The Re-Emerging Art of Funding Innovation

As the strategic philanthropy movement has swept across the field, many grantmakers have lost their appetite for funding experimental and innovative projects. Recently, however, a number of funders have begun exploring how to deliberately reintroduce risk-taking into their processes and portfolios in search of breakthrough change.

The term “innovation” is now used so widely and so vaguely that it has come to mean almost anything, or almost nothing at all. Long before it became a buzzword, though, innovation played an essential role in philanthropy. The field has a rich history of private funders using their resources to seed experiments with the potential to produce outsized social returns.

This innovative spirit prompted the Robert Wood Johnson Foundation to support the regional pilots that spawned the national 911 system almost 40 years ago, at a time when ambulance services were provided largely by morticians (partly because their hearses were one of the few vehicles that could accommodate a stretcher, and partly because if you needed urgent trauma care, your odds of survival weren’t high).1 And it was philanthropy’s willingness to take risks that spurred the Aaron Diamond Foundation to dedicate a large share of its resources to propel the field of HIV/AIDS research and establish one of the first dedicated AIDS research labs, which produced the drug cocktail that transformed the fight to control the virus in the late 1980s.2

But over the last decade, many funders have lost their appetite for experimentation and risk, even as they trumpet their desire to make big bets. The strategic philanthropy movement has swept across the field and helped funders align their programs and grantmaking with carefully designed theories of change to produce clear and quantifiable results. But the pendulum may now be swinging too far, to a place where foundations are willing to support only safe, established programs. Funders are often treating grantees as mere subcontractors, paid to execute pre-designated plans and outcomes.

Yet in many cases, existing approaches are proving insufficient to truly crack the intractable social and environmental problems that we face. The solutions to these large, complex issues—what design theorist Horst Rittel called “wicked problems”—are not yet known. So philanthropy needs to experiment and find new approaches to create breakthrough change.

Over the past few years, a small group of funders have begun to return to their roots by deliberately reintroducing innovation into their philanthropic processes and portfolios. They seek out ideas with transformative potential, take risks on less proven approaches, open themselves up to exploring new solutions, and recognize that innovation requires flexibility, iteration, and failure.

For more than a decade, the Monitor Institute3 has been working with many of these modern-day innovation funders—including the W. K. Kellogg Foundation, Rockefeller Foundation, David and Lucile Packard Foundation, Robert Wood Johnson Foundation, New Profit Inc., and Acumen. Over the course of our work, we have interviewed many of the world’s leading innovation strategists, corporate innovation specialists, venture capitalists, and social entrepreneurs to help us build a picture of what it means to find and fund social innovation.

Now, as part of Deloitte Consulting LLP, we have begun to convene an emerging community of practice focused on funding innovation. The effort began with a gathering of representatives from 10 early innovation funders in Chicago in November 2012. With support from the Robert Wood Johnson Foundation, the session brought together practitioners from the Bill & Melinda Gates, California Healthcare, David and Lucile Packard, John D. and Catherine T. MacArthur, John S. and James L. Knight, J. W. McConnell Family, Lemelson, Open Society, Robert Wood Johnson, and Rockefeller foundations, providing them with an opportunity to jointly explore emerging best practices in promoting social innovation. Although the group acknowledges that supporting breakthrough innovation is challenging and still much more of an art than a science, it’s becoming clear that there is a growing body of experience about what it takes to fund innovation, and how doing so differs from more traditional grantmaking.

Transformation and Experimentation Funding innovation starts with a fundamental shift in mindset. Innovation funders intentionally trade off probability of success in return for greater potential impact. Instead of just supporting proven, incremental solutions, they focus on transformation—investing in approaches that may have a higher risk of failure, but the potential to be lasting and truly game changing if they succeed. “When you’re doing innovation, the first question is not ‘Is this going to work?’ but rather, ‘If it works, would it matter?’” says Eric Toone, the former principal deputy director of the US Department of Energy’s Advanced Research Projects Agency (ARPA-E).

In addition to distributing bed nets to reduce the spread of malaria, for example, an innovation funder might also pursue research to genetically alter mosquitos so they can’t transfer the parasite (an effort theGates Foundation is now actually exploring).4 With these types of high-risk, high-reward bets, the impact from one or two big, transformational successes in a portfolio can justify the opportunity cost of many failures. The approach is similar to venture capital, where the outsized returns of a single “home run” investment can offset nine or ten less profitable enterprises. 

Read the full article here.