Venture Capitalist Philanthropy

Stephen DeAngelis

March 31, 2008

Several months ago I wrote some posts about two types of individuals who have joined the ranks of the philanthropic [see The Rise of the Social Entrepreneur and Philanthropy at the Top of the Economic Pyramid]. The former blog discusses young social entrepreneurs who have more energy and drive than money, but want to make a difference in the world. The latter post talks about people who have made a lot of money thanks to globalization and now want to use it to improve the lot of others. New York Times‘ columnist David Brooks recently wrote about those who span both groups — social entrepreneurs with money [“Thoroughly Modern Do-Gooders,” 21 March 2008]. Brooks writes:

“Fashions in goodness change, just like fashions in anything else, and these days some of the very noblest people have assumed the manners of the business world — even though they don’t aim for profit. They call themselves social entrepreneurs, and you can find them in the neediest places on earth. The people who fit into this category tend to have plenty of résumé bling. Bill Drayton, the godfather of this movement, went to Harvard, Yale, Oxford and McKinsey before founding Ashoka, a global change network. Those who follow him typically went to some fancy school and then did a stint with Teach for America or AmeriCorps before graduate school. Then, they worked for a software firm before deciding to use what they’d learned in business to help the less fortunate. Now they work 80 hours a week, fighting bureaucracies and funding restrictions in order to build, say, mentoring programs for single moms. Earlier generations of benefactors thought that social service should be like sainthood or socialism. But this one thinks it should be like venture capital. These thoroughly modern do-gooders dress like venture capitalists. They talk like them. They even think like them. … They don’t wear ponytails, tattoos or Birkenstocks. They don’’ devote any energy to countercultural personal style, unless you consider excessive niceness a subversive fashion statement. Next to them, Barack Obama looks like Abbie Hoffman.”

Brooks notes that most of these VC social entrepreneurs are used to being the boss and prefer the personal touch of small organizations. As a result, they eschew large organizations and are more likely to be found involved with single issue groups that capture their imagination — as well as their enormous, talent, energy, and fortunes.

“J.B. Schramm created a fantastic organization called College Summit that provides students with practical guidance through the college admissions process. Gerald Chertavian, a former software entrepreneur, created Year Up, which helps low-income students get apprenticeships in corporations and packages its fund-raising literature in the form of an I.P.O. prospectus. The venture-capital ethos means instead that these social entrepreneurs are almost willfully blind to ideological issues. They will tell you, even before you have a chance to ask, that they are data-driven and accountability-oriented. They’re always showing you multivariate regressions or explaining why some promising idea ‘didn’t pencil out.’ The highest status symbol in their circle is a Rand study showing that their program yields statistically significant results. Bill Gates, who fits neatly into this world, came to dinner with journalists in Washington [in mid-March 2008]. He looked utterly bored as the conversation drifted to presidential campaign gossip. But when asked about which programs produce higher reading scores, the guy lit up and became a fountain of facts and findings.”

Brooks then describes how this new breed of philanthropist differs from those of past eras.

“The older do-gooders had a certain policy model: government identifies a problem. Really smart people design a program. A cabinet department in a big building administers it. But the new do-gooders have absorbed the disappointments of the past decades. They have a much more decentralized worldview. They don’t believe government on its own can be innovative. A thousand different private groups have to try new things. Then we measure to see what works. Their problem now is scalability. How do the social entrepreneurs replicate successful programs so that they can be big enough to make a national difference?”

Many of these social entrepreneurs are trying to get the U.S. Government involved in the mix — with some trepidation Brooks notes.

“America Forward, a consortium of these entrepreneurs, wants government to do domestic policy in a new way. It wants Washington to expand national service (to produce more social entrepreneurs) and to create a network of semipublic social investment funds. These funds would be administered locally to invest in community-run programs that produce proven results. The government would not operate these social welfare programs, but it would, in essence, create a network of semipublic Gates Foundations that would pick winners based on stiff competition. There’s obviously a danger in getting government involved with these entrepreneurs. Government agencies are natural interferers, averse to remorseless competition and quick policy shifts. Nonetheless, these funds are worth a try. The funds would head us toward this new policy model, in which government sets certain accountability standards but gives networks of local organizations the freedom to choose how to meet them.”

Brooks is very positive about the rise of the social entrepreneur.

“These are some of the smartest and most creative people in the country. Even if we don’t know how to reduce poverty, it’s probably worth investing in these people and letting them figure it out. They won’t stop bugging us until we do.”

Not everyone is thrilled with the rise of the social entrepreneur; especially, the ultra-wealthy ones who operate on the international stage. The Economist reports that more traditional non-governmental organizations feel they are being pushed aside and not allowed to collaborate [“The side-effects of doing good,” 23 February 2008 print edition].

“Is it possible—even in theory—for an organisation to work too hard for the benefit of humanity, or to devote too much money to the eradication of a deadly disease? To judge by some of the recent bickering between leading players in the field of global health, there are serious people who in answer to those questions would say, ‘paradoxically enough, yes.'”

The target of this criticism is one of the people mentioned in Brooks article — Bill Gates or more specifically the Bill & Melinda Gates Foundation.

“At the heart of the argument is the Bill & Melinda Gates Foundation, which has often been called the biggest philanthropic organisation—at least among those whose accounts and internal workings are open to public scrutiny—in the world. Since Mr and Mrs Gates established the charity in 2000, it has spent over $8 billion on improving global health, and won deservedly lavish praise for its efforts. But just as huge, powerful countries can be awkward neighbours … lavishly funded organisations can sometimes cause resentment among other outfits which are struggling to do a similar job. And whether because of jealousy or legitimate concerns, the Gates Foundation has not been having such an easy time of late with its public image.”

To be honest, the list of gripes published in the article do sound a lot like sour grapes.

“More seriously, perhaps, the New York Times this week published bits of an internal document from the World Health Organisation (WHO)—a letter from its chief malaria-fighter to the agency’s boss, Margaret Chan—which alleged that the Gates Foundation was having a negative influence on research into killer diseases. The letter from Arata Kochi, a feisty veteran of the global public-health scene, said the excessive sway of the Gates Foundation was distorting research priorities and quashing independent thinking by sweeping up the best scientists and keeping them ‘locked up in a cartel’. However unintended this effect might be, the charity’s might was marring the process of peer review because researchers were now bunched into groups which were competing for Gates funding, and each member of such a group had ‘a vested interest to safeguard the work of the other’.”

I can understand how groups competing for funding would be reluctant to collaborate — and that’s not a good thing. But complaining that “independent thinking” is being quashed by “sweeping up the best scientists” doesn’t make much sense. If the best scientists really are working together, I suspect that egos and the exchange of ideas would be generating a lot of independent thinking. Leading scientists don’t get that way by being susceptible to groupthink. Not all Dr. Kochi’s criticism is unfounded.

“Dr Kochi also challenges the foundation’s recent proclamation that the total eradication of malaria is a realistic goal. ‘Like going to the moon, it sounds really good,’ he says—but he is still convinced that this dream is impossible to fulfil with the current tools, and that trying to do so may have bad side-effects. Such ‘over-reach’, in Dr Kochi’s view, amounts to a costly, risky diversion of resources away from the realistic aim of just controlling malaria. He also says the foundation bets too much on particular treatments, such as the artemisinin combination therapy (ACT)—a combination of drugs based on Chinese herbs. Although ACT does work better than older therapies, there are signs that drug-resistant strains of the disease are emerging. Dr Kochi frets about what will happen if, under the Gates influence, malaria researchers put ‘all the eggs in that one basket.’ How substantial are these charges? It is plain that the organisation’s wealth and targeted approach do attract clusters of leading researchers to specific areas; indeed, that is the whole idea. It is also true, argues Laurie Garrett of the Council on Foreign Relations, an American think-tank, that the charity’s focus on ‘measurable outcomes in a short time, while a fantastic improvement on the past, exacerbates the devastating shortages of health-care workers on the ground.’ Even Tadataka Yamada, head of the Gates Foundation’s global health efforts, admits that in the past it may have focused too much on high-profile research and not enough on boosting entire health systems.”

There can be honest differences of opinion about what agenda should be followed, but as I have stated before, whatever strategy is pursued it should take a holistic approach to the problem. The article, having explained the criticism, then lays out the counter-argument.

“But some good points can be made in defence of the Gates approach. First of all, argues Dr Yamada, calling this organisation an emerging monopoly is ‘way off base’. The foundation often collaborates with other charities, and jostles with other big agencies and newish funders, such as PEPFAR (George Bush’s AIDS effort) and the Global Fund to Fight AIDS, Tuberculosis and Malaria. This week the White House announced yet another tropical health initiative: a $350m effort to combat seven neglected diseases. Dr Yamada also challenges the ‘eggs in one basket’ theory. Although it is true that Mr Gates personally has argued for the eradication of malaria, and that his charity does heavily support ACT therapies, the charity also uses a range of other approaches, like malaria vaccines and bed nets. Dr Yamada says frankly that ‘we don’t have to choose between one thing and the other: we have enough resources to do both.’ That, of course, is just the sort of cockiness that rankles with health pundits.”

The article continues by noting that for years the World Health Organization held monopolies in areas in which it now complains the Gates Foundation is encroaching.

“At least in part, the gripes against the Gates Foundation are the churlish growls of a jealous crowd of bureaucrats and labourers at less influential charities. Some people at the WHO, a Geneva-based arm of the United Nations, openly worry that the foundation is setting up a new power centre that may rival their organisation’s authority. Such conspiracy theorists point to the foundation’s recent grant of over $100m to the University of Washington to evaluate health treatments and monitor national health systems—jobs supposed to be done by the UN agency. Therein lies an irony. The WHO, one of whose captains now calls the Gates Foundation monopolistic, used itself to hold a monopoly in the fight against malaria, and it did a lousy job as a result. Indeed, Dr Kochi himself has been refreshingly frank about the WHO‘s poor record in fighting the disease. “

The article concludes what any reasonable observer who doesn’t have a dog in the fight would conclude — the world is a better place because the Gates Foundation is getting involved.

“A big new non-government organisation, crashing into the jungle like a young elephant, is bound to cause resentment, and perhaps bound to have unintended ripple effects. But without this elephant’s input of new money and ideas, the battle-front against malaria and other deadly diseases might present an even worse picture, especially if the field were left to governments and inter-governmental bodies.”

The rise of social entrepreneurs, even those who have more energy than money, is a good thing. Harvard University Law School just announced that it would provide tuition assistance for students willing to commit to public service. Other such programs would be a good way to encourage the rise of even more socially involved young people. The next generation will be equipped with more technological means of connecting large numbers of people than any generation of the past. Equipping them with a social conscience that matches their means could hold great promise for the future.