Pierre Omidyar at Web 2.0
Full disclosure, Omidyar Network is an investor in Socialtext. ON invested in FM Publishing too. Could have gotten a higher valuation if it got Pierre out of speaking.
From the beginning at eBay I knew that once it had begun becoming a business, if I was lucky I could build it to a certain point and then hand it over to someone for the next level. An issue of bringing in new blood to build something new with the same values. Not needing to be involved in every decision, Interested in how we coudl take the learnings at eBay and apply them to other sectors.
Started a foundation. Trying to make the world a better place in the traditional way. Started thinking that if you want to have an impact in the real world, why do you have to in this sector? When you look at eBay, after 10 years, 150 million customers have learned they can trust a complete stranger. That a business can have this very social impact of a slightly higher level of trust was intriguing. Reorganized as ON, expanded into for profit ways.
JBat: Now in the VC Biz?
A little different, it’s a mission based fund. We are about fostering individual self-empowerment. The fund is $400M, all my money, going to do something good with this, investing over 5 years.
JBat: I’m not good with math. Oops, shouldn’t say that in front of our funder.
Looking for businesses that can only be successful if they have a positive social good. We are building tools with new technology to bring people together. Adam Smith: given the right environment with people pursuing their self interest leads to an increase in the general welfare. In fact, look at the profit generated in an economic system, if the environment is right, then the existence of profit is evidence of general welfare. If the baker can sell bread to a shoemaker, he can feed his family, and also apply the profit to buy shoes. It’s more complex than that, but the principle holds true.
We look for three things: does it have a level playing field? does it foster interaction, connecting and communication around shared interests? do the participants have a sense of ownership for what is going on?
Then we look at the business model. Is there a revenue model that can only be successful if it maintains the three values and enables the social impact.
For instance with a business about trade, and you need people to trust one another, the model predicated if the trade going through.
We are pretty rigorous (I can testify to that) in due diligence. Tighter screen because of the mission fit, which also limits the number of opportunities. We are doing this for a social impact on the world. Need to examine the business model that has the social impact.
In the social sector there has been a lot of work on trying to measure the social return. Some things easy to measure (how many people did you feed), but the game changing things you can’t measure. Going back to Adam Smith, with the right environment (criteria for investment), then evidence of profit is fulfilling the mission.
There are so many creative people innovating when the barrier is lower. Fundamentally a good thing, but more competitors, but that’s a good thing.
Because of our challenge of looking for this tight fit, it is a challenge to invest as much as we want.
If you are a company like Google or others building infrastructure for the future, you have to be careful. Want to foster innovation, such as with eBay we have an API program with 20k developers, 45% of listings come from that API program. Trying to foster innovation outside the company’s walls. No matter how great we are internally, we need to give people tools so we can foster more innovation.
Would invest in eBay now. People connecting around shared interests, the commonality, is a result that you couldn’t have done 10 years ago.
We look at management team and other more traditional and critical criteria. I personally have less concern about investing in the one winner in a category, or having bets in the same space. Can understand if an entrepreneur has a problem with that.
There has to be competition for the pursuit of self interest to work. No externalities that are not priced into the product that you are selling. Market failures. Commercial sector has the ability make the world a better place, but governmental regulation is responsible for fostering the right environment. As an investor, we want government to help understand it’s responsibility, while being a good citizen in the private sector and not distort markets.
An organization that only focuses on their social good has difficulty scaling compared to those that focus on profits. With both, you get great people and you set them loose. That’s what we did at eBay. With the full confidence that as they were pursuing returns they are making the world a better place.
On disasters, we haven’t looked at preparedness in a very direct way. Have concern about general preparedness. The pandemic will present some very unique challenges.
JBat: FM Publishing is aggregating high quality blogs and hopefully make it pay.
Web 2.0 is about putting the tools in peoples hands, making them widely available, letting them work together share and collaborate. Start with the belief that people are good, connecting them together is inherently good also, and it will change the world.
He also writes Ross Mayfield’s Weblog which focuses on markets, technology and musings.