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On Social Impact and Mark Zuckerberg's $100 Million 'Investment'

October 05, 2010

(Rachel Bellow and Suzanne Muchin are Partners at ROI Ventures, a strategic advisory firm that works at the intersection of social impact and market opportunity. This is their first post for PhilanTopic.)

Startup-education Although Facebook co-founder Mark Zuckerberg made headlines for his recent $100 million donation to the Newark public school system, philanthropists and nonprofits alike would be wise to ask: Is "big check writing" really the best way to create social impact?

Zuckerberg, the first of his generation to make such a huge philanthropic gift, is to be commended for stepping outside his immediate circle of concern and committing a large sum to a critical issue.

The challenge, however, is figuring out how to lay a foundation for success. Often entrepreneurs make philanthropic investments in ways they never would in business. Zuckerberg's recent action, despite its magnanimity, raises some red flags:

Red Flag #1: Using Venture Capital Vocabulary for Social Impact Investing

Invoking the "We bet on people" chestnut from the venture capital world, Zuckerberg says he is betting on Newark mayor Cory Booker and New Jersey governor Chris Christie, as opposed to any particular strategy. The danger with this approach is that, as a donor, Zuckerberg has very little ability to ensure the impact of his donation -- especially if either Booker or Christie resigns or is voted out of office.

Red Flag #2: Writing the Check and Walking Away

Social impact investing is hard, so why would Zuckerberg feel confident about investing $100 million and then stepping back from the process? Would he invest in a software company without a tight feedback loop to track the performance of his investment? Businesses receive constant feedback from the market; think about the instant feedback Facebook received when it posted its new privacy policy last December and the impact that had on its business. In the case of his first major foray into philanthropy, Zuckerberg appears to be willing to invest $100 million and walk away, which could spell trouble for the investment.

Red Flag #3: Not Taking the Long View

Zuckerberg and others haven't addressed the question of how the infusion of money into Newark public schools will be sustained. In other words, what's the endgame? Even if the funds, spread out over five years, represent only 4 percent of the Newark school district's $940 million annual budget, they are likely to provide consistent support for much-needed programs -- until they run out. Then what?

Red Flag #4: No Talk of Incentives

An investment of this magnitude should be used in part to create incentives for other entities to engage with the problem of failing public schools. This means encouraging other people and institutions to become part of the solution in a substantive way.

Red Flag #5: A Weak Narrative

It's hard to imagine Zuckerberg making a business investment of this size without developing a solid rationale or narrative concerning the strategy itself, as opposed to just having a "vision." Since the ultimate impact of his investment depends on others coming in and matching it -- as well as providing the intellectual framework for the strategies and tactics to be funded -- one would think Zuckerberg would work with Mayor Booker to say more about the latter's approach to education reform: How are Booker's efforts in Newark different from reform efforts in other parts of the country? What aspects of his plan have the greatest potential for success? Which ones are more problematic, and why? Betting on vision is fine, but Zuckerberg knows from his own experience that, for any investment to succeed, the thesis behind it needs to be solid, clear, compelling, and subject to tough questioning.

Red Flag #6: Too Much Talk About Money

This is the most obvious flag, and it's a direct consequence of all the other flags. Social impact isn't about money. Mere check writing often leaves the most valuable resources -- the donor's intellectual capital and personal network -- out of the equation. Zuckerberg understands better than most how social media can be used to create and energize communities of practice. But he has yet to infuse any of his considerable knowledge into his gift.

"Checkbook philanthropy" is a vestige of twentieth-century philanthropy, and a new generation of donors is beginning to see it is a weak lever for social change. Those committed to achieving social impact with their philanthropic investments are discovering that the application of capital to complex social problems needs to be buttressed by intellectual capital and leveraged by networks to which the typical social sector organization doesn't have access.

To ensure that his $100 million investment in Newark public schools creates the greatest possible impact -- something we all want -- Zuckerberg (and other philanthropists) would be well served by committing the same amount of thought and energy to realizing his philanthropic vision as he does to his business goals.

-- Rachel Bellow and Suzanne Muchin

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Posted by Lucy Bernholz  |   October 06, 2010 at 07:49 PM

Very thoughtful. Particularly the "too much talk about money" insights. Experience visible in these insights. Thanks for posting


Posted by Mitch Nauffts  |   October 07, 2010 at 04:38 PM

I agree. Thanks for reading and leaving a comment, Lucy.

Posted by Allison Fine  |   October 08, 2010 at 10:54 AM

This is a great post, thanks. It's hard to read this and not slide into the assumption that this isn't philanthropy on Zuckerberg's part but PR. Hope I'm wrong.

Posted by Mitch Nauffts  |   October 08, 2010 at 05:38 PM

I hope so, too, Allison. Checking in on MZ's involvement with Startup:Education in 6-10 months would be a good topic for a blog post, wouldn't it?

Thanks for stopping by and leaving a comment.

Posted by PPM Template  |   October 08, 2010 at 11:52 PM

These area all valid points. No doubt there is far too much concern with the money than exactly what to do with it.

Having said that, it is difficult to blame Zuckerman for giving an amount that substantial.

But, I agree. Would be neat to see him give one-half that amount and use the other half to develop a team that knows how to spend it.

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