A Bid for More Accountable Nonprofits

eBay co-founder and now billionaire Pierre Omidyar has set a new challenge for his own foundation: To invest more effectively

Since stepping back from the blockbuster dot-com he co-founded in 1995, eBay Chairman Pierre Omidyar has been busy figuring out how to give away much of the money he made at the world's largest online marketplace. His 20% stake in eBay (EBAY ) is today worth nearly $9 billion. In 1998, Omidyar and his wife Pamela started the Omidyar Foundation to promote the kind of community-building in the physical world that eBay has created online. One example: KaBOOM!, a nonprofit, volunteer builder of community playgrounds, received foundation largesse.

Yet, what Omidyar found was that it's a lot harder than he thought to give all that away and be certain it has a lasting benefit. "We wanted a better 'return' on our investment," he says. So, at the PC Forum industry conference in Scottsdale, Ariz., on Mar. 23, Omidyar revealed that he plans to radically transform the foundation that bears his name into the Omidyar Network, which can invest both in nonprofits and for-profit companies with a social mission. Says Omidyar: "You can have a significant social impact through for-profit enterprises."

The move grew out of a reassessment late last year, as the couple kicked in an additional $40 million to a foundation fund already valued at $67.8 million. Omidyar and his colleagues at the foundation had what he calls an "A-ha moment": Why should the foundation be limited to investing in only nonprofits?


  After all, he figured, eBay was doing enormous social good, even while it made bucketloads of money, by showing nearly 100 million registered members that they could trust strangers enough to do business with them sight unseen. And last November, he personally invested in Meetup.com, the initial supercharger for Howard Dean's campaign for the Democratic Presidential nomination, figuring it spurred new community participation.

There was one problem: The Omidyar Foundation would lose millions of dollars in tax breaks if it invested in for-profit enterprises as well as nonprofits. But Omidyar figured it was worth it. "I'm really excited about this -- being out of the box of nonprofits," he says. "It's in eBay's commercial interest to have a social impact. Same with Meetup. That's the best formula."

At a Scottsdale session aimed at finding better ways to measure the impact of nonprofit organizations, Omidyar and other donors and nonprofit groups expressed deep frustration with the status quo. They think too many nonprofits are duplicating efforts and failing to demonstrate whether in fact they're doing much good.


  That's a problem the Innovation Network addresses. This nonprofit provides an online service to help other nonprofit groups set goals and measure results. And now it will get an Omidyar investment. The nonprofit market is "completely inefficient," says Martin Fisher, founder of ApproTEC, a nonprofit that develops technologies such as a low-cost manual water pump that's lifting subsistence farmers in Nairobi and Kenya. "There's no turnover in top charities in the last 50 years, because it's all about brand. But brand has nothing to do with results."

Omidyar insists he isn't down on all nonprofits. But he says good metrics to measure performance -- a mainstay in the business world -- are absent in the charitable world. He cites the 1 million nonprofit organizations in the U.S. as proof that efforts are dissipated among too many groups. "I can't imagine there are more than 1,000 issues that really matter," he says. "That's 10,000 groups per issue. This is a big, thorny problem."

Indeed, Omidyar and his foundation-cum-network are struggling with the new organizational and legal issues raised by the group's big move. He acknowledges that he still has much to learn even after several years at the nonprofit game. "You can't just transport your ideas to another sector without listening and engaging," he admits.

Now he hopes to iron those issues out in coming months and resume investing in groups and companies that fulfill the foundation's continuing mission: to be a "catalyst for connectivity" by investing in enterprises that emphasize community involvement. Whether they're for-profit or nonprofit.

By Rob Hof in Scottsdale, Ariz.

Edited by Douglas Harbrecht