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There's Nothing Wrong - Or Even New - About Zuckerberg's New LLC

Much has been made of Mark Zuckerberg and Priscilla Chan’s decision to use an LLC, not a nonprofit, to oversee $45B worth of Facebook shares.

I’m less interested in a moral critique of the Chan Zuckerberg Initiative than examining what it signals about the future of philanthropy. Like it or not, today’s outsized wealth aggregators are coming from Silicon Valley. We owe it to ourselves to understand what their version will look like. The 19th and 20th century era of philanthropy was a sort of “mea culpa”, driven by concepts of benevolence, altruism, and perhaps guilt. The Bill Gates era of charitable giving was arguably the tail end of that chapter.

But the Mark Zuckerberg era of charitable giving isn’t “charitable” or “giving” at all. This generation of philanthropists, big or small, wants to see a return on their social investment. They want to see organizations with revenue strategies. They despise financial leeches, charities begging for money in, money out, and are excited by models that help other people help themselves. It’s the reason why Kiva and Kickstarter have thrived. It’s why Watsi was such a hit coming out of Y Combinator. These are charity models that invest in their beneficiaries, that help somebody Do A Thing. Donors know exactly where their dollars are going and whom to hold accountable.

Even YC Research, a nonprofit recently created by Y Combinator to fund scientific research, took care to brand itself as output-oriented. “Compensation and power for the researchers will not be driven by publishing lots of low-impact papers or speaking at lots of conferences — that whole system seems broken. Instead, we will focus on the quality of the output,” Sam Altman wrote.

(In another nod to this trend, remember that Larry Page drew ire last year for boldly announcing that corporations are worthy philanthropic causes, calling Elon Musk’s SpaceX a “philanthropic company”.)

And if that’s how we think of philanthropy today, the Chan Zuckerberg Initiative, LLC, is more a symptom of our zeitgeist than a snubbing of philanthropy. In terms of effectiveness, an LLC is arguably a better choice than a nonprofit to mobilize on all fronts. If philanthropy is an investment portfolio, an LLC allows dollars to go towards grants, loans, crazy big bets, and everything in between. A nonprofit status provides far less flexibility.

Silicon Valley’s views on philanthropy are not dissimilar to its evolving views on that other major nonprofit entity, the government. A recent TechCrunch article examining the political attitudes of Silicon Valley suggested that “Tech startup founders see the government as an investor in citizens, rather than as a protector from capitalism.” In other words, we don’t want our social services to look like bogged-down centralized bureaucracy. We want government to enable us to take matters into our own hands.

In this new era of philanthropy, one could argue that VCs are the new foundations. VCs take advantage of their low hit rates to invest in companies that are more about gaining social than financial currency. Andreessen Horowitz understands this better than anybody, having blazed forward on a number of infrastructure-type investments including GitHub, reddit, imgur and Product Hunt. From any one of these companies flows a thousand creations.

Funding startups in areas like health, food, and urban areas aren’t counterculture anymore. Lyft, Oscar and Sprig are well-funded companies who wear their mission on their sleeves. And new VCs are cropping up that explicitly articulate a social vision, including Obvious Ventures, OS Fund and even a16z. (If software is eating the world, then isn’t a16z its benefactor?)

Of course, not everything can be solved through a free market approach. I’m interested to see how traditional philanthropy will play with Silicon Valley’s version. There are serious dollars involved: the Bill & Melinda Gates Foundation has a $42B endowment, the Ford Foundation $11B, the Hewlett Foundation $9B. (For comparison: a16z has $4B under management, NEA $13B, Sequoia $10B.)

One idea for how things might shift: foundations focus more on funding individuals and advocacy, and venture capital firms fund market solutions. Individuals and advocacy seed cultural change, and companies execute upon those ideas. (This approach may be one reason why basic income is one of the few non-market solutions that’s found favor in Silicon Valley: because it supports the individual.)

Finally, let’s not forget that in a funny way, the Chan Zuckerberg Initiative is pushing philanthropy forward in all the radical ways that grantmakers themselves have been advocating for. Although the tech industry may not have seen it, finding new vehicles for social change has been a hot topic in philanthropy for awhile now. People like Dan Pallotta and Jim Collins urged nonprofits to bring business concepts of revenue, accountability and metrics to their work. The social entrepreneurship and impact investing movements grew because people believed social change couldn’t be accomplished through grant making alone. And legal experiments like benefit corporations and L3Cs are trying to create more flexible alternatives to nonprofits.

Let’s call the Chan Zuckerberg Initiative what it is: a radical, albeit expensive, experiment in philanthropy. Our job now is to hold them accountable to their mission. I’m excited to follow along.

(Cross-posted from Medium.)