Investment in both the non-profit and for-profit areas follows the same strategy, based on a venture capital approach rather than a grantmaking cycle (ON doesn't use the term grantmaking). ON evaluates the organizations: "Is this a great idea? A great team? Do they know how to execute? Do they have a plan? Will they advance the mission and cause?" Paroo says. "Each investment has a customized approach. We examine the role a non-profit would play in advancing our mission, and what it would require - operating support, capacity building, project funds, etc. We do follow-on investments, as we would in for-profit companies: when we see what the first investments have enabled them to create, we go to the second or third round."

With the non-profit Donors Choose, an online marketplace that connects individual donors to school projects in need of funding, for example: "We funded them early to help them develop their technology and platform. Then we helped them with capacity, and then to go to scale." Donors Choose was also encouraged to develop a "syndicate of strategic partners," to bring in not only more funding, but more ideas. To determine whether follow-on investment is appropriate, Omidyar uses an internally developed evaluation methodology, agreed upon in advance with the organization, that defines the goals it intends to achieve with the investment, such as building capacity or reaching a certain level of market penetration. "As long as they are achieving those goals, they can get additional funding."

Like any other venture capital operation, the for-profit companies that Omidyar invests in are expected to make money eventually. Paroo says, "Our belief is that business can be a force for social change, so we look for businesses where profitability is the proxy for driving social change. More profit means more change." The time frame for the investments varies - some is long-range patient capital; other businesses are expected to go public or be bought in a shorter time. Indeed, one company, Ethos Water, was bought by Starbucks a year and a half after Omidyar Network invested, giving a return on its investment that went back into the capital pool.

The Omidyar Network is only part of Pierre and Pam Omidyar's philanthropic activity: they contribute about $30 million a year to other causes through a donor advised fund, and have several other projects. The Omidyars also recently gave $100 million for endowment to Tufts University, with the requirement that it be invested entirely in microfinance initiatives. Paroo himself is moving into a new job with the family, looking into opportunities in the developing world; his successor, Matt Bannick, is planning to double the Network's staff of 30 and develop strategies to use public policy as an additional lever of change. Paroo expects the Omidyar Network to grow. "The source of the money is Pierre Omidyar (whose fortune has been reported to be about $8 billion)," he says. "We've been scaling steadily since the Network was structured in 2004. If we find the right opportunity - like we did with the Omidyar-Tufts microfinance fund - even if it is $50 million or $100 million, we will invest it."

[ << USING ALL THE MODELS | 1 | 2 | CONCLUSION >> ]

  Resources

• Executive Summary
• Full Report
• Order Print Copies

  Report Contents

• Introduction
• Focus: The Whitaker Foundation and the Helen F. Whitaker Fund
• The Learning Curve: The Beldon Fund
• Retooling for Spend Down: The Atlantic Philanthropies
• Giving While Living: The Richard and Rhoda Goldman Fund and the Lewis B. and Dorothy Cullman Foundation
• Quick Spend Down: The Haigh-Scatena Foundation
• Raising the Payout: Evelyn and Walter Haas, Jr. Fund
• Giving 5.5%: The Lynde and Harry Bradley Foundation
• More than Investment Returns: The Needmor Fund
• Ramping Up: The HKH Foundation
• Using All the Models: Endswell Foundation / Renewal Partners
• A Different Strategy: Omidyar Network
• Conclusion
• Selected Bibliography
• Resources
• List of Profiled Foundations
• Acknowledgements

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• November 29
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