Zuckerberg starts giving away his billions

By Felix Salmon
September 23, 2010
Henry Blodget on this one: whatever the timing-related motivations behind it, Mark Zuckerberg's decision to donate $100 million to Newark's public schools is wholly admirable.

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I’m with Henry Blodget on this one: whatever the timing-related motivations behind it, Mark Zuckerberg’s decision to donate $100 million to Newark’s public schools is wholly admirable — the best possible way to celebrate the news that you’re now richer than Steve Jobs. Silicon Valley is full of billionaires like Jobs or Larry Ellison who have been dynastically wealthy for a very long time and who have evinced little if any interest in philanthropy. So it’s fantastic news that Zuckerberg is starting out so young.

It’s also easy to see the influence of Zuckerberg’s girlfriend, Priscilla Chan. Remember the New Yorker’s profile of Zuckerberg?

Terry Semel, the former C.E.O. of Yahoo!, who sought to buy Facebook for a billion dollars in 2006, told me, “I’d never met anyone—forget his age, twenty-two then or twenty-six now—I’d never met anyone who would walk away from a billion dollars. But he said, ‘It’s not about the price. This is my baby, and I want to keep running it, I want to keep growing it.’ I couldn’t believe it.”

Looking back, Chan said she thought that the time of the Yahoo! proposal was the most stressful of Zuckerberg’s life. “I remember we had a huge conversation over the Yahoo! deal,” she said. “We try to stick pretty close to what our goals are and what we believe and what we enjoy doing in life—just simple things,” she said.

I’m sure that Zuckerberg has already sold enough Facebook stock to be able to live comfortably on for the rest of his life. So everything else is just gravy, and certainly Newark’s kids need it more than he does.

The move is also significant in terms of the continuing development of the secondary market for Facebook stock:

Mr. Zuckerberg is setting up a foundation with $100 million of Facebook’s closely held stock to be used to improve education in America, with the primary goal of helping Newark…

The timing of the announcement was driven by Mr. Christie and Mr. Booker, over the objections of Facebook executives…

Mr. Zuckerberg will fund for the foundation with his private stock in Facebook, and will arrange for a transaction on the secondary market for the foundation to turn the shares into cash as needed, said the person familiar with the discussions.

Back in June, Alexei Oreskovic was already saying that “a vibrant market for shares of privately held Facebook has developed in the past year”; this move is going to make the market significantly more liquid — and give Facebook executives less control over exactly who holds how much stock in the company. Once the foundation is set up, the question of going public just becomes a matter of when rather than whether: it’s a tactical decision, now, rather than a strategic one.

It’s also important, I think, not to overstate the effect that this gift is likely to have on Newark. The WSJ falls down here:

The donation has the potential to be matched by another $100 million that Mr. Booker has been working on raising from private foundations and others. The $200 million that could be raised would amount to more than 20% of Newark’s budget of $940 million.

This confuses stock and flow. Zuckerberg’s gift isn’t going to be spent in one year; it’ll be dribbled out over time. Even if the total amount donated does reach $200 million, the annual amount spent is very unlikely to exceed 2% of the city’s budget. The donations are important. But private philanthropy is always going to be marginal when it comes to primary and secondary education, even when it’s confined to a single school district.

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