The Global Innovation Fund: Pilot, Test, Scale

September 23, 2014

September has been a good month for impact investing.  

Just last week, the Social Impact Investment Taskforce released its report, The Invisible Heart of Markets: How Impact Investing is Harnessing Innovation and Capital for Public Good, which lays out concrete recommendations for a global policy framework to accelerate impact investing – the movement to promote investment for both social and financial returns. It builds directly on the recommendations the U.S. National Advisory Board set forth in its report this past June, entitled Private Capital, Public Good: How Smart Federal Policy Can Galvanize Impact Investing — and Why It’s Urgent.

Today, almost as if on cue, we see the launch of the Global Innovation Fund (GIF), which is the practical realization of several of the ideas and recommendations put forth in both reports.  Omidyar Network is pleased to join the US Agency for International Development (USAID), the UKs Department of International Development (DFID), the Swedish International Development Agency (Sida and Australia’s Department of Foreign Affairs and Trade (DFAT) as a core founder and funder of the Global Innovation Fund.

GIF has received over $200 million in commitments and is open for business as of today.  As an independent global nonprofit organization, it has the flexibility to consider any idea, from any sector, anywhere in the world:  big or small, commercial or non-profit, nascent or mature, entrepreneurial or corporate, academic or grass roots.  If it works, GIF will consider it.   GIF follows a guideline that we like to use at Omidyar Network: “problem first, tool second.”  Some of the best ideas can come from the strangest places and – given the scope and urgency of our global challenges – it is imperative that we keep our minds and eyes open.       

GIF will focus on sustainable, workable innovations that can measurably improve lives, especially for the 2.4 billion people who live on less than $2 USD per day.   GIF has directly learned lessons from three innovations in particular over the last decade, namely microfinance, conditional cash transfers and oral rehydration therapy.  All three have achieved the requisite scale to have a substantial global impact and demonstrate that  “innovation” can take multiple forms: technological, commercial and even door-to-door.  Moreover, these solutions have benefited from a variety of funding sources – a combination of government, philanthropic and private funding.  In a time when we are all trying to break out of respective silos and cross-pollinate our partnerships —GIF will be purpose-built to do just that.

As of today, GIF offers grants, loans (including convertible debt), and equity investments ranging from $50,000 to $15 million. Borrowing from the experience of venture capital, GIF offers three stages of financing to pilot, test and scale innovations.  It supports innovators who are committed to using and generating rigorous evidence about what works, and invests the largest funding amounts in innovations that can demonstrate evidence of success and that have potential to spread across multiple emerging markets.

The stages are:

Pilot: Seed capital to support the start-up and field-testing of innovations.

Test and Transition: Funding to test for social impact and/or market fit and build paths to sustainability and scale.

Scaling Up: Funding to expand innovations that have already demonstrated a strong track record of social impact and effectiveness.

Of the many good reasons to support GIF, there are two that get us particularly excited at Omidyar Network: 1) GIF pays special attention to early-stage enterprises; and 2) GIF will help these early-stage enterprises progress from one stage to the next by rigorously testing their impact to prove what works and should receive further support.

1)    Early-Stage Financing

Two years ago, in Priming the Pump: the Case for a Sector-Based Approach to Impact Investing, we outlined our experience to date in impact investing and called out that we have observed (and continue to observe) that there is an acute need for capital at the earliest stages of innovation.  These green shoots serve as the foundation for entire new sectors to emerge and ultimately scale by tapping commercial capital markets. Yet, many commercial investors – even impact investors – are wary of investing too early in goods and services that serve the poor because the potential returns are deemed insufficient.  They would prefer to wait until a sector has been de-risked.  So, how to fill this gap?  This is when philanthropic and government capital can play a big part.  For instance, M-Pesa, the mobile money platform that radically transformed the Kenyan economy, had its humble beginnings in a DFID grant.   Similarly, one of Omidyar Network’s most successful investees to date, d.light, was an early recipient of a DIV grant. 

As a manager of government and philanthropic capital, GIF will be well placed to uncover and support those early stage enterprises that show real promise so that, in due course, they will be able to “graduate” to commercial markets.

2)   Getting to Scale

By 2050, the world population will be at nine billion.  We need to get more solutions to scale more quickly by bridging the tricky gap between early-stage good ideas and widespread implementation.  To do this, we must encourage operational models that function at massive numbers by bringing costs down.  GIF will aim to fund the development of these innovations from a very early stage, right through to testing and widespread adoption.

GIF will require tests of innovations it supports at all stages, and the rigor of the test required will increase with the staging. Investments that do not prove to be socially impactful or cost-effective will be tweaked for better results, or funds will be reassigned to more promising approaches.

GIF is also currently exploring potential ways to assist innovators to help them grow their enterprises, including helping them tap global networks to reach new investors.    As a global, multipartner entity, GIF will be designed to serve the public good, and it will be incentivized to see successful innovations reach as many people as possible. GIF will also ensure that its lessons-learned, as well as key elements of the evidence that it generates within its portfolio, will be shared with others so that all soon-to-be nine billion of us will benefit.

Now that it has become a reality, Omidyar Network is honored to be part of the Global Innovation Fund. In particular, we are impressed by the first-class board that GIF has been able to assemble, including its new board chair, Russ Siegelman, who is one of the best venture capitalists in Silicon Valley and Omidyar Network’s very own Sal Giambanco, who is our head of human capital. 

Our experience has taught us that GIF is sorely needed.  Time is short; resources are thin; and workable solutions are few and far between.  Given its unique structure and scope, GIF will be able to help all of us broaden our perspective and diversify our thinking, helping us source and support the game-changing ideas we so vigilantly seek.   GIF is a now a key part of our ongoing effort to build a world of positive returns.     

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