FINANCING SOCIAL INNOVATION

Geoff Mulgan

1 Prompts

2 Proposals

3 Prototypes

4 Sustaining

5 Scaling

6 Systemic change

WHAT KIND OF MONEY?

Most money, fewest

constraints

Least money, most

outcomes

Low Impact High

High

Risk

Low

MONEY AND VALUE

EARLY STAGE – speculative, open, stage-gate … for individuals, teams, organisations

decentralised

centralised

internal external

Open Source

Open Innovation

Skunkworks

Innovation lab

Movements,

campaigns

Corporate

Venturing

decentralised

centralised

internal external

• Inducement prizes – Big Green

Challenge

• Accelerators

SUSTAINING AND SCALING

Analysing ventures from a commercial lens

Business planning

Charities Shareholders agreements

Non-executive Directors

Independent evaluation and benchmarking

Advertising

Sales and business development

Banking and working capital

PR

Pricing

Purchasing

Leasing

xxxx

Money and business model

Know-how

People and governance

Reputation

and effectiveness

Physical Resources

INNOVATION

Developing strategy

Industrial and Provident

Society

Partnerships

Supply chain management

Distribution channels and systems

Management information

systems

Intellectual property

protection

Community Interest Company

Co-operatives

•Developing a business model •Securing initial funds – customers and investment

•Acquiring the premises and equipment to deliver the innovation •Accessing the raw materials the innovation requires

•Evaluating effectiveness •Building brand, profile,

reputation •Switching from previous

solutions

•Setup up governance •Recruit leadership and team

Building operational systems and processes to deliver for users

Impact vs financial return

Low Impact High

High

Risk

Low

X Commercial

funding

Social investors

Foundations

Government

Crowdfunding

EXAMPLES OF SOCIAL FINANCE

• Banca Etica and Banca Prossima in Italy

• Big Society Capital in the UK

• Acumen in the US

MOBILISING PROCURMENT AND PRIZES

Procure outcomes & solutions, not products and services

Articulate need and send clear signals to the market

Widen the pool of suppliers and innovators

Variable tariffs

Competition is

good for

innovation…

up to a point

How open to

make public

markets?

WHAT DEGREE OF COMPETITION?

Co

st e

ffic

ien

cies

Size of organisation/unit

Very efficient

Less efficient

Small Large

MOBILISING PROCURMENT AND PRIZES

Co

st e

ffic

ien

cies

Size of organisation/unit

Very efficient

Less efficient

Small Large

The pattern for public services, and national governments:

replication is not always best served by organisational

growth

FUTURE VALUE

From ‘we need more money’ to ‘how do we create

future value and turn it into present money’. This

is where social finance overlaps with public funding

and pressures.

A long history of tools ....

• Commissioning for outcomes

• Payment by results

• PPPs

• Shared savings models

• Publicly created markets (carbon, housing)

Cost-benefit analysis

stated preference methods

revealed preference

Social Impact Assessment

Social Return on Investment

Best Available Charitable Option (BACO) Blended value

QALYS

DALYs

PROMs

Education value added

Life satisfaction

bilan societal bilancio sociale

WARM

Index of Civic Health

public value

Social value

i5 National time accounts

Satellite environment accounts

FINANCING SOCIAL INNOVATION – two examples

1. Social Impact Bonds

• Finance from Foundations, or Commercial investors

Raising a sum for investment

• Implemented by a range of providers, coordinated by a lead organisation, intermediary or an SPV

A programme of actions

• Commitment to pay on achieving outcomes

• Benchmarked against control group, and separated from "environmental" risk factors

A commitment to repay

Social Impact Bonds

Peterborough SIB •First SIB contract signed with the Ministry of Justice in

March 2010. Social Finance raised £5m to fund work with

3,000 male, short-sentence prisoners.

• Nationally, 60% of such prisoners re-offend within 1

year.

• Social sector organisations provide intensive support to

prisoners and their families.

•Investors will receive a return if re-offending among the

prison leavers falls by 7.5% or more

• If there is a drop in re-offending beyond 7.5%,

maximum is capped at 13% over eight years.

Australia: New South Wales

(Social Benefit Bonds)

US Federal Government

(Pay for Success Bonds)

2. Preventive investment at the level of a city: Greater

Manchester

Elements • collaboration of municipalities and national

government combining:

• evidenced actions to reduce costs (in this case

mainly on prisons and courts)

• a Financial Incentive for reductions in prison

numbers

• a range of commissions to NGOs and others

Young People at

risk of conviction

1 Young

People at risk of

reoffending 2

Young Adults at

risk of reoffending

3 Adults at

risk of short custodial sentences

4 Adults at

risk of reoffending 5

Police-led Restorative Disposals

Multisystemic Therapy

Restorative Youth Conferencing

Choose Change

Intensive Alternative to Custody

Grounded in analysis of where crime could be

de-escalated with savings

Combined with options for greater integration

1. A single assessment process

2. A single plan for offenders

3. A single leader of each plan

4. Shared outcomes

5. Shape the pattern of resource allocation

6. Shared savings

Questions

• how to align interests of payers, funders,

delivery agencies, beneficiaries?

• will this spur or hinder innovation?

• is it worth the transaction costs?

• what are the political risks?