Must Read Blog June 20, 2023

Philanthropic Innovations are Proliferating – Foundations Need to Keep Up

Back in January, I wrote that I was keeping an eye on two types of funding innovations among philanthropic organizations: incentive prizes, which have been around in different forms for centuries, and SchmidtFutures’ recent foray into focused research organizations. While the two methods are ostensibly different – incentive prizes crowdsource myriad possible solutions to a well-defined challenge, focused research organizations harness the strength of a concerted team to develop solutions to big scientific questions – both seek to catalyze market shifting breakthroughs by concentrating funding on solving a problem rather than on any specific proposed solution.  

In this way, both address a funding gap in the science-to-technology continuum, positioning philanthropic funders as the natural fit between government funding for basic research and venture funding for companies that productize said research.  

Models like these challenge the traditional approach to philanthropy; although, they in no way replace it. But as more such models crop up, foundations need to consider how philanthropic innovation fits within their broader funding strategy.

The traditional philanthropic model

To address both the structural and systemic limitations of traditional philanthropy, incentive prizes have become a favored tool over the past decade for philanthropists to drive innovation in areas where solutions are not known or to identify opportunities to scale methods that work at a local level but which have not yet achieved broad reach.  

While incentive prizes as a concept have existed for centuries – prizes led to the development of canning, an accurate method for measuring longitude at sea, the first transatlantic plane flight, and even the modern billiard ball – they were revived in the late 20th century by my former employer, the XPRIZE Foundation, which, in 1996, offered a $10-million prize for the first privately funded space flight. When that competition succeeded eight years later, birthing Virgin Galactic and catalyzing the private space flight industry, philanthropists rediscovered the incentive prize model. Since then, XPRIZE alone has expanded into the areas of mobility, health, social impact, education, and the environment.  

Other organizations have innovated the XPRIZE model. Lever for Change, rather than catalyzing novel solutions, has looked to use incentive prizes to scale programs that are already proven to work. The organization, which launched out of the MacArthur Foundation, has deployed its methodology across a range of issues, from racial and gender equity, to democracy, to economic opportunity. Since launching its first 100&Change competition in 2017, Lever for Change has already galvanized over $1B in philanthropy for bold solutions. We interviewed Cecilia Conrad, CEO of Lever for Change, for this month’s Voices of Impact interview to hear about what’s next for the organization, particularly their collaboration with McKenzie Scott. 

Incentive prizes allow philanthropists to deploy a relatively small amount of capital to produce a lot of candidate solutions and to select not just the most promising ones, but those that are proven to work. The winning solution then receives a sizable, unrestricted cash infusion. Importantly, winners can also be for-profit organizations, broadening the aperture for philanthropists not just to innovative solutions but also to organizations they would not otherwise fund.  

In our own work at Tyton Partners with one of our foundation clients, we’ve utilized similar mechanisms in designing a grant program intended to catalyze innovations in education data and parent communication. Through a combination of small grants to startup initiatives and larger grants to those ready to scale, combined with a competition-inspired application process, an accelerator, and ecosystem building activities, we helped our client design a program that galvanizes stakeholders around an underfunded theme.  

XPRIZE, Lever for Change, and our client work are just three of many approaches to prize philanthropy, and it is fascinating to see how philanthropists are using this tool to identify solutions to a variety of challenges across sectors. 

SchmidtFutures’ novel approach to funding R&D 

In 2022, SchmidtFutures introduced another innovative approach to driving change through philanthropy. Convergent Research is a Focused Research Organization (FRO) that seeks to tackle large-scale, tightly coordinated, technically ambitious non-profit projects with a finite duration, after which the FRO disbands and deploys its technology into the real world. 

As Tom Kalil, SchmidtFutures’ Chief Innovation Officer, told me in our recent interview, FROs are particularly well-suited to areas that “don’t need massive conceptual advances to solve the problem,” but rather ones that can build on and accelerate existing research by dedicating a team of 20 to 30 for five years with a singular focus. The first two FROs SchmidtFutures has launched seek to map the human brain and to dramatically increase our ability to take advantage of nature’s biodiversity, and the organization is exploring other possibilities.  

FROs offer philanthropists a unique tool to, as Tom put it, “[apply] the scientific method to how we fund, organize, and incentivize research.” Rather than relying on the traditional research funding method using a peer review mechanism to provide small grants to university professors and their graduate students and postdocs, philanthropists can now establish a nonprofit research organization to focus on coming up with scientific breakthroughs. The ability for such research teams to have the unity of purpose of a startup and a teaming approach beyond what can be accomplished in an academic setting makes them attractive to philanthropists, as does their time boundedness – that is, funders are not signing up to fund something indefinitely that may end up outlasting its own utility.  

What does funding innovation mean for philanthropists? 

Like any industry, philanthropy is in a state of constant flux. Models that worked a decade ago change both at the margins and at their core. Foundations come up with new models to identify and scale solutions that can truly move the needle on both social and environmental problems. Sometimes, a truly disruptive funding innovation comes along, like the XPRIZE, or FROs, or, famously, McKenzie Scott’s revolutionary approach to grantmaking.  

At Tyton Partners, we routinely encounter philanthropic organizations looking to use innovative approaches to accelerate solutions to pressing problems. We’ve had the opportunity to bring our professional and advisory experiences to bear on establishing novel funding mechanisms and vehicles with promising initial results. What we’ve come to see is that those foundations that do not innovate their approaches to funding risk losing out on new and promising solutions. In an environment where solving large societal and global problems requires innovative approaches to problem-solving from operators, it is incumbent on funders to also constantly evaluate and reconfigure the way they do business.