Posted by: Ray Brescia | February 23, 2013

Prize Philanthropy, the Next Wave in Giving

The launch of the Breakthrough Prize in Life Sciences by a host of some of Silicon Valley’s biggest names could mark the beginning of a new chapter in philanthropy, one that recognizes achievement and not promise, accomplishments and not new, untested initiatives.  The Breakthrough Prize strives to “recognize excellence in research aimed at curing intractable diseases and extending human life.”  Five awards of $3 million will be awarded annually “for past achievements in the field of life sciences, with the aim of providing the recipients with more freedom of opportunity to pursue even greater future accomplishments.”  Call it investments in the most innovative and accomplished scientists. Or, gym class team selection in reverse, perhaps.

This type of “prize philanthropy,” although not new, could single a radical shift in how foundations dole out grants.  In the early 18th Century, the British government was looking for a way for its ships to navigate the globe by identifying their proper longitude while at sea.  It offered a prize to anyone who could provide a solution.  In search of the winning purse, a watchmaker, John Harrison, ultimately discovered a workable process, and was awarded the equivalent of $2 million in today’s money. Although exacting the prize was a challenge, as the scientific aristocracy could not accept that a commoner could have solved the puzzle, Harrison was ultimately able to collect his winnings.

Over the last twenty years, the philanthropic sector has slowly transformed itself to require more accountability of its grantees in the form of measurable outcomes (“deliverables” in the common parlance) and evidence-based practices.  Prize philanthropy could mark the next step in that evolution: awarding grants for achievement and not the hope of positive outcomes.  Social Impact Bonds (SIBs) are one example of this new trend.  Grantors agree to pay prospective grantees based on how they perform, the results they deliver.  Positive outcomes will generate premium payments.  Investors can contribute to the prospective grantees with the hope that they will receive a return on their investment by sharing in the premium.

The main benefit of prize philanthropy is obvious; there is little risk that a grant will not generate results if it is made for past performance.  Another benefit is that offering such a grant tends to generate countless hours of activity directed at solving a problem.  Such activity can lead to other discoveries.  One downside is that new, creative projects are harder to fund, as untried approaches do not have a track record of accomplishment to point to in their search for funding.  A blended approach—one that rewards accomplishment but still funds projects that prototype new strategies—is likely the best way to not only honor achievement but also incentivize creativity and risk.

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