SHOULD YOU GIVE THROUGH an LLC? JOHN: Good Morning Everyone
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Friday, October 25, 2019, Aviara (T21_1) SHOULD YOU GIVE THROUGH AN LLC? JOHN: Good morning everyone. My name is John Tyler. I’m the general counsel secretary, chief ethics officer for the Ewing Kauffman Foundation and it’s my privilege to be able to moderate and facilitate this session on really philanthropy and use of the LLC model. The Jan Zuckerberg initiative made a big splash a couple of years ago when Mark and Priscilla announced that they were going to set up their philanthropy through an LLC. And there was all sorts of, mostly uproar and a little bit of excitement and quite a bit of misunderstanding in the uproar. But Jan Zuckerberg was not by any means, the first philanthropy to be approached with this structure. But it did ignite interest in the structure and that has continued to this day. And I think that there is some good strong curiosity among high net worth individuals about, is this a good structure for me to operate my philanthropy through. And it’s more of an enterprise structure rather than a foundation single structure. It’s looking more the LLC structure through philanthropy is usually encompasses a variety of things. And so we’ve got high net worth individuals wondering is it a good structure for them. We’ve got foundations and community foundations and DAFs and other funders curious about, well wait a second, can we collaborate, can we do work with these for profit philanthropies and so there are questions about that. And there are just questions then that the sector has more broadly: Is the LLC structure going to hurt the credibility, if you will, of the philanthropic sector because it can get away with all of these things? And we’re going to solve all of those questions here this morning. And we’ve got a couple of folks here who are at the forefront of using LLCs and working with the donors behind using the LLC structures. Jeff Hom at the Omidyar Network which really, Pierre and Pam Omidyar were really probably the first that I’m aware of to be intentional, strategic and thoughtful about using this type of approach, this type of structure and Jeff will give some of that background and history. Looking at more recent decision making, Kelli Rhee is the president and CEO of Arnold Ventures, John and Laura Arnold’s philanthropy out of Texas. And they have recently engaged the LLC structure to help pursue the Arnold’s philanthropy. So with that, let me actually turn it over to Jeff and Kelli to provide a little bit of background about Omidyar and then Arnold. JEFF: Great. Thank you, John. Good morning everyone. Hopefully everyone is awake for our 8:00 a.m. session here. Though as John mentioned, I’m the general counsel at Omidyar Network. It’s the venture that Pierre Omidyar created. He had founded eBay in the late 90s, as some of you may know. eBay went public in 1998 and Pierre found himself with sort of an immeasurable amount of wealth at the time. And he asked some of his advisors, you know, what should I do now, now that I’ve come into this wealth? And many of them told him the traditional route, oh, you should create a foundation because that’s what you should do. And then others said, whatever you do, don’t create a foundation. So kind of weighing pros and cons, you know, I think at the time, it was sort of a lot of decisions and things to think about and life changes. He 1 went ahead and he created a foundation. So from 1998 until about 2004, we had the Omidyar Family Foundation. And it was doing sort of traditional grant making. It was kind of more one of what the family thought of, hey, we want to support this cause or this grantee. As a few years went on though, he was wondering, you know, he saw a foundation and where there were limitations and where he really had his experience from was with founding of eBay and it’s this network online that grew very rapidly. It connected buyers and sellers across the US, across the world. He saw that he was actually having quite a lot of social impact through a business vehicle. And he also saw that when you look at business, just generally speaking, that the scale that businesses can reach and the speed, it just seemed it was much faster than you’ve seen nonprofits scaling. And part of that is just the way they are set up, the way they can attract capital, the way they can deploy capital. So in 2004, Pierre decided that as a technologist, as an innovator, as an entrepreneur, he really wanted to shake things up a bit so he went to some leading advisors to come up with a new vehicle and a new structure. And that’s when Omidyar Network was born. So we jokingly say that we went from the Omidyar Family Foundation of OFF to Omidyar Network, to ON. That’s our inside joke. But in 2004, we created this hybrid vehicle that is an LLC and it’s a foundation. And one of the primary drivers was that it allowed us to make investments into for profit companies that we thought were mission aligned, were having impact in the world. And over time, we kind of refined this model where we focus on early stage, almost like venture capital type companies in emerging and developing markets around the world who are focused on improving people’s lives through delivering products and services for the underserved. Why don’t I stop there and we’ll dig into more questions on the LLC model and how that was helpful for us. JOHN: That’s great. Thank you, Jeff. Kelli? KELLI: Great. My name is Kelli Rhee and I am president and CEO of Arnold Ventures. If you know us, you may know us as a Laura and John Arnold Foundation because we just converted to operating as Arnold Ventures, January of this year. So Jeff represents the early movers. I represent the people who are recently moving in this direction. So we are a philanthropic organization based in Houston, Texas with half of our team in Washington and New York, focused on maximizing opportunity and minimizing injustice for everyone. Our work is primarily focused in the areas of criminal justice reform, healthcare reform, issues of public finance and issues of public health. We have been around for almost ten years and we really started in the way that Jeff described; the Omidyars getting off the ground where we were a private foundation. We invested in primarily K-12 education at the beginning. About two years ago, I’ve been with the organization six and a half years and two years ago, I took over as president and went on a soul searching process with Laura and John and our leadership team. And we really asked ourselves, were we doing enough with the resources that we had and the uniqueness of our perspective. And it was really a soul searching thing and 2 instead of thinking about how should we be organized and structured, we asked, what is the strategy that we should be implementing that maximizes our resources and our perspective as much as possible. We had always been about policy change because we believe that policy is a way to outsize our investments. So we think that policy can allow us to have scaled impact that sustains, that lasts. But the way that we went about funding policy change was as a private foundation and there is a lot you can do. A lot. And we funded research, we funded evaluations, we funded nonprofit organizations working with government to think about what good policy looks like. But ultimately, if our strategy is to drive policy change that lasts and scales, being organized as a foundation was limiting. So we could not make investments in the political arena or in the direct advocacy and lobbying work in the way we felt was necessary. Now, this wasn’t a no brainer decision for us, primarily because we’re nonpartisan. So we don’t have a political ideology of our cofounders that we’re trying to implement. And when you start to move into the C4 political world, there’s a lot of assumptions made about your motivation, your transparency, your outsized influence and power on the government and political process so we spent a lot of time really thinking about that. But ultimately, we determined that if we operated as an LLC, we could have a better shot at helping solve the problems that we care about through driving policy change. So the way that our organization is now set up is that all employees and associated expenses sit in Arnold Ventures LLC but we don’t actually give through that vehicle; we give through the Laura and John Arnold Foundation. We give through their donor advise fund and then we give through a C4 and LLC. So I’m happy to take any questions on that structure but I just want to be clear that we operate as an LLC but about 80% of our funding is still C3 nonprofit through our foundation and through our donor advise fund. JOHN: Let’s talk a little bit then about how both Arnold Ventures and Omidyar work in practice. And, Kelli, I might start with you.