Tax within the context of philanthropic giving
What can Philanthropists do about Innovation?
by Bertrand Beghin and Dominic Llewellyn
Philanthropy is at an exciting place on the world stage; it is at the forefront of solving some of the world’s global issues, yet people are realising that individual governments, businesses and voluntary sector organisations – or philanthropists – don’t have the whole answer. Conversations recently at Davos were peppered with the role of philanthropy in working with government, civil society and business and the World Economic Forum has recently created a Foundations Community.
In 19th and 20th Century Britain, pioneering social innovations came to the fore such as the ragged school movement, new models of childcare developed by Barnado, social housing pioneered by Peabody and Joseph Rowntree transformed social care.
More recently – from the Teach First/Teach for All models to microfinance – social innovation has changed the lives of millions of people trapped in poverty around the world. However, with youth unemployment hitting pandemic levels globally and climate change racing out of control, there is a real need for innovations to come to the fore to tackle some of our world’s greatest challenges.
So how can we ensure that innovations don’t just remain ideas but are piloted and have sustainable business models moving into the future?
Here are a few ways philanthropists can support social innovation:
1. Run a challenge prize: Challenge prizes – financial awards for ideas that aim to solve specific challenges – have a long history; the Longitude Prize helped pioneer the chronometer 300 years ago to the more recent Ansari X Prize on space travel. Over the past decade, there has been an increased amount of challenge prizes in social innovation; ranging from the excellent work by Nesta and their Centre for Challenge Prizes to the Hult Prize and the D Prize.
2. Support a social incubator: Social incubators are organisations that offer intense support to social enterprise start-ups. The UK Government has been very active in this space by providing match funding through the Social Incubator Fund. We are working with Healthbox and University College London (UCL) to set up an incubator in health. Other incubators include the Young Academy’s work on education, Social Incubator North and UnLtd-Wayra – a collaboration between UnLtd (the UK’s Foundation for Social Entrepreneurs) and Telefonica/O2’s technology innovation unit.
3. Build a venture philanthropy fund: Venture philanthropy takes concepts and techniques from the venture capital sector, such as finance and business management strategies and applies them to achieving philanthropic goals. It works to build stronger social purpose organisations by providing them with both financial and non-financial support in order to increase their societal impact. Outstanding examples of venture philanthropy funds include Impetus-PEF focusing on education and employment.
Moving forwards, once innovations have been proven; they have historically struggled to attract the capital that enables them to scale up. With the advancing over the past few years of the social impact investing market, social ventures 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.