Chris Hughes and the dangers of impact investing

Chris Hughes, the Facebook co-founder who bought The New Republic for a reported $2.1 million in 2012, has now decided that he’s going to sell it. “The New Republic needs a new vision that only a new owner can bring,” he writes, which is his way of saying that, after spending four years and $20 million on the property, he has decided to cut his losses.

What do you do with your billions when you become dynastically wealthy in your 20s? Different Facebook co-founders have approached that question in very different ways. Dustin Moskovitz is giving his money away in the most empirically rigorous way he can; Mark Zuckerberg wants to change the world, again; and Eduardo Saverin decided it was a good idea to give up his U.S. citizenship.

Historically, it’s almost unprecedented for anybody to become this rich, this young, without inheriting the wealth in question. Most hugely wealthy people become that way either through inheritance, in which case they are in many ways simply stewards for their family’s money, or else much later on in their lives, after having built up a network of friends and family and values and advisors over many years, and when they have many fewer options in terms of being able to put their money to effective use while they’re still living.

The Facebook co-founders, then, are in largely uncharted territory when it comes to making these multi-billion-dollar decisions. They do have one interesting thing in common: they have all gotten married, and their spouses are intimately involved in their philanthropy. That makes sense, since being incredibly rich can also be very lonely, and it’s great to have someone you love at your side, supporting you in what you do and helping to take some of the burden off your shoulders. (And yes, before you start snarking, it is a burden. Imagine being able to save thousands of lives by writing a single check, and then not doing that.)

The other thing that they have in common, of course, is that they all had front-row seats in terms of being able to see how something small can become enormous and world-changing in no time flat. Having helped to create a revolution, few of them are interested in the charity end of the charity-philanthropy spectrum, the old-fashioned redistribution of money from deep pockets to the needy. (Think: giving a buck to the homeless guy on the street, or even a hundred thousand bucks to help with someone’s medical bills.)

When Hughes bought The New Republic in 2012, he told the New York Times that “profit per se is not my motive. The reason I’m getting involved here is that I believe in the type of vigorous contextual journalism that we—we in general as a society—need.”

In philanthrojargon, Hughes’s purchase can be seen as an “impact investment.” He wasn’t giving his money to a designated nonprofit, but he didn’t have a profit motive: instead, he wanted to improve the world through The New Republic’s journalism, and ideally find a business model which would allow the magazine to sustain itself without needing to call upon what Hughes himself characterized as “the largesse of an unpredictable few.”

With hindsight, Hughes had already, at that point, decided that he wasn’t going to simply support the magazine in perpetuity. That model might have lasted a century, but he wasn’t going to continue it.

Josh Marshall is unsympathetic. “Having decided to upend the entire operation and trigger a radical disruption and disjuncture with its history going back a generation,” he writes, “it seems a bit precipitous and unlovely for Hughes to kick it to the corner now and deprive it of the deep pockets which is now really its only asset.”

Yet that is precisely the Silicon Valley way, as epitomized by the erstwhile Facebook slogan of “move fast and break things.” Hughes did both, when he caused a mass exodus by replacing one editor (Frank Foer) with another (Gabriel Snyder). And in the cold light of 2016’s dawn, the current state of The New Republic looks very much like a classic Silicon Valley failure. It was ambitious; it failed to achieve its ambitions; and now it’s being shopped around for significantly less than the amount of money pumped into it, with the best-case scenario being some kind of acqui-hire.

In Silicon Valley, this kind of failure is something to be proud of, rather than ashamed of. Yes, most Silicon Valley companies fail. But the few which succeed are so successful that the Silicon Valley economy as a whole ends up creating huge amounts of value, both locally and globally.

Silicon Valley has a no-lose culture: you join a startup, and either it succeeds, in which case you win, or else it doesn’t, in which case you just join another. Failure is victimless, and indeed can be worn as a badge of honor. And precisely because failure is so socially acceptable, it is also extremely common; young companies regularly take crazy existential risks because the downside (another free roll of the dice) is so acceptable, while the upside is unlimited.

Chris Hughes took a crazy existential risk with The New Republic, and, predictably, it didn’t pan out. Such risks rarely do. The problem is that he took those risks with a venerable institution, staffed with people who couldn’t easily land lucrative software-engineer jobs at any number of alternative startups. He took over a publication with a century of history, gutted it, and now, having failed, intends to simply walk away.

The publication Hughes created, run by Guy Vidra and Gabriel Snyder, is high-quality and interesting, but he didn’t need to buy and then dismantle The New Republic in order to create it. Indeed, Hughes’s own list of admired new-media shops (Vox, Vice, the Texas Tribune, Buzzfeed, ProPublica, and Mic) demonstrates that starting from scratch can be very effective. You can’t treat a century-old publication the way you would a one-year-old startup, and yet that’s pretty much exactly what Hughes did.

Hughes’s failure at The New Republic is worse, then, than Mark Zuckerberg’s $100 million failure with Newark’s public schools, because it destroyed something of value. Zuckerberg’s gift to Newark may not have been as transformationally positive as he dreamed it might be, but it has done some good, and very little harm.

Both investments were self-serving: Zuckerberg’s was timed to offset negative publicity from the release of The Social Network, while Hughes was clearly positioning himself as a Washington power broker ahead of his husband’s anticipated election to Congress. But only one of them gave the person writing the checks unencumbered and indefinite control over an entire organization.

This is probably where Hughes made his largest mistake. It’s not difficult to support vigorous contextual journalism, if that’s what you want to do. There are lots of organizations out there, both for-profit and non-profit, who engage in such journalism, enrich society as a whole, and would be more than happy to take Chris Hughes’s millions in order to be able to do more of it. But Hughes did not support those organizations; instead, he decided to buy his own, and run it as his personal fief. And it turns out that whatever his other skills, he’s not very good at the media-proprietor game.

Moskovitz, for one, has clearly taken that lesson to heart. If you want to make the world a better place, then put your money and faith in the hands of people who are really good at what they do, and trust them to do it well. You, as a callow dot-com billionaire, are not going to be better at it than they are. By deciding to do the job yourself, you lose a lot of option value (entities you might previously have supported now become competitors), and you also maximize the probability that your meddling will cause more harm than good.

So by all means, billionaires: spend your money where you think it’s going to make a positive difference in the world, rather than just investing it in the market or buying a bunch of stuff. Impact investing is a noble vocation. Just don’t let it get confused with your own personal ambition. And remember the eternal truth: hubris is always followed by nemesis.