I did a lot of investigation years ago into the institute. The plan is to give the wealthy a place to do things they can't legally do in the US, and to provide space for foreign workers to work in the same time zone as california, be close enough for the fat internet pipe, but far enough that they don't require a visa.
I don't think it'll be sustainable - at least for the first two or three generations of designs and political structures. But the idea is sound, and the cost of california land may make it financially viable even if it wouldn't normally work in most other environments.