In the United States and across the world, there has been much talk and discussion of Impact Financing. Private philanthropists and foundations are no doubt, looking to ensure that the social and environmental programs they invest in, provide the highest return on investment. With recent volatility in global markets there is even more pressure for foundations and other donor-advised funds to perform. With the majority of philanthropic giving still taking on the form of grant-making, how can we reform the existing grant-making processes of foundations to make them more outcome-based?
According to a 2014 report by the Foundation Center, in 2012 the U.S. was home to 86,192 foundations, with $715 Billion in assets and $52 Billion in giving. In recent years, Pay for Success (PFS) initiatives, also known as Social Impact Bonds (SIBs), and other outcome-based models have taken the Philanthropic sector by storm. Yet, 99% of Philanthropic giving is still grant-based. This means that since there are still relatively few PFS initiatives in existence, and similarly few experts available around the country who know how to create them, many foundations are left without the technical expertise and experience to create such innovative outcome-based models. Furthermore, many PFS’s require the creation of legislation at the State, Federal, or Municipal level, multiple-stakeholders, and years of planning to be realized. How can foundations that want to maximize impact, without the complications of multiple stakeholders, legislation, and years of time and effort, still do so while retaining much of the structural integrity of the PFS Structure?
For the 99% of philanthropic grant-based giving, we propose a unilateral performance-based funding approach. The Unilateral Pay For Success (Uni-PFS) Model has been specially created with the majority of grant-based foundations in mind, who have yet to fully transition into an outcome-based philanthropic methodology. The model utilizes many of the facets of a PFS model or SIB. The major difference with the Uni-PFS model is that one foundation funds the entire project, including outcome payments for successful performance. In the Uni-PFS model, a foundation chooses its own programs to fund with assistance from an intermediary. The Uni-PFS model similarly funds 2-3 year pilot initiatives, mirroring the standard PFS approach, giving the service providing organization implementing programming on the ground, ample time to focus on achieving outcomes as opposed to fund raising. The intermediary in this case, still provides programmatic design expertise and consulting, assisting with data collection and analysis, as well as providing on-going technical assistance to service providers throughout the process. Also, outcome payments for successful performance are paid solely to the service provider, which go toward capacity-building and scaling the proven programmatic model for an additional 1-2 years.
Since the model is unilaterally funded, it provides flexibility for service providers to change methodologies in the middle of a pilot if current methods have proven ineffective. The unilateral approach also allows participating foundations and service providers to place more emphasis on qualitative metrics that are extremely important, yet difficult to measure, due to the fact that economic pressure of profit-seeking investors is taken out of the equation. Cost-savings are still able to be quantified, allowing elected official to participate in the Uni-PFS’s ultimate success, while also allowing them to distance themselves from a failure. This is all done without a dime of tax-payer expenditures. If the initiative is successful, the hope of course is that government will relieve philanthropists of their fiscal responsibility by using public funding sources to further the future of any successful and proven initiatives.
Ean Garrett, J.D., is the author of two books, "Rebirth of a Dream" and "The Immovable Race", as well as the Chief Innovation Officer of the consulting firm, Infinite 8 Institute, L3C, specializing in the design and finance of social impact systems. Follow him on Twitter & IG: @eangarrett