Thursday, 24 April 2014

3 ways philanthropists can finance social innovation that works to scale

This blog is based on an article that I co-wrote with my Numbers4Good co-founder Bertrand Beghin in Philanthropy Impact Magazine.

Last week, I touched on how philanthropists can support social innovation. However, moving forwards, once innovations have been proven; they have historically struggled to attract the capital that enables them to scale up... So, what can be done?

With the advancing over the past few years of the social impact investing market, social enterprises have opportunities to scale and there are now tangible options for philanthropists can play a vital role in ensuring that the innovations can scale – and if they wish – make a financial return as well as creating a social impact. Options could include:
  1. Invest in social investment funds: There are an increasing number of philanthropists and foundations that are investing in social investment funds. Examples in the UK include Esmee Fairburn, and Pierre Omidyar’s – the founder of eBay – Omidyar Network and internationally include the Gates Foundation and the Gatsby Foundation. The funds that these foundations are investing in finances social innovations that require scale up capital in order to increase their impact ranging from UK social enterprises to international development organisations.
  2. Directly invest in social enterprises: With the introduction of the Social Investment Tax Relief, the opportunity for individuals to invest in social enterprises will soon have similar advantages than EIS/SEIS (in the UK), bringing a whole new source of capital into the scaling of social ventures. On a different point, sometimes investors struggle to invest in scaling social innovation, because of the risks associated, therefore, if philanthropists or foundations, could offer to take a first loss stake in certain types of innovations – or indeed funds – it would enable more capital to be leveraged from other types of investors and flow into scaling social innovation.
  3. Invest in social impact bonds: Social impact bonds are designed to improve the social outcomes of publicly funded services by making funding conditional on achieving results, often used as preventative interventions or to develop new innovative models. Investors pay for the project at the start, and then receive payments based on the results achieved by the project. With the announcement of the inclusion of social impact bonds in SITR, they will also enable philanthropists to invest for a social benefit efficiently.
Great ideas need money to be piloted and then to scale; without philanthropy this would not be possible. Philanthropists need to – and do – play a vital role in ensuring that life saving innovations don’t just remain ideas in people’s heads but are piloted and then transform the livelihoods of millions of people.

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