The big idea and why it matters: Our definition of “charity” may be too narrow. When we look at it in the context of promoting human flourishing and driving the broader economy, many for-profit investments are more charitable than we originally thought.
“Every good act is charity. A man’s true wealth hereafter is the good that he does in this world to his fellows.” – Molière (aka French playwright Jean-Baptiste Poquelin)
Beginning at the beginning
We’ve all heard of Silicon Valley. I’d venture (yes, that’s a pun already 😊) a guess that most people know it’s where a lot of “VC and tech stuff” happens in Northern California (and a solid HBO series), but perhaps not much more than that. It’s worth briefly looking into some of the details of this outlier of a place representing a unique intersection of entrepreneurial spirit and favorable regulation – and funding – that have made it all possible to help set the table for today’s topic.
I’ve always assumed the Silicon Valley phenomenon developed fairly recently, but a quick interweb search proves otherwise. Wikipedia cites US Navy and communications research dating back to the early 1900s as important foundational elements of future San Francisco Bay Area developments. Add to the mix the precursor of NASA (called NACA) and Stanford’s focus on entrepreneurial development, and the seeds were planted for the creation of household names like Hewlitt-Packard (founded in 1939!), Kodak, GE, and Lockheed – well before what we’d think of as prominent Silicon Valley companies. After looking more closely at the history of Silicon Valley, today we’ll explore the notion of charity and how lines become blurred when viewing it through the lens of human flourishing. Here we go!
Honorable mentions
I’m trying not to copy and paste the Wiki page here (so I won’t), but there is just a lot of fascinating information associated with the origins of Silicon Valley, which I don’t want to deprive you of:
- Where is it, really? “The cities of Sunnyvale, Mountain View, Palo Alto, and Menlo Park are frequently cited as the birthplace of Silicon Valley, and it geographically aligns with Santa Clara County.
- “The San Jose [largest city in Silicon Valley] has the third-highest GDP per capita in the world (after Zurich, Switzerland and Oslo, Norway)”…and “the highest percentage of homes valued at $1 million or more in the United States.”
- Have you heard of Frederick Terman? “He was the dean of the school of engineering from 1944 to 1958 and provost from 1955 to 1965 at Standford University. He is widely credited (together with William Shockley) as being the father of Silicon Valley,” as he encouraged faculty and students to start companies and helped create Stanford Industrial Park, which effectively spawned Silicon Valley.
- Shockley’s credit is related to having started the Shockley Semiconductor Lab in Mountain View, which “was the first establishment working on silicon semiconductor devices in what came to be known as Silicon Valley.” [and then he apparently went off the deep end in terms of some highly disagreeable race/eugenicist perspectives later in life]
Thanks for the history report
First, you’re welcome (and I hope there was at least a nugget of new information for you in the above)! And now, with a greater historical appreciation for the launchpad of Tech, let’s consider some implications. It started from humble beginnings. Per Britannica, “18,000 high-technology jobs” existed in Silicon Valley in 1959. While that’s nothing to sneeze at, this grew to 117k jobs by 1971, 268k by 1990, and then another 230k jobs were added during the 90s.
So, in round numbers, let’s say that Silicon Valley employed 250,000 people across multiple decades. Then, assume that about 50% of those were either single earners or their spouses worked outside of Tech (as about 65% of households are dual income), and that means 125,000 families were supported by the Silicon Valley phenomenon PER YEAR for many years. People also change jobs and relocate. Some would have inevitably used their time in Silicon Valley as a training ground to start companies elsewhere or gain employment in other parts of the country.
However, the above were only the tech jobs. How many engineers, architects, carpenters, electricians, construction workers, restaurants, grocery stores, auto dealerships, medical professionals, etc., also gained vital employment and purpose because of the evolution of Silicon Valley tech and its surrounding infrastructure? And let’s not forget real estate agents, as we can assume more than a few “did okay” helping tech entrepreneurs put their newfound fortunes to good use buying property.
Thinking more globally, this paper goes on to break down why Silicon Valley worked (as well as some of its shortcomings) and how other locales have used or can use its lessons to incubate successful enterprises. The total derivative impact of all of this is unknowable, but we can comfortably say that the legacy of Silicon Valley has already been very substantial.
Charity for charity’s sake?
What comes to mind if I mention “charity?” For me, it’s a slew of images of not-for-profit organizations, church envelopes, tax deductions, soup kitchens, and piles of clothing earmarked for Goodwill. Maybe I’m not “normal,” but if I’m any sort of bellwether for how others think about charity, then I’m coming to the conclusion (literally in real-time as I type this) that this represents a problem.
In the Impa-Structure series in early 2024, I suggested that it can be useful to consider how our investments help others, with human flourishing being the true intention of “impact investing.” And, per today’s quote, if “charity” is defined by the good that it does “to his fellows” (aka human flourishing), then we could benefit from broadening the narrow scope that “being charitable” has come to represent – with core considerations being twofold:
- Not-for-profit vs. for-profit enterprise
- Expectations surrounding the funding
Donations and grants
Donating money to charity is often to a broad non-profit organization, and we don’t know what specific impact we’re having. The donation also comes with a potential tax deduction – and that tax deduction may even be the reason for donating in the first place. Thus, while I wouldn’t call it an “expectation of repayment,” there are still expectations associated with donations related to the organization’s mission or the donee’s income-tax considerations.
In the non-profit world, funding is often in the form of grants. There are also many grants available from government initiatives (case in point, a lot of early funding for Silicon Valley). While there isn’t an expectation of repayment, that’s not the same thing as saying they are without obligation, as the recipient is expected to do their best in working toward the grant’s objective (e.g., a musical project or a new solution to a problem). The grant may also be paid in phases, so future funding is on the line based on the level of progress.
Important clarification
When we invest in companies on behalf of clients, the expectation is undoubtedly to generate a return on the investment, whether via lending (bonds/loans) or owning (stocks/equity). Also, an expectation of repayment is inherent to lending money. Otherwise, it would be a gift, grant, or donation – not a loan. So, let’s set those two concepts aside for the purposes of this conversation.
Blurred lines
What I’ve found over the years – and what inspired this particular topic – is that the expectation of repayment is often very low (or non-existent) when it comes to direct investment in private companies, particularly in very early stages (call it “angel” or “seed” capital). To be fair, this almost always only pertains to money in excess of one’s core financial plan needs; whether the investment works or not, it won’t change anything, so it doesn’t need to perform. If there’s an eventual upside, it’s icing on the cake. If the investment goes to zero, everything’s still okay.
I believe having “excess capital” is vital to disconnecting from the outcome. At that point, you start to see investors give something a try because it sounds interesting. Or, a person likes the founder(s) and wants to give them a shot. If there is an expectation, it’s that the investment will go to zero because that’s what happens to most startups. It may come with an equity stake, but more akin to a grant, the actual expectation is simply that the founders will do their best to work toward what they’ve set out to achieve, and the investors can share in their journey.
Beer me
In one situation I recently encountered, my friend invested $10k to help a brewery get up and running in his town; as a bonus, it also bought him a 1% stake in the business. It will be a long road to opening (and it could easily fail beforehand), but if that investment results in a new place for him to go and perhaps even get a free beer, he will consider it a complete success. If not, it was worth a try!
In the meantime, the founders are following their dreams, and he’s part of making that pursuit possible. If it works out, there can be a return on investment, but – more importantly – it could change the lives of the founders and others who help to build a successful enterprise. Like Silicon Valley, the knock-on effects of starting a successful business in a small New Jersey town are unknowable, but think of the people who will have to come together to make it all possible, how many relationships may be formed in the future because of that brewery, and what other great things those new companions may create together; this is the engine of economic growth and, ultimately, human flourishing. And if it fails miserably, maybe he’ll at least be able to claim a tax loss.
The potential for human flourishing with the potential for a tax deduction sure sounds like charity to me.
Until next time, this is the end of alt.Blend.
Thanks for reading,
Steve
