropy.
Venture philanthropy appealed to young millionaires and billionaires fresh off their own venture capital-fueled successes. Skoll and Omidyar both gave to a new social venture fund while they were still at EBay; so did the founders of Web search pioneers Yahoo and Infoseek. But dot-com celebrity began to give venture philanthropy a complicated reputation. “The ‘Virtuous Capital’ article unintentionally drew a hard line between venture philanthropy and traditional philanthropy. That piece, and the natural arrogance of youth and wealth, set a real negative tone,” Emerson says.
There were also big parts of venture capitalism that simply didn’t translate to the nonprofit world. Venture philanthropists preached greater impact with every dollar, but venture capitalists make their money backing a lot of losers in search of a few blockbuster successes. And there is no such thing as a nonprofit IPO.
Ultimately, venture philanthropy was at least as much a metaphor as it was a set of practices. And the metaphor suffered badly when the Internet bubble burst. But if the label “venture philanthropy” has become something of a dated dot-com brand, the cultural and economic climate that created it remains. And along with it, so do most of venture philanthropy’s good ideas, part of a broader trend that is gaining in influence.
Foundations and small nonprofits continue to co-opt the tactics and the vocabulary of business. The number of graduate programs in nonprofit management has increased from 17 in 1990 to more than 200. More and more nonprofits open storefront and online businesses and ditch the clunky “nonprofit” identity for a new handle, “social entrepreneur.” But the co-option goes both ways, a phenomenon that venture philanthropy never accounted for. Whole Foods and American Apparel have built big consumer brands out of social responsibility. Commercial investors such as Generation Investment Management market portfolios that support progressive industries. Forget for a moment that philanthropy is supposed to mean simply giving money away, and a whole array of tools to do good appear—tools a network-minded philanthropist might think to connect.
Skoll is shortish and trim, with an eager, gap-toothed smile and a quiet, aboot-accented voice (he has lived in the U.S. since his late 20s and holds dual Canadian-American citizenship). He is calm and curious and determined to convince you that he is unimportant. Failing that, he gets restless, like he’s trying to shrug off the weight of undeserved attention.
It is hard to imagine him provoking his staff. Yet that’s what he did when, in 2004, after three years of earnest but unfocused charity, he proposed bringing in marketing consultants to hone the foundation’s brand. “I thought it was self-aggrandizing,” recalls Sally Osberg, the foundation’s president and CEO.
The consultants poked around the office and quizzed the staff. They interviewed entrepreneurial nonprofits and competitors in the foundation market. Bill Drayton, founder of Ashoka, which gives grants to social entrepreneurs around the world, made a strong impression. “What a social entrepreneur needs,” Drayton told the consultants, “and what a foundation provides is an almost perfect mismatch.”
Skoll came to agree with Drayton’s assessment. The organizations Skoll admired needed longer-term funding than most foundations offered. They needed more flexibility with their money. They needed a funder to partner with them and brainstorm on how to measure success (most foundations measure inputs and outputs—the amount spent on a tutoring program and the number of kids served—and then ignore more meaningful data, such as who those kids are and how tutoring affected their grades). They needed help getting their message to a wide audience. And they needed their own professional field: Inhabiting an ill-defined space between the nonprofit and for-profit worlds, many entrepreneurial do-gooders felt isolated and misunderstood.
When the consultants left, the Skoll Foundation had some nice new graphics, a tighter slogan and a new purpose. The staff got away from thinking about issues such as education and health—program areas, in foundation jargon—and focused on a method: social entrepreneurship. Take Benetech, one of Skoll’s newer grantees. Founder Jim Fruchterman came up with the idea for a company that would develop and sell socially beneficial technology, such as reading machines for the blind or low-cost land mine detection. “My venture capitalist just barfed on the idea,” Fruchterman says. The markets were too small. The big foundations, meanwhile, thought his organization sounded too much like a company. But Skoll saw Benetech as a nonprofit that could earn some revenue, and maybe even break even, offering a high social yield on his nonprofit dollar.
Skoll endowed a center at Oxford’s Said Business School to study and nurture this kind of social entrepreneurship. (U.S. business schools educate too few foreign students, Skoll says; the movement has to be global.) Meanwhile, his Skoll Foundation began to identify nonprofits with ideas capable of transforming a political, social or economic market, giving them three to six years of “mezzanine capital” to help them “achieve scale”—that is, to go from local to regional, or regional to national.
The approach has a lot in common with the ideals of venture philanthropy. But there are important differences. “I hear venture philanthropy and literally the hair on the back of my neck stands up,” Osberg says. While venture philanthropy was supposed to get away from the high-handed treatment that remains too common among big foundations and the nonprofits they support, many venture philanthropists could seem even more arrogant. “I remember sometimes feeling totally insulted by these venture funders, who seemed to think that the nonprofit world is full of people who can’t manage, or think, or don’t really know how to run things,” says the former director of a highly regarded San Francisco nonprofit that received venture philanthropy funds. “These business people are going to come in, it’s going to be really whiz bang, they’ll get out their spreadsheets, crunch some numbers, pound their fists on the table, and get things going like a business.”
Skoll, however, “was always humble,” Osberg says. “He didn’t think that he had all the answers.” Skoll’s work isn’t about holding flaky nonprofits to account, she explains, but about identifying great ones and amplifying their effect. He tends to seek out organizations that already have a well-developed sense of the ends they want to achieve, clear early success and a realistic plan to get bigger.
That isn’t just a departure from venture philanthropy; it’s a departure, too, from the practice of many established foundations, which often encourage nonprofits to adapt to their narrow interests—poor women, healthcare for kids—by drawing up new initiatives, then soliciting bids for the work. “Nonprofits twist themselves into knots trying to convert their business into something that appeals to a funder,” Pierre Omidyar says. “Then when they pitch to another funder, they twist themselves into different knots.”
The Skoll Foundation, Osberg explains, is the sum of its grantees, a network of peers. They want to grow, connect and promote partner organizations. It is a subtly radical way of thinking, but one rooted in the networked culture of Silicon Valley. “In the old American business model, the relationships between a firm and its investors, bank, suppliers and customers tended to be very arm’s length,” says Annalee Saxenian, dean of UC Berkeley’s School of Information. “You would make a deal and report back after some specified period of time. The new business model is much more engaged. Everyone learns from one another, and there is a continuous flow of information. The firms are more specialized, but they see each other as collaborators.”
That culture is also restless, and Skoll is no exception. He began to worry that his network of nonprofits reached a relatively small number of people and to wonder how else he could invest his money. Electoral politics seemed like a bad investment—a common sentiment in libertarian-leaning Silicon Valley. Books? Authors such as Ayn Rand, Aldous Huxley and George Orwell had made a huge impression on Skoll as a young man, but that kind of literature hardly struck him as a growth market. Then he wondered about movies—”the books of our generation,” he calls them.
It was on his mind in 2002 at a small dinner party hosted by venture capitalist George Zachary. Skoll wound up sitting next to Richard Barton Lewis, a producer of “Robin Hood: Prince of Thieves” and “Backdraft.” Skoll asked him why activist movies such as “Gandhi” had become so rare. Lewis explained that the studio system was set up in a way that discouraged them. “If a studio puts out 12 movies in a year, and the average cost is $100 million,” Skoll says, “one movie could be the difference between a good year and a bad year. If you bet on the superhero movie, people will understand. If you bet on the ‘issue’ movie, you’d lose your job.”
Skoll could afford to bet wrong quite a few times. After an abortive investment with Lewis, Skoll headed south to try and start something of his own. In Los Angeles, a former head of Columbia Pictures, Peter Schlessel, a young studio staffer and Skoll holed up in Schlessel’s office on the Sony lot and began to screen old movies and study old scripts, trying to figure out what a world-changing film looks like. At first, their definition was pretty narrow—heavy dramas like “Gandhi.” Gradually, they began to think bigger.
In 2005, Participant Productions released its first four films to theaters: “Syriana,” “North Country,” “Murderball” and “Good Night, and Good Luck.” Skoll went to the Oscars with 11 nominations. Then came the release of “An Inconvenient Truth,” the third-highest-grossing documentary in history. Richard Linklater’s take on “Fast Food Nation” followed last fall, and a pair of movies about the Middle East and Central Asia are in production—adaptations of “The Kite Runner” and “Charlie Wilson’s War.”
A Participant movie is just one thread in a whole web of activity. “An Inconvenient Truth” generated unprecedented public interest about global warming. It inspired online guides to conserving energy at home, a school curriculum to accompany the DVD release, Hollywood’s first green publicity campaign, pledges of money from Paramount Studios (5% of profits to climate change research), and the participation of Al Gore, who is training 1,000 fans around the country to give his famous global warming slide show.
In many ways, Participant’s success has come quickly. Still, Skoll says, “I’m kind of glad I don’t have to make a living doing this.” His risk assessments hinge less on pure commercial viability and more on what Jed Emerson calls blended value and others refer to as a double or triple bottom line. “An Inconvenient Truth” was unlikely to be a big commercial hit, but it would be cheap and bring an important argument to a decent-sized audience. In other words, it offered pretty good value. “Gridiron Gang”—a recent movie about kids in a juvenile detention center, starring the Rock—didn’t make the cut. “We really liked the script,” Skoll explains. “But we realized, if we invest, we’re going to lose $5 to $10 million. If we were to invest that in groups that work in juvenile justice, would that do more good than the movie?” They decided it would.
Omidyar hasn’t paid close attention to Skoll’s foundation, but Participant fascinates him. “Jeff has discovered that film is a way to give someone a near-experience,” he says. “It’s not a public-service announcement that says you can make a difference. It’s helping people discover their own power.”
Participant’s for-profit activism has begun to influence Skoll’s nonprofit ventures. Skoll Foundation staff members have started to look at potential grantees as a movie producer might, evaluating their work as narratives, to figure out which approaches to social change might inspire public interest. Participant has also helped shift the culture at Capricorn Management, the firm that invests Skoll’s personal billions and his foundation’s endowment. “We’re thinking about ways to align our investments with those of the foundation or Participant as well as to avoid any direct misalignment,” says Stephen George, Capricorn’s chief investment officer. The trick, George says, is to invest in a sector’s best companies rather than blacklist entire industries. “Toyota over Ford,” he says.
He defends the strategy as more than just feel-good investing. “We believe these kinds of companies will be more valuable over time.” Capricorn has also started investing in progressive funds—one focuses on clean energy, another on microenterprise—and George believes it can do more without jeopardizing returns.
Skoll stepped down as CEO of Participant in August. As chairman, he will guide the company’s expansion into new forms of media (“TV, newspapers, satellite, digital media,” he says) and that means new avenues for activism. A television drama, for instance, might be on the air long enough to propel legislation through Congress. Most of all, Skoll anticipates looking at his ventures in an increasingly integrated way—argument and entertainment and entrepreneurship, nonprofit and for-profit and break-even. His foundation’s chief operating officer, Richard Fahey, sums up the variety and the convergence: “We have the view that our capital is a continuum.”
Scott Heiferman, the CEO of Meetup.com, remembers the first time he saw Pierre Omidyar’s name appear in his e-mail in-box. Omidyar was something of a hero to the geeks at Meetup. The values he built into EBay—a free market built on trust, a profit model based on empowering individuals—inspired an entire generation of online social networks. (Plus, EBay helped Heiferman build an extensive collection of “Where’s the Beef?” memorabilia.) But nobody at Meetup had ever seen the guy. “Getting an e-mail from Pierre Omidyar is like getting an e-mail from Elvis,” Heiferman laughs. “Does he exist? Is he dead?”
I had the same impression of Omidyar: a media-shy billionaire with a mysterious foundation that isn’t actually a foundation. His intensely protective staff said little to change my mind in the dozen or more conversations that it took to arrange a visit to Omidyar’s office. But when we finally met last fall, I found him to be surprisingly unguarded. He was warm, thoughtful, talkative, even charming. In his loose blue polo shirt, tucked into pressed khakis, he looked more like the guy who shows up when the network goes down than someone with his own jet.
His staff insists he isn’t actually reclusive, just uncomfortable with notoriety. Helicopters have buzzed a couple of his houses, flying low so photographers could snap his property. If he goes out for coffee in Silicon Valley, strangers corner him with business proposals. “I walked into the grocery store with Pierre once and people turned around and pointed,” Brad Handler says. When Omidyar quit his day-to-day responsibilities at EBay, soon after the IPO, he and his wife moved to France, where he had lived as a child; now they spend most of their time at a house in Nevada. His efforts to live a sleepy suburban life create some tension with his star status in Silicon Valley.
When Omidyar’s e-mail arrived in the summer of 2002, Meetup was experiencing something of a moment. Conceived as an online platform to bring strangers together around shared interests such as Sci-Fi television or purebred dogs, the website turned out to be a great tool for grass-roots political organizers. Vermont Gov. Howard Dean, once an obscure presidential candidate, at one point looked like he might ride a wave of Meetup support all the way to the White House. Robert Kagel, a venture capitalist who bet on EBay, was interested in backing Meetup and wanted to know what Omidyar thought. In the end, Kagel backed away, but Omidyar stepped in.
When Omidyar offered to invest, Heiferman asked if Meetup should be a nonprofit. “I was surprised by his strong, instant reaction,” Heiferman says. “He said no. In order for it to be huge, it’s got to be a for-profit.”
The conversation stuck with Omidyar. He had opened a private foundation around the same time Skoll did and funded similarly entrepreneurial nonprofits. He took his philanthropy seriously. But he never could have built something as big as EBay with grant money. He asked his financial advisor what would happen if his foundation invested in both nonprofit organizations and for-profit firms. His advisor: “You’d have to pay more taxes.” Omidyar: “Is that it?”
In the spring of 2004, Omidyar threw out his foundation letterhead, fired staff, dissolved his private investment office and moved everyone into a building south of San Francisco. He established the new entity, Omidyar Network, as an organization with three checkbooks—a for-profit checkbook for investments, a for-profit checkbook for overhead and a 501c3 checkbook for traditional foundation stuff. Omidyar took a desk in a cubicle, like the one he had at EBay, decorated with a bust of Adam Smith and not much else.
“People in the field were shocked and disappointed when it happened,” says Laura Arrillaga, founder of SV2, a venture philanthropy fund, and a lecturer at Stanford. “This is one of the most high-profile new generation technology tycoons, and he has such an opportunity to influence the giving of tens of thousands of people, and for him to essentially combust his private foundation . . . it concerned me.”
He wasn’t abandoning philanthropy, though; he was marking a new avenue for altruism. He built a network that could align strategic philanthropy, socially responsible investing and sustainable business. Research, lobbying, political advertising—Omidyar Network would be a platform that could do it all.
He began to find for-profits that advanced social goals like nonprofits, and nonprofits that earned money like for-profits. He ignored traditional corporate social responsibility (where good works tend to be side projects) and looked for businesses where the social mission and the business mission were inseparable. For instance, the website Global Giving, a hybrid nonprofit/for-profit investment, publishes a catalog of entrepreneurial projects around the developing world—a computer lab in rural Thailand, a crisis hotline for women in India—and takes a tiny cut of each small online contribution. In order to survive, Global Giving must grow; when it is doing a high enough volume of good, it will be self-sufficient.
Putting callous investors and nonprofit do-gooders in one office (and one with few walls, at that) led to some culture clash. Especially when Omidyar decided that everyone, regardless of his or her professional background, would be responsible for both nonprofit and for-profit deals. He believes it’s making them more imaginative, and more rigorous. “For an early-stage investment of $250,000 in a start-up, you do a lot of due diligence,” he says. “You spend a quarter of that time to give a $5-million grant to a nonprofit.” He laughs. “We’ve tried to apply a little more for-profit due diligence to our nonprofits.”
Omidyar found the first big application for his platform at a dinner for Mohammad Yunus, the Nobel Prize-winning economist who invented microcredit and founded the Grameen Bank. Most of the world’s microlending, Omidyar learned, is done with nonprofit cash. The more he heard about it—the high success rates at getting people permanently out of poverty, the low default rate on small business loans—the more he believed it was a viable business opportunity. He wondered what it would cost to bring microloans to every poor family in the world, based on the Grameen Bank’s experience. After a few rough calculations, he figured it was probably $50 or $60 billion.
“You’re like, that’s a lot of money,” he says, and it is—if it has to come from foundations. But private capital is functionally limitless. Look at it that way, he says, and “$60 billion is nothing.”
Today, Omidyar Network is committing most of its money and energy to commercializing microfinance—turning it into a mainstream investing opportunity. Omidyar gave $100 million to the investment office at Tufts University, his alma mater, with the condition that money managers only invest in for-profit microfinance institutions. “It’s a $100-million carrot,” Michelle Goguen, a family advisor, explains. Omidyar is also funding academic research, and this year will begin lobbying foreign governments to reform local banking regulations so microfinance outfits will have an easier time attracting global capital.
“Banking is not the most exciting business in the world,” he says, smiling. “But it’s a business. If you can apply business principles to this segment, you can lift people out of poverty.”
“I don’t believe that there is a for-profit answer to everything,” he adds. But if for-profit capital can do more good than it does today, foundations can concentrate their resources where they are most needed. “The largest impact we can have with this wealth,” he says, “will be testing a theory that business can be a tool for good.”
Together, Skoll and Omidyar control a tiny share of the nation’s foundation wealth. But just as clusters of small firms have shifted the American economy since the 1990s, they are showing disproportionate cultural and intellectual clout. “We used to kid at Harvard that every MBA wanted to make a million dollars and then go be secretary of the Treasury,” says Kirk Hanson, Stanford’s first professor of business ethics in the 1960s and a member of the Skoll Foundation’s board. “The dream today is every MBA wants to make $100 million, create a foundation at age 50 and start giving it away.” He pauses, and laughs. “Or 40.”
Larry Page and Sergey Brin, Google’s founders, followed EBay’s example and endowed a philanthropic organization, Google.org, with pre-IPO stock now worth about $1 billion. Then they followed Omidyar’s example and set themselves up as a for-profit network. “I can do investment, grants, lobbying,” says Larry Brilliant, head of the Google network. “Pierre has been a huge influence.”
When I catch up with Brilliant, he is at the airport, returning home from a visit to the Rockefeller Foundation in New York. “Rockefeller is almost the country’s oldest foundation, we’re almost the newest,” Brilliant says, “and we have come to almost identical conclusions about the way to address the world’s problems.” Judith Rodin, the Rockefeller Foundation’s new president, says the meeting with Brilliant was “magical.”
“We realized we both were trying to imagine a different way of working,” she says. “We’re both seeking ways to structure ourselves to be nimble and flexible.”
Neither Skoll nor Omidyar set out to remake philanthropy. They’re simply doing what Silicon Valley entrepreneurs do: testing new markets, teaching and learning from competitors and diversifying their industry. If their attention holds, they will be able to focus their market-tested creativity on the world’s biggest problems for decades—an opportunity their Industrial Age predecessors never had. “I’ve got a good 50 years ahead of me,” Omidyar says. “Knock on wood.”
Douglas McGray is a contributing writer at West and a fellow at the New America Foundation.