Problem First, Tool Second: A Flexible Funding Approach to Social Change

Earlier this week, Mark Zuckerberg and Priscilla Chan announced the formation of the Chan Zuckerberg Initiative, to which they've pledged 99% of their Facebook shares--currently valued at $45 billion dollars. Their announcement was met with a great deal of enthusiasm, as well as curiosity about the details. One of the questions raised was around the structure of the new Initiative. As an LLC, the Chan Zuckerberg Initiative can combine traditional philanthropic grants with advocacy efforts and investments in for-profit companies.

While a surprise to some, this is a very familiar story for those of us at Omidyar Network. When eBay founder Pierre Omidyar and his wife Pam founded the organization in 2004, they made an explicit decision to incorporate the organization as an LLC with a foundation arm. Their earlier philanthropic efforts had been in the form of a traditional family foundation, and while they were pleased with the impact of these grants, they quickly saw that it was not enough. In order to effect change at the pace and scale the world needs today, they also needed to be able to harness the power of business for social good. And so Omidyar Network--both an LLC and 501(c)3--was born, allowing us to make both nonprofit grants and for-profit "impact investments" in mission-driven companies.

Since then, Omidyar Network has invested nearly $900 million dollars, with $400 million invested in for-profits and the remainder in grants. This has allowed us to have considerable impact in the areas we wish to influence: governance and citizen engagement, property rights, consumer Internet and mobile, financial inclusion, and education. By leveraging both grants and investments, we have been able to support the best changemakers we could find, regardless of whether the entities they operate were for-profit or nonprofit. "Problem first, tool second" is an informal motto often discussed amongst our team.

Omidyar Network and the Chan Zuckerberg Initiative are hardly alone in our enthusiasm for impact investing. Charitable organizations like the Bill & Melinda Gates and Rockefeller Foundations have joined institutional investors such as BlackRock and Goldman Sachs in pursuing impact investing strategies. And this is just the beginning. We expect to see many more investors and philanthropic organizations look to market-based solutions for the world's most intractable problems. As this movement grows, we look forward to dismissing the outdated idea that it is only nonprofits that create positive change. Our world faces challenges of increasing complexity and urgency. It is imperative that we use all the tools at our disposal to tackle them--including market-based approaches for social good.