A new crop of billionaire activists are signaling that they're going to use all the tools at their disposal to tackle challenges from climate change to income inequality.
Those tools include not only grants and advocacy, but high-impact private investments in companies, funds and high-leverage mechanisms such as loan guarantees and first-loss protections for commercial investors.
The latest megafunders to carve an alternative to traditional philanthropy are Mark Zuckerberg and Priscilla Chan, who welcomed the birth of their daughter Max with a pledge to establish the Chan Zuckerberg Initiative. The new entity will be structured as a limited liability company, not a private foundation, according to an SEC filing and confirmed to Buzzfeed. That gives it the flexibility to fund non-profit organizations, make private investments and participate in policy debates, according to the filing.
We have a basic moral responsibility to tilt our investments somewhat more, as a society and as individuals.Mark Zuckerberg
Zuckerberg said he'd sell or gift no more than $1 billion of Facebook stock each year for the next three years, though he pledged to ultimately give away 99 percent of his Facebook shares, now valued at over $45 billion.
Zuckerberg and Chan, a pediatrician, had already signaled what kind of players they might be on issues such as climate change. To kick off the climate talks underway in Paris, they joined more than two dozen fellow billionaires including Tom Steyer, Mark Benioff, Reid Hofman, Vinod Khosla, Jack Ma and led by Bill Gates, in the Breakthrough Energy Coalition, pledging $7 billion for the public-private Mission-Innovation, to help countries drive innovation to speed their transition to a low-carbon economy.
“Over the next year, we will work together to develop effective and creative mechanisms to analyze potential investments coming out of the research pipeline, create investment vehicles to facilitate those investments, and expand the community of investors who join us in this endeavor,” the Breakthrough group said in a statement (see, “The $1 Trillion Challenge: Can Clean Energy Investors Fulfill Global Climate Deal?“).
The Chan Zuckerberg Initiative will focus on “personalized learning, curing disease, connecting people and building strong communities.”
In forming an LLC, not a foundation, the Zuckerbergs are emulating not earlier generations of billionaires like Ford, Rockefeller, Hewlett or Packard nor even Gates, who co-chairs the world's largest foundation, with $70 billion in assets.
Rather, they are taking the path of eBay co-founder, Pierre Omidyar, whose philanthropic investment firm, the Omidyar Network, is structured as both an LLC, from which it makes private investments, and an 501(c)(3), through which it makes grants. The Omidyar Network Fund had assets of $320 million at the end of 2013.
The structure expands the Chan Zuckerberg Initiative's toolkit to solve the world's problems to include private investments able to generate public good. Profits from private investments will fund additional mission-driven work.
“We must build technology to make change,” Zuckerberg and Chan wrote in the letter to their daughter. “Many institutions invest money in these challenges, but most progress comes from productivity gains through innovation. We must participate in policy and advocacy to shape debates. Many institutions are unwilling to do this, but progress must be supported by movements to be sustainable.”
“We must make long term investments over 25, 50 or even 100 years. The greatest challenges require very long time horizons and cannot be solved by short term thinking.”
The couple added, “Can we cultivate entrepreneurship so you can build any business and solve any challenge to grow peace and prosperity?”
In 2015 alone, the couple have backed a number private education companies, including:
- $5 million in MasteryConnect, a maker of software that helps teachers plan, teach and measure student progress;
- $15 million in AltSchool, a U.S.-based community of micro-schools that prepares children for the world through personalized learning; and
- $10 million in Bridges Academies, an East African private elementary school network.
“Having this child has made us think about all of the things that should be improved in the world for her whole generation,” Zuckerberg said in a video released by Facebook. “We have a basic moral responsibility to tilt our investments somewhat more, as a society and as individuals.”
Chan added, “Starting this work now, in investing in the future, is an easy decision for us.”