There should be new investment models that can take projects and ideas through successive stages, with different types of finance at each stage. And funders should embrace helping with the changes to organizational form, leadership, skills, and culture that are generally needed at each stage of the journey.
The social field is surprisingly short of sophisticated financing models. Many innovations depend on grant funding from philanthropists or foundations. There are then some social investment sources for more mature innovations and organizations. But a developed financing system would account for scaling and scaleability from the start. It would include at least the following elements:
- Small grants for promising ideas coming from social entrepreneurs, nonprofits, practitioners, or community groups. Every funder should ensure that a proportion of grants go to ‘high risk, high reward’ projects—those with a low chance of successful scaling but where success could have an enormous impact.
- Larger funding to support the piloting and fast prototyping of the most promising ideas—taking account of the chances of successfully scaling.
- Investment funding for the sustaining and scaling phase, with support for social innovators to navigate this very difficult phase of transformation. Funding should be provided through loans, quasi-equity, and outcome-based contracts so that both the funder and the funded have an ongoing stake in the project delivering outcomes for society.
- New metrics to help frame assessment of innovations at different stages, including tools to judge the net present value of particular ideas.
Financing tools are much more diverse in the commercial sphere—from business angels, venture capital, and private equity houses, to more conventional routes such as raising money through initial public offerings, or IPOs. The social sector needs a similarly diverse range of tools. And there needs to be a move away from traditional grant financing for more mature innovations.
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