Business Today

On the road less travelled

eBay founder Pierre Omidyar views his philanthropic investments through the bi-focals of for-profit and sustainability, an idea that seems compelling.

Shalini S. Dagar        Print Edition: Feb 20, 2011

The weather was pleasant on the first working day of the new year. Representatives from a motley selection of 14 organisations, both for-profits and nonprofits, got together to share experiences at the Trident in the Bandra Kurla Complex in Mumbai. On the surface, there was perhaps little in common between the universe of Pratham, India's best known social organisation focused on education, and D.light Design, a Silicon Valley firm making solar lamps. Yet, they were together for the simple reason that they had a common funding agency in Omidyar Network (ON), a philanthropic investment firm founded by Pierre Omidyar, founder of Internet company eBay.

As the day unfolded, the participants mingled and managed to spot some natural allies. For instance, Mandeep Singh, Managing Director, D.light Design, was happily thinking of using the services of organisations like Pratham to popularise his lamps in rural non-electrified areas.

And there were others who found synergies. This synergy was not altogether spontaneous; there was a method to it. And that stems from the personal philosophy of the Omidyars - Pierre and wife Pam - who were present at the event, called ON Haat, in Mumbai. After having experimented with a host of ways to give, they have favoured a mix of philanthropic notfor-profit grants and equity-based investments in enterprises which have a significant social impact.

On follows this philosophy quite literally. It houses both for-profit and non-profit investments of the Omidyars (See The Omidyar Network below).

And the firm itself is organised along the lines of a partnership firm akin to a venture capital firm rather than as a hierarchical traditional foundation. "It is about philanthropy which is much more engaged and which uses all the tools in the box. I just hope to give people a new way to think about philanthropy and not think of it as an obligation necessarily... as only giving to charity," says Omidyar.

Swati Ramanathan, Co-founder, Janaagraha, and Chairperson, Indian Urban Space Foundation
Swati Ramanathan, Co-founder, Janaagraha, and Chairperson, Indian Urban Space Foundation
Omidyar brings his formidable financial clout to the argument. His personal wealth, at last count, was estimated in excess of $3 billion. And the Omidyars have pledged to give away a large share. Though the family may have invested close to a billion dollars in philanthropy, ON's share has been around $400 million so far.

The Omidyars are agnostic to causes - unlike typical US foundations. They take their money where they believe they can create opportunities for people. That spreads them across fields as diverse as renewables and government transparency. In India, the network has invested nearly $70 million (Rs 322 crore) since 2004 and hopes to scale it up to $200 million (Rs 920 crore) in the next five years. The logic is simple: India is unique because it has a large absolute number of smart, educated individuals beside extreme social deprivation. Hence, Omidyar expects to see unprecedented social innovation here.

Team on: The Omidyars (centre) with other members
The Omidyars (centre) with other members
The Omidyar Network

Has invested $70 million in India since 2004

Plans to scale it up to $200 million over the next five years

PRS Legislative Research
Seeks to strengthen the legislative process in India by increasing information flow, transparency and citizen participation

Elevar Equity: Is a growth equity investor focusing on underserved markets in emerging economies

Quikr: Addresses the needs of local communities in 40 cities across India by connecting people through the Internet

J-PAL South Asia: Works to provide scientific evidence for development programmes, building local capacity and ensuring policy impact

Microsave: Assists financial institutions in Asia and Africa in serving low-income markets

Path: A non-profit organisation that attempts to enable communities to break long cycles of poor health

Small Enterprise Assistance Funds: Aims to invest in companies operating in underserved communities

And for Indian companies used to peddling the argument of inappropriate tax structures for lack of appropriate efforts, he has a rather unique take. "I think it is sort of disingenuous to say that I would be more generous if the tax structure was more beneficial. Where the tax structure does come in is at the individual level for the middle class. But if you are wealthy and you are motivated to be generous, tax structure is irrelevant." In fact, that is the structure ON follows, thus relinquishing tax benefits.

Omidyar is intrigued as to why the equity-based model is not followed more often. As founder of eBay, Omidyar's faith in the power and efficiency of risk capital is firm but not blind. He is quick to concede that there are areas where markets simply cannot reach - perhaps due to the nature of the problem or the stage of development of the sector. No wonder then, his philanthropy has tilted in favour of grants so far.

"However, we are very careful in ensuring that when we make grants we are not displacing the for-profit funds in the sector," he says. Managing Partner Matt Bannick says typically the firm is not dogmatic about the approach. It focuses on the problem rather than the structure. Depending on the problem at hand, it has done both kinds of funding - hence the epithet of "flexible capital".

According to Jagdeesh Rao, Executive Director, Foundation for Ecological Security, which works to enable village communities to improve governance of common resources, ON has a fundamentally different view from other philanthropic organisations.

Rao should know. He has been hunting for funds quite actively in the last decade. "ON funds are almost as good as your own money," he says. ON invested $2.1 million (Rs 9.6 crore) in Rao's organisation, thus becoming its third-largest donor. There is already talk of a second round of funding by 2012 of $8 million (Rs 36.8 crore). Unlike other philanthropic organisations, ON does not come with a project-centred approach. Rather, it enters with the intention of building institutions. The two main requirements are: the organisation should fit into the ON portfolio and be scalable.

Swati Ramanathan, Chairperson of the Indian Urban Space Foundation and co-founder of Janaagraha, an NGO working on urban quality of living, says the benefit of ON comes from its disciplined funding. In Janaagraha's case, while $3 million (Rs 13.8 crore) was given for three years, a third of the funds is for unrestricted use, while another third is tied to achievement of pre-determined metrics and the final third portion depends on the ability of the organisation to raise at least twice as much from other sources.

This, according to Jayant Sinha, Mumbai-based Partner, ON, ensures that the organisation makes the most of the network's money - leveraging to raise more funds and building fund-raising capacity. And, like a venture capital firm, this also ensures there is an exit built into the investment. As a proportion of overall funds, ON's contribution tapers over its period of investment.

For the investee companies, the connections that ON brings are a major benefit. For example, D.Light Design immediately found a ready distribution network channel that it could tap at the ON Haat in Pratham and other participants. Others have benefited from the emphasis on people.

Matt Bannick, Managing Partner, Omidyar Network
Matt Bannick, Managing Partner, Omidyar Network
For instance, Ramanathan points out that though Janaagraha has managed to attract goodwill and talent, it still struggles with technology and application development and ON should be able to help. In all this there is an extreme, cynical view as well. India is the market of the future. Is it then a surprise that anybody philanthropic or profitmaking will not want to be in India? Amalendu Pal of Partners in Change, an organisation that tracks philanthropy, says, "Money invested in India's growing market will give returns several times over."

Yet, equally important is the impact that any intervention has on the society. Omidyar himself does not think less of philanthropy that is driven by "enlightened self-interest". It is the result that matters. And that is more than zero, in his view.

Still, Omidyar probably needs large doses of tenacity, patience and a good reality check as Anurag Behar, co-CEO of the Azim Premji Found- ation, points out: "Society is far more complex than business." Omidyar, hopefully, is up to the challenging task in India.

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