The philosophy and practicality of Emergent Ventures

Let’s start with some possible institutional failures in mainstream philanthropy.  Many foundations have large staffs, and so a proposal must go through several layers of approval before it can receive support or even reach the desk of the final decision-maker.  Too many vetoes are possible, which means relatively conservative, consensus-oriented proposals emerge at the end of the process.  Furthermore, each layer of approval is enmeshed in an agency game, further cementing the conservatism.  It is not usually career-enhancing to advance a risky or controversial proposal to one’s superiors.

There is yet another bias: the high fixed costs of processing any request discriminate against very small proposals, which either are not worthwhile to approve or they are never submitted in the first place.

Finally, foundations often become captured by their staffs.  The leaders become fond of their staffs, try to keep them in the jobs, regard the staff members as a big part of their audience, and adopt the perspectives of their staffs, more so as time passes.  That encourages conservatism all the more, because the foundation leaders do not want their staffs to go away, and so they act to preserve financial and reputational capital.

To restate those biases:

  1. Too much conservatism
  2. Too few very small grants
  3. Too much influence for staff

So how might those biases be remedied?

Why not experiment with only a single layer of no?

Have a single individual say yes or no on each proposal — final word, voila!  Of course that individual can use referees and conferees as he or she sees fit.

The single judge could be an expert in some of the relevant subject areas of the proposals (that is sometimes the case in foundations, but even then the expertise of the foundation evaluators can decay).

This arrangement also can promise donors 100% transmission of their money to recipients, or close to that.  If someone gives $1 million to the fund, the award winners receive the full $1 million.  This is rare in non-profits.  (In the case of Emergent Ventures there are unbudgeted time costs for me and my assistant, who prints out the proposals, and the paper costs of the printing get charged to general operating expenses at Mercatus.  Still, a $1 million grant at the margin leads to $1 million in actual awards.  I am not paid to do this.)

The solo evaluator — if he or she has the right skills of temperament and judgment — can take risks with the proposals, unencumbered by the need to cover fixed costs and keep “the foundation” up and running.  Think of it as a “pop-up foundation,” akin to a pop-up restaurant, and you know who is the chef in the kitchen.  It is analogous to a Singaporean food stall, namely with low fixed costs, small staff, and the chef’s ability to impose his or her own vision on the food.

Once a fixed sum of money is given away, and the mission of the project (beneficial social change) has been furthered, “the foundation” goes away.  No one is laid off.  Rather than crying over a vanquished institutional empire and laid off friends/co-workers, the solo evaluator in fact has a chance to get back to personally profitable work.  It was “lean and mean” all along, except it wasn’t mean.

The risk-taking in grant decisions is consistent with the incentives of the evaluator, consistent with the level of staffing (zero), and consistent with the means of the evaluator.  A solo evaluator, no matter how talented, does not have the resources to make and tie down multiple demands for complex deliverables.  Rather, a solo evaluator is likely to think (or not) — “hmm…there is some potential in this one.”  The wise solo evaluator is likely to look for projects that have real upside through realizing the autonomous visions of their self-starting creators, rather than projects that appear bureaucratically perfect.

And how about the incentives of the solo evaluator?  Well, a fixed amount of time is being given up, so what is the point in making safe, consensus selections with the awards?  The solo evaluator, in addition to pursuing the mission of the fund, will tend to seek out grants that will boost his or her reputation as a finder of talent.  You might worry that an evaluator, even if fully honest will self-deceive somewhat, and use some of these grants to promote his or her own interests.  I would say donate your money to an evaluator who you are happy to see rise in status.

In other words, the basic vision of Emergent Ventures, the incentives, and its means are all pretty consistent.

The solo evaluator also has the power to make very small grants, simply by issuing a decision in their favor at very low fixed cost.  Alchian and Allen theorem!  That helps remedy the bias against small grants in the broader foundation world.

The single evaluator of course is going to make some mistakes, but so do foundations.  And the costs of these evaluator mistakes have to be weighed against the other upsides of this method.

In my view, at least two percent of philanthropy should be run this way, and right now in the foundation world it is about zero percent.  So I am trying to change this at the margin.

How does this idea scale?  What if it worked really well?  How would we do more of it?

Well, it is not practical for this solo evaluator to handle a larger and larger portfolio of grant requests.  Even if he or she were so inclined, that would bring us back to the problems of institutionalized foundations.  The ideal scaling is that other, competing “chefs” set up their own pop-up foundations.  Imagine a philanthropic world where, next year, you could give a million dollars to the Steven Pinker pop-up, to the Jhumpa Lahiri pop-up, to the Jordan Peterson intellectual venture fund, and so on.  Three years later, you would have an entirely different choice, say intellectual venture funds from Ezra Klein, David Brooks, and Skip Gates, among others.  The evaluators either could donate some of their time, as I am doing, or charge a fee for performing this service.  You also could imagine a major foundation carving off a separate section of their activities, and running this experiment on their own, with an evaluator of their choosing.

In a subsequent post, I will discuss how this model relates to the classical age of patronage running through the Renaissance, into the 18th century, and often into the 20th century as well, often through the medium of individual giving.  I also will consider how this relates to classic venture capital and the relevant economics behind “deal flow.”

In the meantime, I am repeating the list of the first cohort of Emergent Ventures winners.  That link also directs you to relevant background if Emergent Ventures is new to you.


This is tangentially related, but I've often wondered what would happen if everybody who wanted to start a business started a none profit instead, especially for the small to medium businesses that tend to value artistic vision.

Say you're really into super good kitchen knives, you have a strong aesthetic sense of what makes a good kitchen knife, etc.

Normally what happens is you start a kitchen knife company, and either you use your money or basically convince (lie) to investors that your top priority is making money. In practice, you don't maximize income, and you run your company like some sort of business/art hybrid.

There is a certain charm in this, and that's why family companies seem to be valued. Alas, when you the founder dies and your children die the company usually either becomes a normal company or goes bankrupt.

Yet if companies could be honest from the beginning, perhaps this business/art organizations could have more staying power.

Most small businesses are non-profit, just not-for-profit with public purpose.

Why does Knife Inc. have to lie - just don't sell equity in the company; if they need to raise funds, take on debt?

'Let’s start with some possible institutional failures in mainstream philanthropy.'

For example, the difficulty of using donations that reduce an individual's tax burden while needing to follow the rules and regulations regarding such things as self-dealing.

'It is not usually career-enhancing to advance a risky or controversial proposal to one’s superiors'

Ah, you are looking at this from the perspective of those who carry out the work donors finance. Unsurprising, however the largest donors determine what happens with their money, and do not care about their 'career.'

'The leaders become fond of their staffs, try to keep them in the jobs, regard the staff members as a big part of their audience, and adopt the perspectives of their staffs, more so as time passes.'

Well, you quite likely have an extremely well informed insider perspective on that.

'Have a single individual say yes or no on each proposal'

I am quite confident that if someone proposed a study on the benefits of unions to workers at the Mercatus Center, one would quickly discover that a single individual would have no problem saying no.

'I am not paid to do this'

And your assistant is doing this out of the goodness of their heart too, undoubtedly.

'Think of it as a “pop-up foundation”

In much the same way that MRU was a pop-up online university.

'No one is laid off.'

Not only that, the chef and assistant still get to enjoy working in the same office space, with the same equipment and data resources, as they were before the foundation popped up. Some, uncharitably perhaps, would call this akin to a letter box company.

'consistent with the level of staffing (zero)'

Another example of why economists make bad accountants, or else have a real blind spot concerning their own activities.

'I also will consider how this relates to classic venture capital'

That will undoubtedly be interesting to read, if only to see how philanthropy as a concept will be turned on its head to justify the rich getting richer as following the highest ideal that any society can support.

Do you know what you're talking about? "For example, the difficulty of using donations that reduce an individual's tax burden while needing to follow the rules and regulations regarding such things as self-dealing." - they have experts you can pay that will give you an opinion that your donation is "fair value" even when it's trash. The entire Hirshhorn museum of modern art in DC is based on exactly that principle (and the artwork therein rose in value to many multiples of the assessed initial value, I'm sure, much to the chagrin perhaps of the original donors).

Self-dealing in the sense that Peter Thiel cannot take a tax write off to support a foundation that looks at proposals which he then supports as a business.

However, if he donates money to his foundation, which then ever so conveniently turns around and donates money to another 'pop-up foundation,' whose solo evaluator has already noted (in a German interview) that he passes proposals around, including quite possibly to someone like Thiel, everything is as fine as one hand washing the other.

This is just a logical next step after one realizes how the GMU Foundation was used by Til Hazel to further his goals in Northern Virginia real estate development somewhat more abstractly, by making Northern Virginia a more attractive place to live for thousands of faculty, staff, and students attending GMU.

And that it just happens to support a narrative which conveniently celebrates the idea that individuals should be the ones deciding how to spend their money, without any limits, well, talk about a ever so coincidental bonus.

Til Hazel, those were the days! I like his name, it sounds corrupt (hand in the "till").

Here's a modest proposal: survey Congress via their staff and see if they are willing to go on record to reform our broken patent system, or look into doing so.

What is the cost of getting somebody to call each congressperson? Not much except time. And the entire process would be interesting to see how Congress reacts to non-hot-button political questions (it's not that we're asking to abolish Social Security, but we're asking an innocent question, as most of Congress probably doesn't think much if at all about patents, a few congresspeople excepted).

But, knowing how messed up Congress is (when I recently tried to get a fiancee visa), I bet you get the runaround, even if you have a decent petition. That in itself would be worth the effort, to expose this.


You're a card carrying Pinoy, what are you talking about?

If you wanted to live in a First World Country, you'd be phoning it in from Wichita or Middletown.

Will you evaluate the success of your approach? If so, how, over what timescales etc.?

If it became popular as you describe, would it be more or less open to abuse than current models?

'Will you evaluate the success of your approach?'

One assumes that in the case of Eric Lofgren , the director of Emergent Ventures will talk to the general director and chairman of the Mercatus Center, and will likely use some of the same metrics that the Mercatus Center already uses to measure success in public policy debates to judge the effectiveness of this approach to developing skills, 'including blogging and podcasting, to become the nation’s leading public intellectual on defense procurement.'

Tyler's post is very good, as are the comments here including the critiques. This might be the best comment though: will the results be assessed? Decent assessment takes work, resources, and effort.

There are easy bits: someone who backed Jobs and Wozniak early on made a bet that paid off, someone who backed a couple of unknowns who floundered and failed made a bet that didn't pay off. But then you have a large group of middling success stories and need at some point to decide if EV's method is "working", is it worth emulating, or is it beset by the various issues that some of the commenters have noted.

Oops, when I say "this might be the best comment" I meant D's comment.

Odd how the main link to Emergent Ventures says this - 'Emergent Ventures, a new fellowship and grant program from the Mercatus Center'

But it would definitely explain how the entire process of handling 1 million dollars would be handled with all the relevant documentation, because if the Thiel Foundation was simply to hand 1 million dollars to someone, that amount would be treated as taxable on the part of the recipient, and would definitely cause a large reduction in the amount of money being distributed.

On the other hand, a center with the expertise and experience in handling donations can conveniently remove the burdens of a solo evaluator needing to use (and pay for, one assumes - such people rarely work for free) a staff that knows how to deal with IRS regulations, for example.

Or who set up and maintain a web site, for that matter.

Even more conveniently, by burying so much of the necessary burdens of actually running something like Emergent Ventures into an existing non-profit, the sorts of specific details required by the IRS of a stand alone charity can be avoided.

Concentration of power, economic power, political power, is on the ascent, not only here but in Europe. The solo evaluator is consistent with this phenomenon. As Cowen mentions, the beneficiaries of the concentration of economic power can select the solo evaluator for his fund who is most likely to pursue the goals, and respond to the demands, of the funder. Historically we have been suspicious of the concentration of power, certainly political power but also economic power. Here is an essay by Tim Wu explaining how the concentration of economic power facilitates the concentration of political power, and how the combination of the two results in the loss of both economic freedom and political freedom. Those who do not learn history are doomed to repeat it.

"foundations often become captured by their staffs": do you have any counter-examples in mind? I know - the Clinton Foundation. I'll bet the Pillagers-in-Chief keep it on a short leash.

Scott Sumner seems to be a bit confused about Emergent Ventures - 'Emergent Ventures is a Mercatus Center initiative, launched with a $1 million grant from the Thiel Foundation.'

Along with the person that wrote this - 'Earlier today, the Mercatus Center announced that the online application process for Emergent Ventures is now live.

The program, which includes a combination of financial support and mentor access, aims to identify and support life-changing projects with the potential to radically advance prosperity, opportunity, liberty, and well-being.'

But then, just like MRU was simply a couple of GMU professors, a cheap app, and youtube, Emergent Ventures is just one guy (though maybe with just the tiniest bit of help) doing all the web coding, filling out the IRS paperwork, and dealing with the mundane realities of properly handling large sums of money.

Full credit to whoever came up with Emergent Ventures, as it seamlessly combines 'venture philanthropy' and 'emergent philanthropy' in the most synergistically satisfying way imaginable.

While things might have changed since circa 1970, but back then my time working with professor and administrators fund raising got me introduced to big periodicals listing grant making sources. Easily a thousand making reseach grants. Thousands listed offering scholarship grants at all levels, etc.

In the development office, there were four or five primary sources for the big campaigns, Lilly, Ford, Rockefeller, etc. But maybe a hundred reliable sources for funding research or teaching equipment, typically say $25k today. Some were unlisted.

And the trend was for sources being unlisted to limit grant requests to specific regions or areas of work, with initial contact from professional meetings. Ie, a geology conference provides the contact for the foundation created by an oil geologist after retiring with a few million, making grants to geologists going on digs with archeologists.

But it could be setting up a school for kids in a neighborhood, or disabled reservists in a state.

My guess is 80% of grants are high personal touch, local impact, high failure rate, but donors optimistic.

TC's post seems to be merely making the observation that dictatorships are more efficient than bureaucracies. So they may be, but what about the "bad emperor" problem?

Cowen's analysis is pretty much completely wrong. There are many small charities which consider and make small grants. My wife and I are on the boards of two such. In her case, the organization has an endowment of a few million, and makes grants, usually of five figures, totaling several hundred thousand a year. (It will liquidate over the next few decades, unless the board recommences fund-raising.) The charity I serve does not have an endowment, but we take in a hundred thousand or two each year and parcel it out, mostly to local organizations such as volunteer fire companies, historical societies, etc. in four figure amounts. But both organizations have boards, not individual decision-makers: wisdom of crowds, what?

This piece strikes me as ill-informed and self-congratulatory - not qualities I typically associate with Tyler.

The claim that 2% of philanthropy should be low-barrier, small-grant philanthropy, but 0% actually is is nonsense. Since at least 2007 we've seen an explosion in microgrants and prize-based philanthropy that is a scalable model for small-gift giving. Is Tyler unfamiliar with this phenomenon?

In this vision of competing pop-up philanthropists, what of the gift-seeker? The transaction costs in terms of research and application would skyrocket in such a world, eating into the margins of the gifts pretty substantially.

The greatest lessons that mega-philanthropists like Bill Gates have learned is that the limiting factor for impact is not money. It's effective coordination and cooperation. Substantial impacts are achieved by realigning systems to take advantage of new opportunities, to adopt better practices, or to deploy more effective interventions. The problem isn't that foundations are too conservative based on the vetting process. It's that just because a foundation might be willing to take on risky projects, doesn't meant that the array of partners it must engage are willing to do so.

The reality is that Tyler is like so many amateur philanthropists who enter the field thinking they're going to do things different, they're going to solve the sector's problems, disrupt the old way of doing things, etc. They quickly learn that they aren't the Messiah that philanthropy has been waiting for. The most mature of them begin to realize that their philanthropic goals may have been tied to self-aggrandizement more than to the betterment of the world around them. Some get bored and move on, others internalize the lessons and re-engage in a more humble and collaborative fashion.

I've been working in philanthropy for over twenty years. And there is more to EV than just the size of the grant, see the above description.

'I've been working in philanthropy for over twenty years.'

Oddly, searching using google with the terms 'tyler cowen philanthropy' returns basically nothing that a normal person would consider philanthropic work, but prepositions are such slippery things in the end, particularly at GMU.

I think this comes down to simple economies of scale in processing and monitoring.

If you want to distribute small sums, then you either have to have disproportionately high overhead or low screening or oversight, or perhaps staff that's willing to work at below market rates for a while (which aren't so high to begin with).

If you're willing to take more risk, you can distribute money faster or in smaller quantities. However, if you're the Rockefeller Foundation, maybe you don't want to take the risk of funding an entity which turns out to operate madrassas in Pakistan. So there is a due diligence process which a small, private foundation can to an extent skip, but which is necessary for a larger institution.

The principal difference between a foundation and an investment fund, in my experience, is the objective function. In an investment fund, it's ROE. In a foundation, it's...what? Well, it could be social return on capital. Or it could be some entirely subjective scale, say, supporting promising Nigerian artists. The more subjective it is, the harder it is for staff, since they are second guessing the sponsor's taste, rather than using some kind of objective criteria.

If it is something more objective, say, scholarships, and there are several to be awarded, then the foundation will tend to create a process to judge those applications. If you have 10x applications for x scholarships, then pretty much you will end up with some kind of bureaucracy.

The staff is interested in process, because that process represents both the metric of their success and their compliance with internal and external requirements. For example" "For our fall scholarship program, we received 284 applications. We sorted these based on GPA, fit with foundation goals, applicant geographic and ethnic diversity, and field of interest. We used a scoring matrix to grade the applications, and picked the top 22 winners on this basis, awarding $842,000 for the fall semester." In my experience, staff likes that sort of thing, because it's clear, structured, fair, transparent and efficient.

On other hand, when I worked at the Soros Foundation now 30 years ago, Soros met some Vietnamese kid at Ho Chi Minh Airport or something like that, and promised him a scholarship -- which pissed off staff no end, because of course, it made a mockery of process and all the petit bourgeois self-importance which bureaucrats are apt to feel.

I'd also add that there seems to be a disproportionate number of social justice warriors working in the foundation business. Guys who want to be in business in most cases will not be working at foundations. I enjoyed working at the Soros Foundation, but I would never have considered it as a career.

As a result, I am under the impression that the staff of foundations tend to be well to the left of the foundation's founders, certainly so after the founder's death.

Robert Conquest: "Any organization not explicitly right-wing sooner or later becomes left-wing.".

This is a good description and rationale for the project. To be honest, I find that upper goal of 2% to be reassuring. Is very good to have some random acts of kindness at the margin.

By the way, Tyler tweeted a few things yesterday about "becoming great at what is scarce." I think his random acts of kindness are related to that goal.

But I am going to claim that digital computation, human intelligence, communication and knowledge are no longer scarce, for interrelated reasons.

I'll leave this for you guys to flesh out for yourselves, but I think it works as a mechanism that too many thinking brains getting caught up in too many elaborate ideas are a greater source for trouble in the 21st century than not enough people thinking about a thing.

We have more problems of cognitive and computational surplus.

Okay, to name one example: isn't the whole cryptocurrency thing an example of smart people and huge computational resources with nothing better to work on?

The first 3 paragraphs by TC here can be applied to just about any mid-to-large, gov't, private sector (just like at GE!).


Reminds me of Sah and Stiglitz on hierarchies and polyarchies

When Cowen writes that "foundations often become captured by their staffs", what he means is captured by left-leaning staffs (the type of people who gravitate to philanthropy). Peter Thiel funded EV for the same reason he funded Trump's campaign, for the same reason he left Silicon Valley. There was a time when th word "sustainable" was Cowen's least favorite word, but he now uses the word often. But by sustainable, he means something quite different from the way the word is used by those who lean left, including those working at foundations that have been captured by their staffs. [Personal note: I have nothing personal against Mr. Thiel. Indeed, I hope his home in the West Hills escapes the fires that are devastating California, fires that will only get worse unless we adapt to more sustainable energy use.]

'Peter Thiel funded EV'

Careful there - it was Thiel's foundation that did the funding. Meaning that if Prof. Cowen just happens to give Thiel some of the Emergent Ventures proposals to look over in the framework of second round investment, Peter Thiel need not worry about potentially violating any IRS regulations. needn't be "left-leaning" to wallow in the organizational dynamics of self-serving "agency" (gamesmanship?...the basis of Public Choice Theory), "the high fixed costs of processing any request discriminate against very small proposals", "a proposal must go through several layers of approval... Too many vetoes are possible", etc.

Afflictions of many organizations regardless of ideological leaning.

#1 & #3 are the same thing, aren't they? If decision maker has set up his/her organization to veto those ventures which aren't 'conservative' then why is that the organization's failure? Staff will be mediocre (except for sometimes). It's a management failure. And while I don't have an opinion on #2, I note that your claim that it is a problem lacks evidence. (in the OP, at least.) Why not a single layer of no? Well, sure. Let's say you're the single layer. How much of your time do you think you'd spend in getting the application correctly and effectively filled out? (A. None, B. Some, C. Most) If you didn't pick C. then well I think you're mistaken. After they're correctly filled out, how much time do you think you'd spend understanding the idea? Interviews, follow up questions, background research, background evaluations, etc. Then how much time would you have left to evaluate the risk and benefits of the venture? IMHO, no staff is a non-starter (but that isn't what you said.) Staff will inevitably have some power to either de-rail or fast-track applicants. You can call this 'veto' power if you want, IDK. Why not just one? Well: power corrupts, limited time (& energy & comprehension), the difference between the forest and the trees. You seem to think that one person can be less biased than a group. Well, sure. But how likely is that?

"The ideal scaling is that other, competing “chefs” set up their own pop-up foundations. "

Yes. But NO for giving Skip Gates one. For all practical purposes, he's had one at Harvard for the last quarter century.

In the Burden of Bad Ideas, Heather MacDonald maintains that almost 2/3 of all foundations are leftist oriented. It may also be true that people have a vested interest in maintaining and perpetuating foundations. The jobs are for life. Foundations might pay more to money managers than they pay out for charity reasons. There are foundations with billions of dollars that do very little to help people in need.

This is just so cool and inspiring.

I think the only obvious limitation of this model is that it requires a pre existing market awareness of the donor. Tyler Cowen can do this (and it is admirable that he does), but the fixed costs for lesser known people are high.

I just finished reading The Givers by David Callahan, and he cites about a dozen Silicon Valley billionaires who make the exact same critique of foundation philanthropy. Which makes me think that Tyler's 0% must be wrong.

Why not cut out foundations and individuals entirely by allocating the funds randomly?

Is there not something about the difficulty in receiving the grant that creates an expectation about delivery of something. If the grant is given too easily, it could encourage lack of seriousness in the recipient? Like online learning is much harder to finish than when someone signs up for a degree at an established university.

In the past I have mostly pegged you as relatively frivolous, one of those people who love to have a thousand contrary opinions in order to look sophisticated.

But this is impressively correct, so perhaps I have misjudged you. Keep up the good work.

There is a natural experiment going on along these lines, in the form of donor-advised funds. In that case, a single person generally makes the decision about who to give to, and the foundation admin is only about the due diligence and logistics. (Ex. Silicon Valley Community Foundation). This could provide a data set to enable validation of your ideas; if true, I'd expect to see more risks taken and consequently more failures and also more outsize successes.

This also brings to mind the difference between convergent and emergent financial decision-making. Convergent being the 'by committee' approach you describe in traditional foundations, and emergent being a process of individuals being empowered to make their own financial choices and the overall outcome emerging from that (ex. Kickstarter, or Cobudget, a tool to enable emergent collaborative budgeting). In my experience experimenting with this in companies and networks, both types are valid in different contexts, and the trick is correctly picking the right tool for the right job.

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