Omidyar Network was established in 2004 by eBay founder Pierre Omidyar and his wife Pam. It aims to create opportunities for people to improve their lives by investing in market-based efforts that catalyze economic and social change. Lauren Booker Allen, Senior Manager, Impact Investing, tells us about the organisation’s philanthropic investment approach.
Could you tell us about the history of Omidyar Network? How has it grown and has your strategy changed over time?
To start the Omidyar Network story, we have to go back to when eBay went public in 1998 and Pierre and Pam became wealthier than they ever expected. They immediately wondered how they could deploy this capital so that it would have the most impact. Like many young philanthropists in similar situations, they set up a family foundation. But as an entrepreneur, Pierre very quickly became frustrated with the limitations of the traditional grant-giving model, and questioned why a tax structure prevented him from having flexibility in making the impact he would like to see in the world.
So in 2004, Pierre and Pam transitioned the family foundation model into a hybrid structure – both a 501(c)(3) and an LLC – in other words, a combination of both a traditional non-profit as well as a corporation. This structure gives Omidyar Network the maximum flexibility so that the firm can engage in both strategic grant-giving alongside impact investing. They were able to start investing across the entire capital spectrum, with for-profit equity investments and blended financial models, as well as grants to non-profit organisations that had phenomenal opportunities to scale. While this model is becoming more and more common, Pam and Pierre were truly pioneers in this kind of thinking when they transitioned from the Omidyar Family Foundation to Omidyar Network – in effect, going from OFF to ON.
12 years later, we’ve grown substantially and have invested approximately $1bn across 400 for-profit and non-profit organisations. Over that time, we’ve become a lot more strategic as both investors and grant providers, by focusing on our core investment areas. We’ve been able to become much more thoughtful on what is required to move entire sectors and advance impact far beyond any of the individual entities that we were funding.
Can you tell us more about Omidyar Network’s key values and how they influence your work?
Our five values are: respect, impact, collaboration, in service and humility. They all show up in various ways across our work. Respect is very much at our core. We have the upmost respect for our investees. We work very closely with and in service of our entrepreneurs both on the for-profit and non-profit side, and ultimately our impact is based on their ability to be successful. We also do a substantial amount of work with external partners including other philanthropists and investors, policy-makers and academics. Having the upmost respect for all of these partners is critical, but underpinning everything is respect for the clients and beneficiaries whose lives we hope to impact.
On the humility front, we’re a learning organisation, and while we are excited to try an innovative approach to philanthropy and investing, we know we can’t do it by ourselves. Ultimately we are learning a lot from the entrepreneurs we support. They ensure we have a robust feedback loop so that we bring absolute humility to all of our investments and partnerships. At the core, Pierre and Pam are incredibly humble people, which is why they thought about what to do with their wealth very early on as it was much more than they ever expected.
What are the key areas you support? How were they chosen?
The earliest roots were really in three primary investment areas: microfinance, community, and enabling technologies. Much of this was tied to Pierre and Pam’s personal interests and the idea that there were so many interesting and innovative things happening in these broad buckets. Over time, that evolved into two broad areas – access to capital; and media, markets and transparency.
Slowly but surely we started to further refine our strategy. A lot of that time was also spent building out our microfinance portfolio, into which we’ve invested over $100m over the last 12 years. We realised that the microfinance industry was scaling, and we had been quite catalytic there, but there were so many related areas within the field of financial inclusion that we could also invest in – such as hedging facilities, mobile payment platforms, and micro-insurance products. Therefore ‘microfinance’ turned into ‘financial inclusion’, and our other four initiatives (education, emerging technology, governance and citizen engagement, and property rights) grew out of the other broad themes.
Like many philanthropists, we often focus on areas where markets have failed and ways to connect underserved individuals to opportunities. We believe that every individual has the power to make a difference, and our mission is to create opportunities for them to improve their own lives, the lives of their families, and the lives of those in their communities. To the extent that philanthropists are in the position to take risk and employ a holistic approach to partnerships, we’ll be well placed to collectively go after some of these opportunities. The more we see funders who are embracing impact investing, the more room there is to support viable businesses in communities that traditionally have been overlooked by venture capital.
Do your five focus areas govern both your grant making and investing?
Our sector-based approach lies at the core of what we do. What is quite different about Omidyar Network is that our investment team does both for-profit investing and non-profit grant-giving. So these five initiatives have robust strategies that essentially consider the theory of change within each sector, looking at how we maximise the impact we can have with the resources we have available.
On the for-profit side, we’re looking for innovative business opportunities which leverage private sector principles and the power of markets to spur job creation or the provision of products and services for underserved markets. On the non-profit side, we always recognise the strategic role of grant-giving as complementary, particularly as it relates to providing public goods and thinking about spurring new markets where there hasn’t been any private sector capital before.
As a result of this, we hold all of our entrepreneurs to a very high level of rigour in our due diligence process, evaluating all investments on a continuum of both social impact and financial returns. The non-profit entrepreneurs we support are asked questions about things commonly related to for-profit investments, such as the market opportunity, the business model, revenue potential.
We generally make fewer but larger for-profit investments, and a greater number of smaller grants. On the for-profit side, our average investment is between $1-$3m, and on the non-profit side, grants tend to be in the $500k-$1m range. That said, these funding amounts can also be much smaller or much larger, depending on the opportunity.
What influence do you think your model has had in the sector?
We have entire teams dedicated to bringing the lessons we’ve learned over the years to other philanthropists and investors. Funders who have been influenced by the flexible approach we take include the Emerson Collective and more recently the Chan-Zuckerberg Initiative (CZI). We work very closely with a number of philanthropists and investors, including many members of the Giving Pledge, to help increase awareness and understanding of how to include impacting investing as part of their funding toolkit.
Can you discuss what the idea of ‘more than money’ means to you?
We believe this is another differentiator for us, in a number of ways. First, we take active governance positions across our portfolio. Our investment leads have taken roles on the boards of over 50% of the 200 organisations in our active portfolio. As a result of working so closely with the entrepreneurs, we help them think through their strategic direction and take a very hands-on approach as they continue to evolve.
On the human capital side, we have a team dedicated to providing entrepreneurs with the additional support required for success. Pierre has noted that the role of mentors can be so much more valuable than the capital itself. So we help with executive recruiting and coaching, organisational reviews, talent planning, succession planning, dedicated workshops on marketing, customer engagement and so on.
What is your strategy in terms of working with governments in the areas you fund?
We recognise the role Governments play in helping to accelerate the impact of the businesses we support, as well as the sectors in which they operate. We work on a case-by-case scenario and consider the ‘total value creation.’ There are some grantees or investees who are helping to educate government and bring them into the fold. One example is Bridge International Academies, which provides school system interventions across Africa and India to improve learning outcomes for children. In Kenya, they have been focused on private schooling systems, but have recently also started to think about publicly funded schools in Liberia. They worked with each respective government to help influence policy discussions which would be critical in ensuring education in those markets would be much more successful.
More broadly, we recognise Government’s role in relaxing regulatory restrictions or making policy more flexible to allow more capital to come into the impact investing space. We worked very closely with what was then the G8 Social Impact Investing Taskforce (now G7 Alliance / Global Steering Group), to create an international policy blueprint to help draw more capital into impact investing. As part of this effort, we also worked closely with the White House, funders, academics and others looking more specifically at a US policy blueprint. We were quite successful in obtaining some policy wins, such as guidance for foundations that made requirements around mission-related investing clearer, and amended ERISA guidelines that allow investors to take social and environmental considerations into account in their investment decisions.
What are your organisation’s plans for the future?
This year we hit our $1bn capital deployment mark, which was incredibly exciting. At a high level, we plan to invest more and ‘double down’ on our five core initiatives now that we have such a strong foothold and growing portfolio in those areas. Growth will come from areas such as new markets (Myanmar, for instance), and emerging investment areas, such as digital health. We’re also continuing to refine our overall strategy and identify ways to further support our entrepreneurs. Lastly, we often have discussions around where we can place some big bets in areas we haven’t historically invested in, but where we have the opportunity to be catalytic and impact a greater number of people.
How did you personally become involved in philanthropy and impact investing and who has influenced you?
My background is primarily in financial services. I’ve always had a strong belief that business and capital could be much more catalytic in driving social impact. After business school, where I went to think about what the appropriate models were for bringing this thinking together, I joined Omidyar Network and it really has been an incredible journey so far. The people who have influenced me the most are Pierre and Pam Omidyar, through the way they have been so innovative, thoughtful, entrepreneurial and generous in how they leverage their wealth to have an impact on so many lives.
On a more personal front, my grandfather led the Black Panther movement in New Jersey in the 1960s and ‘70s, and my family was always heavily involved in community service as a way to dedicate our time and resources to help make the world a little better. My perspective has always been geared towards identifying the best tools to help people in underserved populations in sustainable and innovative ways.
What advice do you have for those starting on their philanthropic journey?
As a starting principle, money is just one way to be philanthropic. Your time can be even more valuable, so be really creative in how you think about your volunteering efforts, whether that is joining a non-profit or social enterprise board, or mentoring. There are so many opportunities to contribute in a meaningful way. Aside from human capital (time, skills and so on), social capital is also invaluable. Philanthropists are often in positions where they can make very helpful connections and introductions for organisations.
For those who are genuinely interested in how their financial capital could be spent, I would say ‘be bold, and be intentional’. One of the things that’s been inspirational at Omidyar Network is that we continue to ask ourselves ‘what problems are we trying to solve?’ Philanthropists are now in a position to say, ‘what are the issues that I care about, and what is my personal theory of change?’ There’s never a shortage of great organisations that are doing great work, but really think about what problems you are trying to solve so you can identify the best way to address them.
What do you think is needed to strengthen philanthropy in the US, or even globally?
In general, I would love to see more consolidation and coordination within philanthropy. As I said, there’s no shortage of organisations doing great work and trying to tackle big issues. However, wouldn’t it be great to leverage data so that organisations doing similar things could think about merging or partnering to increase their effectiveness? I would like to see this both on the non-profit front and the philanthropic front. There are a lot of philanthropists who have similar goals and interests and it would be great to see better co-ordination between funders. This would allow them to make bigger bets to deliver much greater impact. We’d also like to see philanthropic funders become much more liberal about supporting operating expenses.
What do you see as the main challenges for philanthropy going forward?
Firstly, an overall mindset shift is required. Historically there has been this dichotomy of making money and then giving it away. Now, we are seeing a lot of innovation in impact investing and philanthropy. There are so many more interesting ways to be thoughtful about what you can do with your capital (across asset classes), talents, time, networks and brand equity. Bringing these things together can lead to much greater impact. In traditional foundations, for instance, often separate teams are responsible for managing program grants and overseeing the endowment – the more they can work together, the greater impact they can have in line with the organization’s overall mission.
Secondly, we often find there are philanthropists who are interested in becoming more creative and innovative in their philanthropy, who want to get involved in impact investing, but struggle to find experts in the field to work with. There is huge opportunity here. There are many young people who are not satisfied with their day jobs in banking and consulting and so on, and they’re looking to bring their business mindsets into philanthropy and impact investing. To have the best minds and energy around the table, philanthropists need to think about how to competitively recruit this talent and leverage their skills.