COLLECTIVE CONSCIOUSNESS: about the eBay founder’s foundation
How impact investments, venture philanthropy and flexible capital change the world, says Elena Boytsun, Investment Director, Central and Eastern Europe, Omidyar Group.
Four years ago, I had a unique opportunity to become an impact investor, starting work in one of the most famous world companies in this field. The Omidyar Network, a philanthropic investment company of Pierre Omidyar, founder of eBay, had already invested more than $ 1 billion in various projects, companies and non-profit organizations around the world.
My task was to structure the activities, business models and portfolios in Central and Eastern Europe for the fund. Having plunged deeply into this sphere, I understand more and more that the region’s financial system needs transformation of the post-Soviet countries financial system towards flexible capital, and impact investments and venture philanthropy are the most logical tools for this.
After eBay entered the IPO in 1998, Pierre Omidyar decided to donate part of the multibillion-dollar capital received to charity and established a traditional family charity fund. But after a few years, Omidyar noticed that this form of distribution of capital is not the most effective for the goals that he set for himself. So the Omidyar Network and the Omidyar Group of Companies appeared – a fund that combined the features of both an investment fund and philanthropic organization, operating in flexible capital.
The work model of Omidyar Group organizations differs from traditional investment funds in that, depending on the goals and business plans, it is possible to support entrepreneurial teams regardless of which form of legal registration they have chosen
This is an important moment for the development of new markets, because, for example, with the advent of social entrepreneurship, such legal entities as non-profit companies appeared, and traditional non-governmental organizations in many countries gained the right to earn money to fulfill their statutory goals.
Such approaches to solving the problem removed the limitations of past years, when entrepreneurs and start-ups had to choose from two models – either aimed at for-profit with the involvement of standard investments, which must be returned, increased, shared part of the company, or a model of non-profit organization (non-profit), which attracts non-repayable grant money and organizes its activities to fulfill a specific mission. The flexibility of capital also manifests itself in the way in which such forms of investment can be directed. As a rule, they share a common (core) and project support.
With project support, all expenses are clearly fixed by category, and the total allows teams to independently make decisions about the distribution of money. At the same time, there are no restrictions on the topics of activity, and flexible capital can be directed to any industry, from education, infrastructure and agriculture to highly specialized markets, such as, for example, the market of civil technologies (civic tech).
Flexible capital removes restrictions not only in terms of legal registration of a company. At the moment, an incredible number of tools have appeared on the financial markets in order to regulate investments in the form that is suitable for a particular project. One vivid example is a repayable grant or loan, which is issued for a certain time without interest, but provides for a refund. The work of the fund with profitable companies can also combine both standard investments and grants.
Even if the grant is not repayable, signing a contract and the willingness of the fund to allocate it to the organization does not automatically mean that the entire amount will be transferred. For example, if a non-profit organization cooperates with an impact fund and receives a million-dollar grant for two to three years, in most cases, this means that the first tranche is transferred unconditionally, but the bulk of the investment depends on the fulfillment of certain conditions (conditional). After the first year, it is necessary to provide a report, for example, on the achievement of certain indicators or raising additional funds, and if the conditions are not met, then the next tranches of the organization will not be transferred or partially transferred, say, in the amount of 50%.
In those markets where there are legal opportunities for this, impact funds try to set as a condition the development of the organization’s business model, the achievement of certain earnings even for non-profit organizations, in order to reduce their dependence on grant money and help to achieve sustainability. Thus, the mechanism for developing the market works, even if we are talking about non-profit organizations.