- July 12, 2018
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Making wealth worth more for social impact
By Sal Giambanco
Silicon Valley is full of successful entrepreneurs who have figured out how to combine vision with capital to solve difficult problems. That proven approach is what built so many companies, from the first personal computers to the latest social networking apps.
Over time, we are seeing many of these same entrepreneurs use the wealth they have acquired in business to make a social impact. Some are creating family foundations aimed at supporting nonprofit organizations; others are choosing to engage in “impact investing” in support of for-profit social entrepreneurs.
Very few of them, however, structure their social impact support to do both, missing a chance to apply the very problem-solving approach that built the wealth they now seek to share.
Today, both nonprofits and startups are changing lives for the better using the very technology many of these entrepreneurs have created. Those two paths to change are neither competitive nor mutually exclusive. Indeed, what really matters is which path is most likely to succeed and for many of the world’s most pressing problems, we need both.
This “problem first, tool second” insight is what led eBay founder Pierre Omidyar to transform his family foundation into Omidyar Network a decade ago. Omidyar Network now supports social entrepreneurs and their innovative ideas through impact investing and grants. In the 10 years since making the change, it’s also become clear that the “flexible capital” approach allows for a more ambitious agenda for change because it allows for the market-based solutions that are needed to address long intractable challenges at scale.
Financial inclusion is a good example. Since 2004, Omidyar Network has invested more than $100 million in microfinance and other efforts across 15 NGOs and 13 for-profits. For-profit funds make equity investments in startups that offer quality affordable financial services products to low-income consumers. Grants support organizations that create infrastructure and address policy changes needed to help the sector scale. This flexible approach has resulted in more goods and services reaching more beneficiaries more quickly.
The same flexible approach is more likely to succeed when it comes to other significant global concerns, ranging from climate change and education to poverty alleviation and women’s empowerment. In fact, it’s difficult to imagine creating lasting, scalable change through nonprofits alone. Market-based solutions shouldn’t be off the table simply because they are for-profit.
Making a lasting positive change in people’s lives often comes down to making small, practical changes in their day-to-day routine. Think about how clean cook stoves reduced deforestation and resulting carbon emissions from burning wood while making women’s lives easier and safer. Or the Bill & Melinda Gates Foundation’s pursuit of a low-water toilet that will conserve water and improve sanitation in emerging markets. Both of these are clear proof that commercial products can be effective tools of change. A market-inclusive approach can also bring in more capital.
My advice to the new generation of philanthropists is to cling fast to the lessons of your business success and apply them to your philanthropy. Examine the best way to solve the problem you are passionate about and then create an organizational structure to execute on the vision.
This is how they can do more than share the wealth. It’s how to make wealth worth more to society.
Re-disseminated by The Asian Banker from The Huffington Post