Silicon Valley's Latest Innovation: Free Market Philanthropy

When Mark Zuckerberg appeared on Oprah next to Cory Booker to announce his first major philanthropic donation — a $100 million contribution to Newark, New Jersey, public schools made in September 2010 — he was the awkward 26-year-old CEO of a startup with a dubious valuation, whose TV appearance was being stage-managed by grown-ups back in Menlo Park, California. The Social Network wouldn’t hit theaters for another week. Getting spammed with Farmville requests was still a thing. And Facebook had just crossed the 500 million user mark. Zuckerberg hoped to transform Newark’s failing school system and then apply that model in other cities, but the local foundation set up by Booker couldn’t even get around laws tying a teacher's salary to seniority. Fast forward to 2016: In August, Facebook knocked off Exxon to become one of the five largest corporations in the world with 1.8 billion monthly active users. Internal decisions at Facebook can now sway presidential elections. In the intervening years, Zuckerberg’s private philanthropic efforts have also matured in size, scope, and sophistication.

This September, when Zuckerberg and his wife, pediatrician Priscilla Chan, announced a $3 billion pledge to improving public health, Chan said the goal was to “cure, prevent or manage all disease within our children’s lifetime.” The allocation was part of a promise the couple made after their daughter was born to give away 99% of their Facebook stock through the Chan Zuckerberg Initiative, a limited liability corporation that gives up the tax breaks of a nonprofit in favor of less oversight and more flexibility.

Zuckerberg isn’t the only Facebook co-founder to think about giving in such heady, but tightly controlled terms. Facebook co-founder Sean Parker donated $600 million to launch a cancer immunotherapy institute this May as part of the Parker Foundation, which is a 501c3 nonprofit. (The foundation has a separate LLC, but says the vast majority of its charitable work is conducted through the nonprofit.) To prepare, Parker and his team studied large-scale historical efforts like Andrew Carnegie’s library legacy, the Howard Hughes Medical Institute, and the Manhattan Project, Michael Polansky, CEO of the Parker Group, the umbrella organization for Parker’s charitable and business initiatives, told BuzzFeed News.

“The library example is fascinating, right?" said Polansky. "When one individual decides [something is] of national importance, how can they get that done to emerge at scale?”

Carnegie, Hughes, et al, had first dibs on applying business know-how to philanthropy. This iteration of individualism, however, has a uniquely Silicon Valley twist. Moguls like Zuckerberg and Parker have been grabbing headlines for approaching giving with the problem-solving heuristics of a hacker, the cunning capitalism of a startup founder, the technological solutionism of a computer geek, and the checkbook of an iconoclast billionaire. But this approach has ended up replicating other tech industry patterns as well, compounding disparity in access to funding, dictating which ideas get attention, consolidating power in the hands of a few billionaires, and hyping radical transparency while ensuring their own secrecy. Even as the mechanisms for giving look increasingly like any other investment vehicle, these nouveau Rockefellers want the public to trust that their motives are pure.

In a call to arms last year, Parker urged his fellow “hacker elite” to apply their unique skills to find “elegant technological and social solutions” to transform the world of giving. “It’s not like we came in and saved the day,” with cancer immunotherapy, said Polansky. Parker was, however, able to "organize things and accelerate it dramatically.” According to Polansky, intellectual property snares, organizational design, and other issues were preventing key scientists from working together. And in Polansky’s telling, eliminating roadblocks in immunotherapy is not that different from building a streaming music service, an idea Parker had been obsessed with before he co-founded Napster. “He learned a lot through that process about what it takes to really solve large-scale problems,” Polansky said.

Another carryover from the startup world is a distrust of older institutions. For example, LLCs have been criticized because donors don’t have to report information like grants or salaries. But Polansky said that charity watchdogs, who monitor those reports, have played a role in lowering nonprofit salaries, which deters talented people from working on important problems. LLCs have also come under fire because, unlike nonprofits, LLCs aren’t restricted from political advocacy work. But Polansky argued that startup CEOs have to think holistically. “It would be absurd to say, 'I’m not going to pay any attention to the government.'”

Rob Reich, a political science professor and co-director of Stanford’s Center on Philanthropy and Civil Society, said the lack of rules means that LLCs can even engage in “outright electioneering.” Donors are denied a tax advantage with an LLC, but they’re free to choose different avenues for social change like investing in for-profit startups.

If tech titans have faith in themselves over the old way of doing things, it makes sense that they've set up their philanthropic efforts like their corporations to give themselves more control.

Emmett Carson is the CEO of Silicon Valley Community Foundation, where Zuckerberg donated roughly $1 billion in Facebook stock from 2012 to 2013 through donor-advised funds (DAFs), the fastest-growing type of charitable vehicle because they allow donors to receive an immediate tax write-off but allocate money whenever they want. Carson says this generation of tech donors acts more like an operator than a patron. As he puts it, they’ll say, “I’m going to send emails, I’m going to send text messages, I’m going to be reading literature. And if you’re nimble and flexible I’ll make some really big investments in you, if we can learn together.”

“It is hard for me to overstate how much of their own reading they will do,” Carson said. "These donors are just amazing at how much they’ve read and absorbed … They immerse themselves in it — it becomes a science project that they figure out and analyze creative solutions.”

Carson could have been cribbing from Parker’s “hacker philanthropist” credo, which works just as well as a guide to flattering this cohort as a plea for techies to take up the cause. Reich said there’s nothing new about playing to a philanthropist’s ego: "You’re the smartest, best-looking, and wittiest person around. That’s been true for 100 years.”

In Silicon Valley, catering to the tech set has had an effect on charitable giving overall. Last month, a new study from the consulting group Open Impact teased out the emerging “giving code” that motivates wealthy young tech donors, who seek a more high-impact, transactional mode of giving, insisting on deeper personal involvement, with a fixation on getting to the root cause of things, sometimes without talking to community organizations closest to the roots.

Their ranks are growing. The report says that between 2008 and 2013, individual giving in Silicon Valley jumped 150 percent to $4.8 billion. The number of private foundations here grew 47 percent between 2005 and 2015, more than double the national growth rate. Silicon Valley Community Foundation, where Zuckerberg donated roughly $1 billion through DAFs, is now a significant holder of DAFs in the region with $7.3 billion in assets under management.

The Giving Code also found a more troubling pattern. Despite the philanthropic renaissance, nonprofits in high demand were struggling to get funding. “[E]ven as Silicon Valley’s millionaires multiply, and its philanthropy rises, many of its 2.6 million residents are being plunged into financial distress,” the report noted.

Wealthy individuals often assume that philanthropic donations should be received in gratitude, Reich said, because it’s better for the public than purchasing another house or another boat. “That’s just false to me,” he said. “It’s an exercise of power aimed at the public, and in a democratic society, power deserves attention and scrutiny, not gratitude.” (Jeff Bezos also argued in favor of scrutiny after Donald Trump objected to critical coverage in the Washington Post.)

The public is subsidizing massive tax advantages, “so attending to what happens there is in the public interest,” Reich said. “In the same sense that people talk about Bill Gates as the ‘unelected superintendent of schools,’ there’s no one to un-elect.”

The concern isn’t just the efficacy of their efforts, but influencing broader trends in philanthropy. Kentaro Toyama is the author of Geek Heresy: Rescuing Social Change from the Cult of Technology, which he wrote after launching some of Microsoft’s efforts to improve education and reduce poverty in India. Toyama’s worry is that their focus on shiny new solutions will distract from the more foundational work that needs to be done, which can be “mundane, unsexy, ho-hum, but in some ways those efforts are most impactful.”

It may even be subconscious, but there’s a competitive aspect to charity here, said one nonprofit founder who raised money from tech investors, but spoke anonymously so as not to jeopardize funding. “They want to have a cause that they’re pioneering that they can be really proud of because it translates from their work life — using technology and innovation to solve problems in a new way. So that when they’re talking to their friends at the dinner table, they can say, ‘Mine has 10 times the impact yours has.’ It’s like baseball cards.”

“Regardless of whether or not you’re literally curing cancer,” the nonprofit founder continued, “they are really interested in what is new and hot and innovative that they can get behind, and unfortunately a lot of the most serious problems in the world are not new problems. A lot of them have solutions that we know work.” The problems remain intractable because of process, ability to scale, or getting that service to the people that need it.

In the traditional model, philanthropists state their areas of interest and grantees apply for smaller funds. Not so with this new Silicon Valley crowd. “It’s as if the organization was a subcontractor for the vision of the foundation itself,” said Reich. “It’s a model which assumes the superior wisdom of the people in the foundation — the type of hubris and boosterism engendered in [their businesses] transfers easily. As is usually the case, humility is a virtue often forgotten in these parts of our world.”

"There’s no doubt that Silicon Valley is successful by some metric, and there’s nothing that’s more attractive than success. It draws politicians and people who are seriously interested in impacting the world. I don’t think there’s really much logic beyond that,” Toyama said. "If you’re an amazing a concert violinist, there’s no reason why that expertise should be applied to addressing world hunger."

But that success rate can’t be discounted. Carson said that tech donors and their fixation on data has already spread the emphasis on better tracking mechanisms. “Those are all good questions that nonprofits should be increasingly prepared to answer,” Carson said.

Toyama cautioned, however, that even that bent toward data deserves a closer look. “Their natural curiosity is with the science and technology and not with the messy issue of these pesky human beings that seem to be getting in the way of what they want to accomplish. Lowercase-P politics and social science is actually the far harder part,” he argued. “If they’re willing to learn about that that would cause a different kind of shift in philanthropy.”

Last month, Priscilla Chan referred to that kind of shift during a Q&A with Sheryl Sandberg onstage at Fortune’s Most Powerful Women conference. Chan talked about how she and Zuckerberg worked together on the Primary School, their education initiative in East Palo Alto, California. Chan said that Zuckerberg helps keep her “laser-focused” on their mission. “And for me, I force him to learn more about what’s the context,” she said. “What are we trying to do? Who are the people involved? What the cultures that we’re trying to work with and how can we learn more from the people already doing the work?”