(All of this are my own views, and based on public information) I agree with the main claim here—people should consider for-profit vehicles when they are exploring founding an org. And I agree with much of the content. But I wish the piece was more balanced, specifically: (1) adequatley noting the downsides of for-profit structures, and (2) updating the valuation of non-profit structures given a potential era of funding abundance.
On (1):
There are always exceptions, so this is just a general principle: I think for-profits that are aiming for moral impact face a deep structural tension which is both powerful and hard to avoid . That is the problem of trying to aim for two things at once - impact and profits—which both have extreme distributions.
Digression/caveat: profits are power-lawed, but impact’s distribution is probably less extreme (probably because it lacks the revenue->investment positive feedback loop). That distribution could be power lawed, but across all causes/interventions—once you select for (A) important problems and (B) plausible interventions, maybe you’ve already put yourself up towards the tail anyway. Empirical analysis of this would be cool.
If both are extremely distributed, then you probably need to push hard to achieve that excellent outcome in either. And the tails probably come apart. The set of actions and sacrifices that would give you a chance at excellent profits will be different to those you would need to take for excellent impact. My general sense is that to achieve such great outcomes, a founder or org usually needs to make it an obsession, and the top priority. You cannot meaningfully have two separate and difficult aims be your obsessive top priority.
What if those aims are well correlated, so the tails don’t come apart? I’m sure there are cases like this, but I expect they are rare. In most cases I expect a successful org to do well at one of the aims and mediocre at the other.
If an org is good at profits but mediocre at impact, I don’t particularly care about it existing.
If an org is mediocre at profits but good at impact, I want it to exist. But if profits are mediocre, then it seems plausible that a non-profit structure would have been better anyway.
I expect the tails to be decently de-correlated here because profits are only a weak proxy for impact, as you note. Not only is profit determined by who can pay, but also by how much they can pay. Large powerful actors can pay a lot, but they are usually not the ones who need help.
This structural tension applies to impact investing, with little changed.
And to repeat, there are exceptions to this general principle. But it means your prior that a for-profit structure is the optimal one for a particular case should be significantly lower than if you haven’t considered this principle.
On (2):
There is likely to soon be a large volume of philanthropic capital, as you note. This means that many of the negatives of non-profit structures could be greatly reduced:
Grantmaking seems likely to become significantly faster and higher volume, making fundraising a much lower portion of a founders time.
Grantmaking seems likely to become able to fund more aggressive growth and larger scales.
You note “Historically, AI safety has relied on a small set of highly trusted grantmakers. But as funding in the space grows 100x, we don’t think we can 100x the number of human grantmakers.” It seems weird to me for someone to countenance this fact and conclude that one should therefore try to be a for-profit instead, pursuing a very different kind of capital. Instead one should consider (and expect) that grant making could become much higher volume (even if the scale is below 100x), and that the near-term future may be the most accessible time in history for founding an ambitious non-profit.
Thank you for these comments! I very much appreciate the public engagement, and care a lot about figuring out what’s true here. I’m responding quickly, and framing things strongly with the understanding that there’s much more room for nuance everywhere.
[quick edit, I realized I wrote the below for a “cG grantmaker” and you specifically work in Longview now, apologies. my unsolicited prescriptions for Longview are probably a bit different than for cG but I think the general points hold?]
I agree with “tails come apart”, it’s not obvious that the biggest corporations are the most impactful, like I wouldn’t allocate more philanthropic capital to NVIDIA or SpaceX. But even these examples are illustrative of something good about forprofits, which is that allocation of credit between individual humans is much much better in forprofits—Jensen Huang or Elon Musk are much much richer than the median employee of their org.
Why should an impact-minded founder care? Because if they push really hard and actually succeed at doing something impactful, they then have to go and pray that the grant evaluators up above agree with their assessment. While cG and founder missions are kind of aligned around wanting good impact in the world, they’re also not fully, and I/Manifund endorse founders having more leverage over funders, on the margin.
Why should you, cG grantmaker shepherding the AIS ecosystem, care? Because without good credit allocation, people end up in confusing work situations, working on problems not suited to their ideal use of talent, doublecounting impact, negotiating on much fuzzier norms around “who was responsible for a specific project” being tracked in a social layer rather than in the clean numbers of equity and salary. Social layer is good for where AIS is today, but doesn’t scale to handle 100x growth.
Grantmaking seems likely to become able to fund more aggressive growth and larger scales.
Okay, but what happens to the founder managing a $100m/y charity? Will cG and 501c3 law allow them to draw a proportionally larger salary?
There’s one kind of EA answer which is “who cares, I was going to donate it to charity anyways, so it’s equivalent to have this money be in my personal bank account vs in my charity vs in cG”. I find elements of that answer which are compelling and noble and good, but also elements which are suspect wrt ecosystem-level feedback effects. I think it’s important that successful individuals (and orgs) gain more ability to then influence what happens next in the ecosystem, and $ and equity are good numeric ways of building that feedback mechanism.
(also, seems good to nerdsnipe the non-fully-EA-aligned founders into working on problems we think are good)
One thing that has made the forprofit tech scene work is that, when a founder exits, they have extra $ to invest, and also experience running new orgs; they can the angel invest into the next generation (and also provide advice, connections, etc). I think mirroring this inside EA would be good. For example Ryan Kidd running MATS could have much more discretionary capital/ability to fund random projects that he thinks are promising but aren’t “MATS Fellow” shaped, but doesn’t by default. Fixing this is part of why Manifund runs AI safety regranting.
I’ve vaguely heard that cG is exploring doing more regranting (in the form of discretionary grant budgets to individuals with experience/taste + dealflow), and hope this is true!
Grantmaking seems likely to become significantly faster and higher volume, making fundraising a much lower portion of a founders time.
I will be happy if & when this happens because it probably means I could stop working on Manifund and then go and found a thing instead. But I’m currently bearish on philanthropic funding becoming much less painful.
To raise a recent example, our fundraising for our own projects (Surplus and Mox) has been annoyingly bogged down in classic traps of philanthropic funding norms, namely “funder chicken”. X asks “why isn’t Y funding you instead” and Y asks the same question in reverse and we’re waiting weeks to months to litigate. Grantmakers are already pressed for time and nobody has the chance to coordinate properly, and end up deferring too much.
There are clever mechanisms that are being proposed and used (funding backstops, matching offers, loans, etc) and also infra-level changes coming (Lightcone’s doing a cool new S-Process thing, Manifund and grantmaking.ai are other kinds of trying to enable coordination). But fundamentally I like the forprofit norm of funders fighting for allocation in rounds and trying to compete on valuation & speed, rather than the nonprofit game of hoping somebody else steps in.
It seems weird to me for someone to countenance this fact and conclude that one should therefore try to be a for-profit instead, pursuing a very different kind of capital.
I want them to pursue philanthropic capital, at the end of the day! But I don’t think the philanthropic funding ecosystem has good norms around seeding & incubating new orgs, compared to the tech startup ecosystem.
My general proposal is that big philanthropic orgs like cG should move towards being assessors of impact, similar to the final buyers in AMCs like Stripe Frontier or Operation Warp Speed. While distributing 501c3 funding, you can put up large prizes and award retro funding for concrete specific good work undertaken. (This is very not trivial fwiw, and does require teams of smart grantmakers to carefully reason through “what happened” and “how do we count it”.)
But inside this ecosystem, new orgs should default incorporate as for-profit PBCs or C-Corps. And there should be a wide dispersion of intermediate funders (thnk preseed/seed/series A/B/C etc), who may be set up as 501c3 or standard forprofit, but either way providing funding to the new orgs in the form of standard forprofit equity investments.
Tech forprofit venture funding is already operating at the 100x scale that AI safety philanthropic funding hopes to get to, and so I think copying their homework (where reasonable) is wise. Again, my strong prior is that market economies perform better than centrally planned ones, at scale.
My guess is that currently cG overall is trying to instead move down in size and get into earlier-stage funding and incubation. I think more early stage funding and incubation is great, but also outside cG’s core competency (eg have the people who are now in charge of those programs, previously founded successful orgs?), and I’m unsure whether it makes sense to house all of these initiatives under a single cG banner, vs have a somewhat more diversified ecosystem.
Thanks for the substantial engagement! You cover a lot, so I’ll just pick out quotes and respond to ~most points.(As you note, I don’t work for CG and haven’t worked for them in over a year. I now work for Longview, but none of this is based on private information, and none of it represents views of either org).
it’s not obvious that the biggest corporations are the most impactful, like I wouldn’t allocate more philanthropic capital to NVIDIA or SpaceX
Even if they were impactful, why would you consider allocating any philanthropic capital to incredibly rich companies? The marginal case would be terrible.
allocation of credit between individual humans is much much better in forprofits—Jensen Huang or Elon Musk are much much richer than the median employee of their org
I think the right allocation of credit isn’t obviously better here. It is hard to figure out who were most responsible for an org’s success, in both for- and non-profits. CEOs get massive pay. There’s lots of reasons for that (high leverage, small market, rent-extraction via CEO’s influence on boards, equity-based pay, and so on). I don’t think you can assume that because CEO’s get enormous pay, they therefore deserve such pay (that may be true, but you’d want to actually try and investigate the credit allocation story—which is the question you started out with). I think there would be many cases of failed credit allocation in SpaceX, NVIDIA, and most other companies—i.e. many senior engineers or leaders who contributed much more value than the CEO, but were paid orders of magnitude less.
The pay is at least some signal of how the companies’ board values the executive’s performance. And if news of a CEO considering leaving or committing shifts investor sentiment and stock price, that is a good signal of how the market evaluates their performance. But these are merely okay instruments of assessing credit, and are usually strictly aligned with profit maximising. I don’t think they solve the credit allocation problem, and are a minor factor in comparing for- and non-profits.
Why should an impact-minded founder care? Because if they push really hard and actually succeed at doing something impactful, they then have to go and pray that the grant evaluators up above agree with their assessment.
I agree that for-profits reward extreme success much, much better than non-profits, especially given that extreme success may require taking personal risk and extreme levels of commitment. This is a problem that changes to the non-profit funding ecosystem should seek to fix.
Why should you, cG grantmaker shepherding the AIS ecosystem, care? Because without good credit allocation
I don’t agree that extreme CEO pay is a useful signal, so I don’t think it provides much useful information on credit allocation. It just shifts credit allocation from the grantmakers’ view to the view of a board—where such a board is significantly more constrained and incentivised away from impact optimisation.
Okay, but what happens to the founder managing a $100m/y charity? Will cG and 501c3 law allow them to draw a proportionally larger salary?
Higher salaries are possible, and may be probable if there is funding abundance. There are some restrictions around what is ‘reasonable’ executive pay in the non-profit sector—maybe this could be a limit. But what is reasonable should scale with the size of the charity. For example, the CEO of the Gates Foundation earns $1.7M/yr. Extremely high salaries in the for-profit world are significantly equity-based, and this is the harder hurdle. I guess a key question is whether you think non-profit founders should get compensation in excess of low-seven-figures. That might be reasonable, but it’s a weaker case than assuming they still get paid poorly.
There’s one kind of EA answer which is “who cares, I was going to donate it to charity anyways, so it’s equivalent to have this money be in my personal bank account vs in my charity vs in cG”. I find elements of that answer which are compelling and noble and good, but also elements which are suspect wrt ecosystem-level feedback effects. I think it’s important that successful individuals (and orgs) gain more ability to then influence what happens next in the ecosystem, and $ and equity are good numeric ways of building that feedback mechanism.
I don’t really get why very high salaries would lead to greater influence on the ecosystem. Is it by directing their personal capital? I think in an era of funding abundance such capital is unlikely to be a major factor. If it is by their capital signalling apparent excellence, I don’t think that would work. I trust people according to how well they think and argue, my perception of their character, and their track record (and what other people I trust think of them). The amount of money they earn is close to irrelevant. There are countless people on very high salaries who I think are completely useless; there are countless people on very low salaires who I trust far, far more.
(also, seems good to nerdsnipe the non-fully-EA-aligned founders into working on problems we think are good)
Agreed. Though there’s a slight worry about how internalised their altruistic motivations are, with the risk of value drift over time and making the wrong high-stakes call when incentives clash. But in general, yes we should want to leverage this talent pool.
One thing that has made the forprofit tech scene work is that, when a founder exits, they have extra $ to invest, and also experience running new orgs
Yep agree that past success should translate into ability to influence future grantmaking. Regranting is a method of doing this. However, my impressions is that regranting has often struggled because it takes real time to do it well. The usual failure mode of regranting is that the regrantor doesn’t spend enough money. In general you kind of need it to be a part of their job to do it effectively (like 0.2 FTE or more if I had to guess). But those with past successes have high opportunity cost—you would need to think that the regranting is a better use of their time than their counterfactual efforts at continuing their successful track record. That will be only true in some cases.
To raise a recent example, our fundraising for our own projects (Surplus and Mox) has been annoyingly bogged down in classic traps of philanthropic funding norms, namely “funder chicken”. X asks “why isn’t Y funding you instead” and Y asks the same question in reverse and we’re waiting weeks to months to litigate. Grantmakers are already pressed for time and nobody has the chance to coordinate properly, and end up deferring too much.
Sorry that that’s been your experience, and yes these issues are still live. One reason for optimism is that if there is funding abundance, and funders are all opportunity-constrained, the reasons for worrying about funging and coordination become less important. Seems plausible that much better solutions are out there that should be pursued anyway, as you mention.
Tech forprofit venture funding is already operating at the 100x scale that AI safety philanthropic funding hopes to get to, and so I think copying their homework (where reasonable) is wise.
Yes, I agree there are many lessons and structures from VC land that should be of interest to funders. Two caveats:
VC-land also has many problems, which we’d want to avoid. Those problems are significantly worse in the context of chasing impact, because VCs basically only care about money, and bankruptcy caps downside risk. If you care about moral impact, you have to consider all the externalities, and you have to countenance extreme (indeed, existential) downside risk. It’s also harder to operationalise, since VCs can just use profits, but impacts needs very uncertain judgments or metrics that could be Goodharted on. My impression is that there have some attempts at impact metrics to guide capital allocation, without much success so far (though people should keep trying).
VCs move $4–8M per employee per year (Fable reckons for global VC there is $425B–513B deployed each year ÷ 60,000–100,000 employees). That’s only a little higher than than than the $-moved per employee at mainstream philanthropic orgs (typically $1M-$5M), and CG is about bang in the middle if we think that they do $1B in annual grants with about 170 employees ($5.9M/yr). So at least on these loose numbers, VC is not significantly more ‘efficient’ than grant making—maybe 2x compared to mainstream, and ~no difference compared to CG (and possibly other EA funders). VC just has orders of magnitude more employees.
My guess is that currently cG overall is trying to instead move down in size and get into earlier-stage funding and incubation.
I don’t think earlier stage funding and incubation is ‘moving down in size’. It’s what you would do if you wanted many more organisations to be able to receive money. Orgs can only grow so fast without other things breaking, so if all your good grantees are growing as fast as possible, moving earlier is the main way to scale the relevant ecosystem. Your other option is to give lots to already-big organisations that are outside the relevant ecosystem. Maybe in some cases that will make sense, but it doesn’t seem that promising a strategy.
outside cG’s core competency (eg have the people who are now in charge of those programs, previously founded successful orgs?)
Most VCs are not past founders. So if you like the VC approach, you shouldn’t worry about this. CG also has a great deal of experience in guiding the founding, early stages, and rapid growth of hundreds of organisations. I think that could actually be a more useful training ground than founding a single company, but they’re at least comparable.
I’m unsure whether it makes sense to house all of these initiatives under a single cG banner, vs have a somewhat more diversified ecosystem.
Agreed, a more diversified ecosystem would be good.
Thanks for the thoughtful comments! You and Austin already covered a lot, so I won’t respond to everything.
On your point (2), I agree this is a strong point in favor of nonprofits. But I’m unsure how much to expect the future you describe—grantmaking way faster and higher volume, funding ambitious nonprofits and allowing them to grow aggressively—in some default world where a ton of new philanthropic capital gets put into CG, Longview, and similar orgs.
Is the limiting factor in grantmaking at these places not having enough money? Or is it more like wanting to avoid funding things that are net negative or flood the ecosystem with low-quality projects? I would have guessed more the latter, and in that case getting more money won’t particularly help things like speed and funder chicken.
I’m sure you don’t want to speak for either of those orgs, just speculating.
Thanks Carol! I think its reasonable to have these worries, and to be concerned that money doesn’t solve them (these orgs need to execute well, and more direct solutions will be needed in some cases). I think there’s reason for optimism here, but I don’t want to speak for any orgs or base things on private info.
Perhaps another example: it seems suboptimal that Joey Savoie, after having created a successful product in Charity Enterpreneurship, is not rich as a result. Sure, he can leverage his connections and skillset and reputation to start a philanthropic advising org (Elevate) and continue to direct funding towards where he things might be impactful, but instead, what if he had just become rich, and had the ability to fund things without having to persuade his donors?
I don’t really want to focus on an individual’s career/financial decisions. I agree that in a just world, successful impact should be rewarded handsomely. But fwiw on the practical questions, I’m reasonably confident that:
Joey has influenced significantly more capital via AIM, Elevate, and other projects than he could have reasonably expected to donate via a for-profit career ex ante. Indeed, a key benchmark to compare impactful career options is a comparison to ‘earning to give’.
Joey is very thorough and systematic in his career choices, and I would guess he considered for-profit entrepreneurship and rated it lower EV (at least for him at that particular time).
(All of this are my own views, and based on public information)
I agree with the main claim here—people should consider for-profit vehicles when they are exploring founding an org. And I agree with much of the content. But I wish the piece was more balanced, specifically: (1) adequatley noting the downsides of for-profit structures, and (2) updating the valuation of non-profit structures given a potential era of funding abundance.
On (1):
There are always exceptions, so this is just a general principle: I think for-profits that are aiming for moral impact face a deep structural tension which is both powerful and hard to avoid . That is the problem of trying to aim for two things at once - impact and profits—which both have extreme distributions.
Digression/caveat: profits are power-lawed, but impact’s distribution is probably less extreme (probably because it lacks the revenue->investment positive feedback loop). That distribution could be power lawed, but across all causes/interventions—once you select for (A) important problems and (B) plausible interventions, maybe you’ve already put yourself up towards the tail anyway. Empirical analysis of this would be cool.
If both are extremely distributed, then you probably need to push hard to achieve that excellent outcome in either. And the tails probably come apart. The set of actions and sacrifices that would give you a chance at excellent profits will be different to those you would need to take for excellent impact. My general sense is that to achieve such great outcomes, a founder or org usually needs to make it an obsession, and the top priority. You cannot meaningfully have two separate and difficult aims be your obsessive top priority.
What if those aims are well correlated, so the tails don’t come apart? I’m sure there are cases like this, but I expect they are rare. In most cases I expect a successful org to do well at one of the aims and mediocre at the other.
If an org is good at profits but mediocre at impact, I don’t particularly care about it existing.
If an org is mediocre at profits but good at impact, I want it to exist. But if profits are mediocre, then it seems plausible that a non-profit structure would have been better anyway.
I expect the tails to be decently de-correlated here because profits are only a weak proxy for impact, as you note. Not only is profit determined by who can pay, but also by how much they can pay. Large powerful actors can pay a lot, but they are usually not the ones who need help.
This structural tension applies to impact investing, with little changed.
And to repeat, there are exceptions to this general principle. But it means your prior that a for-profit structure is the optimal one for a particular case should be significantly lower than if you haven’t considered this principle.
On (2):
There is likely to soon be a large volume of philanthropic capital, as you note. This means that many of the negatives of non-profit structures could be greatly reduced:
Grantmaking seems likely to become significantly faster and higher volume, making fundraising a much lower portion of a founders time.
Grantmaking seems likely to become able to fund more aggressive growth and larger scales.
You note “Historically, AI safety has relied on a small set of highly trusted grantmakers. But as funding in the space grows 100x, we don’t think we can 100x the number of human grantmakers.”
It seems weird to me for someone to countenance this fact and conclude that one should therefore try to be a for-profit instead, pursuing a very different kind of capital. Instead one should consider (and expect) that grant making could become much higher volume (even if the scale is below 100x), and that the near-term future may be the most accessible time in history for founding an ambitious non-profit.
Thank you for these comments! I very much appreciate the public engagement, and care a lot about figuring out what’s true here. I’m responding quickly, and framing things strongly with the understanding that there’s much more room for nuance everywhere.
[quick edit, I realized I wrote the below for a “cG grantmaker” and you specifically work in Longview now, apologies. my unsolicited prescriptions for Longview are probably a bit different than for cG but I think the general points hold?]
I agree with “tails come apart”, it’s not obvious that the biggest corporations are the most impactful, like I wouldn’t allocate more philanthropic capital to NVIDIA or SpaceX. But even these examples are illustrative of something good about forprofits, which is that allocation of credit between individual humans is much much better in forprofits—Jensen Huang or Elon Musk are much much richer than the median employee of their org.
Why should an impact-minded founder care? Because if they push really hard and actually succeed at doing something impactful, they then have to go and pray that the grant evaluators up above agree with their assessment. While cG and founder missions are kind of aligned around wanting good impact in the world, they’re also not fully, and I/Manifund endorse founders having more leverage over funders, on the margin.
Why should you, cG grantmaker shepherding the AIS ecosystem, care? Because without good credit allocation, people end up in confusing work situations, working on problems not suited to their ideal use of talent, doublecounting impact, negotiating on much fuzzier norms around “who was responsible for a specific project” being tracked in a social layer rather than in the clean numbers of equity and salary. Social layer is good for where AIS is today, but doesn’t scale to handle 100x growth.
Okay, but what happens to the founder managing a $100m/y charity? Will cG and 501c3 law allow them to draw a proportionally larger salary?
There’s one kind of EA answer which is “who cares, I was going to donate it to charity anyways, so it’s equivalent to have this money be in my personal bank account vs in my charity vs in cG”. I find elements of that answer which are compelling and noble and good, but also elements which are suspect wrt ecosystem-level feedback effects. I think it’s important that successful individuals (and orgs) gain more ability to then influence what happens next in the ecosystem, and $ and equity are good numeric ways of building that feedback mechanism.
(also, seems good to nerdsnipe the non-fully-EA-aligned founders into working on problems we think are good)
One thing that has made the forprofit tech scene work is that, when a founder exits, they have extra $ to invest, and also experience running new orgs; they can the angel invest into the next generation (and also provide advice, connections, etc). I think mirroring this inside EA would be good. For example Ryan Kidd running MATS could have much more discretionary capital/ability to fund random projects that he thinks are promising but aren’t “MATS Fellow” shaped, but doesn’t by default. Fixing this is part of why Manifund runs AI safety regranting.
I’ve vaguely heard that cG is exploring doing more regranting (in the form of discretionary grant budgets to individuals with experience/taste + dealflow), and hope this is true!
I will be happy if & when this happens because it probably means I could stop working on Manifund and then go and found a thing instead. But I’m currently bearish on philanthropic funding becoming much less painful.
To raise a recent example, our fundraising for our own projects (Surplus and Mox) has been annoyingly bogged down in classic traps of philanthropic funding norms, namely “funder chicken”. X asks “why isn’t Y funding you instead” and Y asks the same question in reverse and we’re waiting weeks to months to litigate. Grantmakers are already pressed for time and nobody has the chance to coordinate properly, and end up deferring too much.
There are clever mechanisms that are being proposed and used (funding backstops, matching offers, loans, etc) and also infra-level changes coming (Lightcone’s doing a cool new S-Process thing, Manifund and grantmaking.ai are other kinds of trying to enable coordination). But fundamentally I like the forprofit norm of funders fighting for allocation in rounds and trying to compete on valuation & speed, rather than the nonprofit game of hoping somebody else steps in.
I want them to pursue philanthropic capital, at the end of the day! But I don’t think the philanthropic funding ecosystem has good norms around seeding & incubating new orgs, compared to the tech startup ecosystem.
My general proposal is that big philanthropic orgs like cG should move towards being assessors of impact, similar to the final buyers in AMCs like Stripe Frontier or Operation Warp Speed. While distributing 501c3 funding, you can put up large prizes and award retro funding for concrete specific good work undertaken. (This is very not trivial fwiw, and does require teams of smart grantmakers to carefully reason through “what happened” and “how do we count it”.)
But inside this ecosystem, new orgs should default incorporate as for-profit PBCs or C-Corps. And there should be a wide dispersion of intermediate funders (thnk preseed/seed/series A/B/C etc), who may be set up as 501c3 or standard forprofit, but either way providing funding to the new orgs in the form of standard forprofit equity investments.
Tech forprofit venture funding is already operating at the 100x scale that AI safety philanthropic funding hopes to get to, and so I think copying their homework (where reasonable) is wise. Again, my strong prior is that market economies perform better than centrally planned ones, at scale.
My guess is that currently cG overall is trying to instead move down in size and get into earlier-stage funding and incubation. I think more early stage funding and incubation is great, but also outside cG’s core competency (eg have the people who are now in charge of those programs, previously founded successful orgs?), and I’m unsure whether it makes sense to house all of these initiatives under a single cG banner, vs have a somewhat more diversified ecosystem.
Thanks for the substantial engagement! You cover a lot, so I’ll just pick out quotes and respond to ~most points.(As you note, I don’t work for CG and haven’t worked for them in over a year. I now work for Longview, but none of this is based on private information, and none of it represents views of either org).
Even if they were impactful, why would you consider allocating any philanthropic capital to incredibly rich companies? The marginal case would be terrible.
I think the right allocation of credit isn’t obviously better here. It is hard to figure out who were most responsible for an org’s success, in both for- and non-profits. CEOs get massive pay. There’s lots of reasons for that (high leverage, small market, rent-extraction via CEO’s influence on boards, equity-based pay, and so on). I don’t think you can assume that because CEO’s get enormous pay, they therefore deserve such pay (that may be true, but you’d want to actually try and investigate the credit allocation story—which is the question you started out with). I think there would be many cases of failed credit allocation in SpaceX, NVIDIA, and most other companies—i.e. many senior engineers or leaders who contributed much more value than the CEO, but were paid orders of magnitude less.
The pay is at least some signal of how the companies’ board values the executive’s performance. And if news of a CEO considering leaving or committing shifts investor sentiment and stock price, that is a good signal of how the market evaluates their performance. But these are merely okay instruments of assessing credit, and are usually strictly aligned with profit maximising. I don’t think they solve the credit allocation problem, and are a minor factor in comparing for- and non-profits.
I agree that for-profits reward extreme success much, much better than non-profits, especially given that extreme success may require taking personal risk and extreme levels of commitment. This is a problem that changes to the non-profit funding ecosystem should seek to fix.
I don’t agree that extreme CEO pay is a useful signal, so I don’t think it provides much useful information on credit allocation. It just shifts credit allocation from the grantmakers’ view to the view of a board—where such a board is significantly more constrained and incentivised away from impact optimisation.
Higher salaries are possible, and may be probable if there is funding abundance. There are some restrictions around what is ‘reasonable’ executive pay in the non-profit sector—maybe this could be a limit. But what is reasonable should scale with the size of the charity. For example, the CEO of the Gates Foundation earns $1.7M/yr. Extremely high salaries in the for-profit world are significantly equity-based, and this is the harder hurdle. I guess a key question is whether you think non-profit founders should get compensation in excess of low-seven-figures. That might be reasonable, but it’s a weaker case than assuming they still get paid poorly.
I don’t really get why very high salaries would lead to greater influence on the ecosystem. Is it by directing their personal capital? I think in an era of funding abundance such capital is unlikely to be a major factor. If it is by their capital signalling apparent excellence, I don’t think that would work. I trust people according to how well they think and argue, my perception of their character, and their track record (and what other people I trust think of them). The amount of money they earn is close to irrelevant. There are countless people on very high salaries who I think are completely useless; there are countless people on very low salaires who I trust far, far more.
Agreed. Though there’s a slight worry about how internalised their altruistic motivations are, with the risk of value drift over time and making the wrong high-stakes call when incentives clash. But in general, yes we should want to leverage this talent pool.
Yep agree that past success should translate into ability to influence future grantmaking. Regranting is a method of doing this. However, my impressions is that regranting has often struggled because it takes real time to do it well. The usual failure mode of regranting is that the regrantor doesn’t spend enough money. In general you kind of need it to be a part of their job to do it effectively (like 0.2 FTE or more if I had to guess). But those with past successes have high opportunity cost—you would need to think that the regranting is a better use of their time than their counterfactual efforts at continuing their successful track record. That will be only true in some cases.
Sorry that that’s been your experience, and yes these issues are still live. One reason for optimism is that if there is funding abundance, and funders are all opportunity-constrained, the reasons for worrying about funging and coordination become less important. Seems plausible that much better solutions are out there that should be pursued anyway, as you mention.
Yes, I agree there are many lessons and structures from VC land that should be of interest to funders. Two caveats:
VC-land also has many problems, which we’d want to avoid. Those problems are significantly worse in the context of chasing impact, because VCs basically only care about money, and bankruptcy caps downside risk. If you care about moral impact, you have to consider all the externalities, and you have to countenance extreme (indeed, existential) downside risk. It’s also harder to operationalise, since VCs can just use profits, but impacts needs very uncertain judgments or metrics that could be Goodharted on. My impression is that there have some attempts at impact metrics to guide capital allocation, without much success so far (though people should keep trying).
VCs move $4–8M per employee per year (Fable reckons for global VC there is $425B–513B deployed each year ÷ 60,000–100,000 employees). That’s only a little higher than than than the $-moved per employee at mainstream philanthropic orgs (typically $1M-$5M), and CG is about bang in the middle if we think that they do $1B in annual grants with about 170 employees ($5.9M/yr). So at least on these loose numbers, VC is not significantly more ‘efficient’ than grant making—maybe 2x compared to mainstream, and ~no difference compared to CG (and possibly other EA funders). VC just has orders of magnitude more employees.
I don’t think earlier stage funding and incubation is ‘moving down in size’. It’s what you would do if you wanted many more organisations to be able to receive money. Orgs can only grow so fast without other things breaking, so if all your good grantees are growing as fast as possible, moving earlier is the main way to scale the relevant ecosystem. Your other option is to give lots to already-big organisations that are outside the relevant ecosystem. Maybe in some cases that will make sense, but it doesn’t seem that promising a strategy.
Most VCs are not past founders. So if you like the VC approach, you shouldn’t worry about this. CG also has a great deal of experience in guiding the founding, early stages, and rapid growth of hundreds of organisations. I think that could actually be a more useful training ground than founding a single company, but they’re at least comparable.
Agreed, a more diversified ecosystem would be good.
Thanks for the thoughtful comments! You and Austin already covered a lot, so I won’t respond to everything.
On your point (2), I agree this is a strong point in favor of nonprofits. But I’m unsure how much to expect the future you describe—grantmaking way faster and higher volume, funding ambitious nonprofits and allowing them to grow aggressively—in some default world where a ton of new philanthropic capital gets put into CG, Longview, and similar orgs.
Is the limiting factor in grantmaking at these places not having enough money? Or is it more like wanting to avoid funding things that are net negative or flood the ecosystem with low-quality projects? I would have guessed more the latter, and in that case getting more money won’t particularly help things like speed and funder chicken.
I’m sure you don’t want to speak for either of those orgs, just speculating.
Thanks Carol! I think its reasonable to have these worries, and to be concerned that money doesn’t solve them (these orgs need to execute well, and more direct solutions will be needed in some cases). I think there’s reason for optimism here, but I don’t want to speak for any orgs or base things on private info.
Perhaps another example: it seems suboptimal that Joey Savoie, after having created a successful product in Charity Enterpreneurship, is not rich as a result. Sure, he can leverage his connections and skillset and reputation to start a philanthropic advising org (Elevate) and continue to direct funding towards where he things might be impactful, but instead, what if he had just become rich, and had the ability to fund things without having to persuade his donors?
I don’t really want to focus on an individual’s career/financial decisions. I agree that in a just world, successful impact should be rewarded handsomely. But fwiw on the practical questions, I’m reasonably confident that:
Joey has influenced significantly more capital via AIM, Elevate, and other projects than he could have reasonably expected to donate via a for-profit career ex ante. Indeed, a key benchmark to compare impactful career options is a comparison to ‘earning to give’.
Joey is very thorough and systematic in his career choices, and I would guess he considered for-profit entrepreneurship and rated it lower EV (at least for him at that particular time).