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Network Philanthropy

The men behind EBay are leading a high-tech revolution that is turning charitable giving on its head

January 21, 2007|Douglas McGray | Douglas McGray is a contributing writer for West and a fellow at the New America Foundation

They seemed so young. That's what Peter Hero remembers most about the day, nine years ago, when Pierre Omidyar and Jeff Skoll walked into his office at Community Foundation Silicon Valley with an odd idea to give away a fortune. Omidyar wore jeans and a T-shirt; his thick black hair was tied back in a ponytail. Skoll had on what looked to Hero like a varsity jacket. He couldn't still be in high school, could he? Hero thought they were smart kids, nice kids too, but he'd never heard of their company and he was unsure about its prospects. "I don't know," he said to a colleague after they left. "Would you buy something from an online auction?"

EBay was still a quirky little online network, and philanthropy a strange concept for the executives who ran it. Omidyar and his wife Pam, a college crush, shared a suburban apartment. Skoll lived in a group house while he paid off business school loans. (When he finally bought his own place, a big place, he lived in the guest apartment over the garage.) As for the company, it was profitable, but not so rich that it could divert cash to charity.

Omidyar, though, had created EBay as a tool to empower small buyers and sellers, and Skoll, the site's first full-time employee, shared his democratic values. They didn't talk about customers; they talked about "the community." Shutting the community out of EBay's upcoming IPO--a practical necessity--seemed ungrateful. So they decided that EBay would endow a charitable foundation with pre-IPO stock and share its wealth that way.

Omidyar and Skoll offered Hero $1 million worth. But nobody had ever endowed a foundation with pre-IPO stock, and none of the other nonprofit partners they had approached wanted to experiment. Foundations did things a certain way, it seemed, and it was hard to persuade them to change. "We were told no so many times, I lost track," recalls Brad Handler, then EBay's lawyer.

Hero wavered, but finally agreed to the pair's only condition: Hold the stock for at least 12 months. When Community Foundation Silicon Valley sold the shares a year later, they were worth more than $40 million.

Suddenly, the idea seemed a lot less odd.

Since EBay went public in 1998, Omidyar, now worth about $8 billion, and Skoll, worth about $5 billion, have become two of the nation's leading philanthropists. And they have done so in ways that seem likely to shape their generation's philanthropic legacy--first poking at the firewall between the nonprofit and business worlds, then punching through and building a network of investments that cross back and forth.

Skoll runs an influential foundation that gives mezzanine funding (in venture capitalist lingo) to small nonprofits that, with infusions of cash, are ready to grow. He also runs for-profit Participant Productions, which he hopes can move public opinion with films such as "Fast Food Nation" and "An Inconvenient Truth." Omidyar's approach is more radical. He has completely abandoned the traditional foundation structure--endowment money managers invest in whatever will make the most profit, and 5% a year is set aside for noble causes--and is putting up his entire fortune to back both for-profit and nonprofit projects that will add up to social good and market-rate returns.

When fortunes shift, ideas tend to follow. In 1975, New York-based foundations controlled eight times more wealth than those in California, which, in terms of institutional philanthropy, was comparable to Indiana. By 2005, Calfornia had pulled nearly even. Throw in Microsoft-powered Washington state, and the high-tech West accounts for more than $100 billion in foundation wealth--40% more than New York and growing more than twice as fast since the early '90s.

Once at the forward edge of the Internet age, Skoll and Omidyar today are at the edge of something else--a wave of new thinking out of Silicon Valley that, if the tech industry keeps minting new billionaires, could shape the way huge sums of private capital get invested in social change.

Loyalty to customers is an unlikely path to charity. But the tech economy offered guys like Omidyar, 39, and Skoll, 42, few philanthropic role models. In Seattle, Bill Gates set up a fledgling foundation in 1994 in his dad's basement, but the Microsoft founder still had a reputation as a ruthless businessman--surely his charity served some ulterior motive. Closer to home, William Hewlett and David Packard were famous for their generosity, but they built their charitable institutions as gray-haired titans. As for the established East Coast foundations, to a cocky dot-commer they could look an awful lot like the enemy--big, bureaucratic, Industrial-era firms.

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