HOW TECH ENTREPRE- NEURS ARE DISRUPTING PHILANTHROPY By Nicole Bennett, Ashley Carter, Romney Resney, and Wendy Woods

revolution in the field of philan- trants—including ’s Mark Zucker- A thropy is brewing, driven by Silicon berg and ; Skype founder, Valley’s young tech billionaires. The Nicklas Zennström, in Europe; PayPal co- founders of eBay, Facebook, PayPal, founder and current head of Tesla Motors, Napster, and other transformative compa- Elon Musk; and Napster cofounder, Sean nies are applying their bold vision and Parker—are investing their fortunes in brash, nothing-can-stop-me attitude to some hopes of making a dramatic difference. Ac- of the world’s most pressing social prob- cording to media reports, nearly 25% of the lems. Their drive and entrepreneurial spirit money given away in 2014 by the top 50 make them less concerned with the status philanthropists in the US came from tech quo and completely open to disruptive entrepreneurs age 50 or younger, compared innovation. The sheer scale of their wealth with 19% in 2013 and 4% in 2012.1 (See the and their commitment to giving it away exhibit.) mean that these philanthropists could have a huge impact on the issues they prioritize. These tech philanthropists are bringing What’s more, their approach—with its fresh thinking and new approaches to the emphasis on data, transparency, speed, and field of philanthropy. impact—could mark a new chapter in philanthropic giving. Rethinking Philanthropy: Seven Once criticized for their relatively low lev- Principles els of giving, today’s tech billionaires are Traditional foundations—which award quickly making up for lost time. Microsoft’s grants to applicants on the basis of need paved the way with the Bill & and worthiness—have made enormous Melinda Gates Foundation, which since its contributions to society. But they follow a founding in 2000 has dominated tech-fund- business model that relies on large endow- ed philanthropy. Now a new wave of en- ments to support giving in perpetuity,

For more on this topic, go to bcgperspectives.com Tech Entrepreneurs Have Made Substantial Philanthropic Donations Over the Last Decade— Especially in 2014 DONATIONS BY THE TOP 50 AMERICAN PHILANTHROPISTS % total ($billions) 9.8 4.0 50.7 7.4 15.5 4.1 3.3 10.4 7.4 7.7 10.2 100

Technology 80

60 Gates/Buffett

Family wealth 40 Finance

20 Other businesses

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sources: “The Philanthropy 50,” Chronicle of Philanthropy, https://philanthropy.com/interactives/phil-50; BCG analysis.

which has given rise to a professional class cofounder Larry Page, and former of individuals who evaluate, select, and Oracle CEO Larry Ellison have combined continuously review grantees. forces to defy death, with Ellison alone donating more than $430 million to an- Today’s tech philanthropists challenge that ti-aging research. As Thiel puts it, “I believe approach with an inherently proactive ven- that evolution is a true account of nature, ture capital mind-set. Rather than wait for but I think we should try to escape it or proposals to come to them, they actively transcend it in our society.” Musk’s founda- seek places to put their money. They also tion donates millions in areas such as prioritize speed and rapid impact. Deter- human space exploration. His cornerstone mined to see results in their own lifetimes, project, SpaceX, aims to create a space-far- they’re willing to make big, often risky bets. ing civilization to help sustain Earth’s Some even treat their philanthropic invest- resources. Gates has brought the same ments like venture capital endeavors, ap- approach to , challenging the plying creative equity models to ensure a scientific community to move past the return and demanding measurable results traditional goal of controlling and to justify further giving. instead eradicate the disease completely.

Although the results that these new philan- 2. Use business expertise to innovate. thropists will ultimately deliver over the Many of today’s tech philanthropists use long term remain to be seen, they’re deter- their technical expertise to tap into new or mined to disrupt the field—just as they did unconventional channels for social change, in their respective industries. Seven princi- building social networks, creating new ples summarize their approach. intellectual property models (to make products with a potential social impact 1. Seek breakthrough solutions. Many of accessible to those in need without forgo- today’s tech philanthropists are “swinging ing commercial profit), and deploying new for the fences,” investing major sums in technologies. Thiel built on his experiences breakthrough, sometimes controversial, in the start-up and investing arenas to solutions to social problems and unafraid establish Breakout Labs, which uses to take on high-risk projects. PayPal co- philanthropy to support a growing portfo- founder and venture capitalist , lio of early-stage companies in areas

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ranging from food science and biomedicine ing and rapidly fine-tuning new models be- to clean energy. The group provides fore scaling them up can mean the differ- “radical science companies” too risky for ence between a breakthrough innovation traditional venture capital with capital, and a wasted investment. Tech philanthro- network support, and access to partner- pists are all too familiar with good ideas ships in order to “change the world and launched before they’re ready and bad take our civilization to the next level.” ideas killed too late in the process. Either mistake is costly. What’s new about the 3. Trust in the power of data. Big believ- prototyping approach for philanthropy is ers in the clarity that data can deliver, tech not the piloting of new ideas, which has philanthropists monitor and measure gone on for decades, but the speed with outcomes and hold their investments to a which ideas are tested and the willingness high degree of accountability—not out of to walk away if an idea fails—as long as an aversion to risk but to ensure that there is a lesson learned. As Parker ex- they’re maximizing the impact of every plains, “We must move fast, make concen- dollar spent. Data and metrics are essential trated bets based on our convictions, and for gleaning the insights needed to evalu- have the courage to make mistakes and ate the success of a chosen approach. learn from them.” Similarly, in a letter an- Evidence-based approaches in philanthro- nouncing the gift of 99% of their Facebook py, also known as “effective ,” use shares to the Chan Zuckerberg Initiative, data not only to evaluate ongoing results Zuckerberg and his wife, , and outcomes but to identify areas in wrote, “We must take risks today to learn which to invest. For instance, Mike Krieger lessons for tomorrow. We’re early in our (cofounder of ) and his wife, learning and many things we try won’t Kaitlyn Trigger, recently partnered with work, but we’ll listen and learn and keep Moskovitz and his wife, Cari Tuna, to improving.” support the Open Philanthropy Project, believing that its values of “open-minded- 5. Embrace an “open source” mind-set. ness, rigorous analytical thinking, and Tech philanthropists prize transparency transparency” are aligned with theirs. The and sharing of data, ideas, insights, and Open Philanthropy Project identifies solutions. Like open-source software important but relatively unaddressed development, this approach taps into the problems and funds feasible approaches to expertise of many and can accelerate solving them, as determined by rigorous progress. Openness also eliminates dupli- analysis, research, and ongoing data cation of effort and increases the odds of gathering. maximum impact from the invested dollars. Last year, Parker announced the 4. Employ a rapid cycle of testing, creation of the Parker Foundation to failing, and learning. Another hallmark of “aggressively pursue large-scale systemic tech philanthropists is a “prototyping” change in three focus areas: Life Sciences, approach to solution building that involves Global Public Health, and Civic Engage- rapid cycles of testing, failing, and learn- ment.” The foundation’s planned structure ing—continually refining a forward will support an open-source approach before moving to execution. This agile within a network of partners, enabling mind-set, which is standard in software leading scientists in each field to carry out development, accelerates outcomes collaborative research. Scientists receiving through collaboration and a constant cycle foundation funding are encouraged to of learning and improvement. Failing is share their findings early on with other acceptable as long as valuable lessons are scientists in the foundation’s network, learned along the way. regardless of institutional affiliation. Parker hopes that promoting the sharing New solutions take time to develop and of data and findings will lead to the next may go through many stages of trial and big breakthrough in the treatment of error before they’re ready for launch. Test- immune diseases.

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The Collaboration for AIDS Vaccine ly in their philanthropic endeavors, they of- Research, initially funded by the Bill & ten cross paths, funding some of the same Melinda Gates Foundation, operates on a giving entities and exchanging advice. similar principle. It was founded in the belief that the successful development of 7. Expect financial returns. Today’s tech an AIDS vaccine will require a collabora- philanthropists often have no qualms tive approach emphasizing the sharing of about reaping financial returns from their scientific information and the standardiza- investments—a “” tion of techniques and analysis. approach that combines doing good with making money. For instance, Thiel’s 6. Recruit top talent and stay personally Breakout Labs makes grants that convert to involved. Like many venture capitalists, an equity stake when revenues exceed a tech entrepreneurs tend to play an active certain threshold. Likewise, Kleiner Per- role in the organizations they fund in order kins’s John Doerr uses a venture capi- to ensure that the large sums they donate tal-like model to distribute money to achieve the desired results. For instance, organizations such as the NewSchools Reid Hoffman, a founding board member Venture Fund. He expects investment and executive at PayPal and the founder returns in exchange for his financial and executive chairman of LinkedIn, stays contributions and strategic expertise. involved in the grant-making process and often serves on the boards of recipient This approach can open new avenues for organizations. reinvestment and free an effort from some of the restrictions of nonprofit status. At the same time, tech philanthropists When Zuckerberg and Chan pledged to know that putting the best and the bright- dedicate 99% of their Facebook shares, they est in the same room delivers creative solu- did so by incorporating as an LLC—a tions to problems—faster. So they take a for-profit organization—to maintain a high- people-first approach to identifying grant- er level of control and reserve the power to ees, building teams, and recruiting board blur the lines between philanthropy, invest- members. The talent pool that Parker, ment, and political advocacy. Others—in- Musk, and former Google CEO Eric cluding Pierre Omidyar and Steve Jobs’s Schmidt can access with a single phone call widow, Laurene Powell Jobs—have taken a is markedly different from what a low- similar approach, with LLCs common er-profile nonprofit can get from a job post- across Silicon Valley’s philanthropic land- ing. With a reputation for innovation and scape. an army of developers and resources at their disposal, they can secure some of the Done right, these new ventures can gener- greatest minds for every endeavor, pulling ate enough money for continuous reinvest- in both leading industry experts and top ment, so that benefits and impact increase talent from their own business endeavors over time. to manage and advise on their philanthrop- ic efforts. Thiel’s Breakout Labs employs PhDs from MIT and Berkeley, for example, The Risk/Reward Trade-Off while Jeff Skoll, the first employee and first Disrupting the field of philanthropy is not president of eBay, counts former HP and without risks. Technology entrepreneurs Microsoft executives among the Skoll Foun- already hold enormous economic power in dation’s executive team. Silicon Valley and beyond. Their foray into philanthropy further extends the reach of a Tech philanthropists also look to their tech few luminaries and could discourage other peers for guidance in their philanthropic players. For example, a massive infusion of efforts. These billionaires often travel in philanthropic funds into a single school dis- the same circles, serve on one another’s trict or a narrow area of research could company boards, and welcome targeted crowd out alternative approaches and oth- collaboration. Though they act indpendent- er important players, such as government,

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private investment, or grassroots organiza- Looking Forward tions. The resulting concentration of power In the for-profit world, disruption is a prov- could create policy conflicts or undermine en force. It can deliver newer, faster, more those with deep experience in a particular effective—even transformative—products, area. It could also leave a void should the services, and ways of working. Will apply- philanthropist decide to redirect funding ing a disruptive approach to philanthropy toward a different cause. unlock new discoveries, cure social ills, and advance humanitarian goals on a grander What’s more, the venture orientation of scale and a faster timetable, as these bil- some tech philanthropists could cause lionaires hope? them to value only those philanthropic in- vestments that generate a financial return. The tech philanthropists’ expectations of When scientists and thought leaders begin breakthrough change and rapid outcomes to worry more about making money than may be the result of their enormous past driving groundbreaking change, true prog- successes—combined with the hubris of ress can be a casualty. A competitive youth. Gates has said that he started his philanthropy model can hinder fundamen- foundation with the same fervor that he tal work in many areas. For instance, the brought to Microsoft, but he came to real- demand for profit combined with a philan- ize that many problems were more com- thropist’s star power could divert invest- plex than he had assumed and were not ment away from areas that need funding easily solved, even with the benefit of but are unlikely to generate a return—ar- many years’ efforts. As a result, he’s stead- eas such as human rights and wilderness fastly retained the mind-set of an “impa- preservation. tient optimist,” while his foundation’s ap- proach has evolved from finding technical Moreover, some of the features that make solutions to more systemic problem solving. this approach so powerful can be risky if As younger entrepreneurs move along that applied too freely. For instance, rapid cy- same experience curve, we may see signifi- cles of testing, failing, and iterating work cant changes in their approaches as well. better for software development than for social welfare programs, on which liveli- Still, the commitment of the tech billion- hoods depend. When there is little margin aires to new ways of working, unprecedent- for error, failure can be catastrophic. ed use of data, analytical rigor, information sharing, and unwavering focus on measur- By definition, disruptive philanthropy chal- able outcomes may yield important in- lenges the effectiveness of traditional ways sights about the best models for philan- of giving. And although philanthropy, like thropic success, a welcome possibility in wealth, is not a zero sum game, competi- this critical field. tion among funding entities is not the goal. The call to action for tech philanthropists is to choose their giving strategies wisely and engage deeply with stakeholders in order Note to mitigate the risk of insularity among 1. Tech industry leaders reduced their charitable donations in 2015, according to the Chronicle of their own small community. A disruptive Philanthropy’s “2016 Philanthropy 50” report. We and innovative approach does not mean expect that giving patterns will continue to change ignoring the lessons of the past, but rather from year to year owing to the variety of disruptive factors outlined in this article. learning from them and breaking out of the box that constrained conventional thinking.

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About the Authors Nicole Bennett is a principal in the San Francisco office of The Consulting Group. You may con- tact her by e-mail at [email protected].

Ashley Carter is a project leader in the firm’s San Francisco office. You may contact her by e-mail at [email protected].

Romney Resney is a partner and managing director in BCG’s San Francisco office. You may contact her by e-mail at [email protected].

Wendy Woods is a senior partner and managing director in the firm’s Boston office and the global leader of BCG’s Social Impact practice. You may contact her by e-mail at [email protected].

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advi- sor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep in­sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet­itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 82 offices in 46 countries. For more information, please visit bcg.com.

© The Boston Consulting Group, Inc. 2016. All rights reserved. 2/16

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