Innovations in Granting: Open Alternatives to Grants

Crowdfunding, Micropayments, and Prize-Backed Challenges

This is the fourth of four posts in a series focusing on innovations in the grantmaking process. In addition to this series, others in this publication focus on innovations before and after the selection process. Head back to the table of contents for an at-a-glance look at the whole publication including our introduction on the importance of open and effective grantmaking innovations for improving the legitimacy and effectiveness of grant-based public investments.

Summary: Through crowdfunding, micro-payments, and prize-backed challenges, government can use its convening power to harness more broad-based sources of funds and collaborate with private sector partners to fund innovation in new ways and problem-solving ideas.

Crowdfunding, whereby would-be grantees raise funds to support their projects from distributed donors, uses openness and collaboration to circumvent the centralized grantmaking process altogether. Sites like Kickstarer, Indiegogo, and more make make the grants process radically participatory. Micro-payment platforms like Flattr radically distribute the process even further down the long tail by enabling large numbers of people to support philanthropic efforts with very small donations, rather than the larger contributions possible on crowdfunding sites. Microlenders, such as Kiva.org, similarly pool small-scale loans to entrepreneurs and students in poor communities. These models suggest ways that government agencies could use its convening power to harness more broad-based sources of funds, ideas, and judgment.

Prize-backed challenges also present an alternative mechanism to fund innovation in lieu of traditional grants. In 2010, President Obama, in his Strategy for American Innovation, called on all U.S. government agencies to increase their use of prizes and challenges to address the most pressing problems facing the country. Subsequently, the Office of Management and Budget (OMB) issued a policy framework to guide agencies in using prizes to mobilize “American ingenuity.” Taking up the call, the General Services Administration (GSA) launched Challenge.gov, a one-stop shop where entrepreneurs and citizen-solvers have had the chance to participate in over 400 of these public-sector prize competitions run by a wide range of government agencies.

The philanthropic sector has also begun to explore prize-backed challenges. The American Society for the Prevention of Cruelty to Animals (ASPCA), for instance, used a $100,000 prize to challenge shelters to save more animal lives over a three-month period than they had over the same time period in the previous year. The impetus for this prize lay in a growing recognition that animal adoption had seemingly peaked and existing adoption-promotion techniques had not evolved sufficiently. Since its inception, the ASPCA’s Rachael Ray $100K challenge has not only saved over 280,000 animals from euthanasia, but has also led shelters to develop new and effective approaches to animal foster care, in which providers take temporary custody of animals and become responsible for finding them permanent homes. As this example shows, prize-backed challenges can both help generate innovative new ideas and inspire performance improvements among service providers.

These sorts of challenges, in turn, rely on crowdsourcing to engage more people in supplying novel ideas to tackle a problem. Stefaan Verhulst and Andrew Young of the GovLab write that “prizes and challenges allow governments to establish ambitious goals without having to predict which individual, team or approach is most likely to succeed (thus reducing the riskiness of funding decisions at the outset), and to stimulate private-sector investment that is potentially much greater in value than the prize amount itself.” However, the promise of prize-backed challenges over grants-incorporating-crowdsourcing comes not only from widening the pool of potential problem solvers, but also from the absence of statutory requirements.

Crowdfunding, micro-payments, and prize-backed challenges all open up the possibility for organizational funders to steer applicants toward these new platforms and processes as an alternative or supplement to institutionalized grantmaking (or procurement). But in the many contexts in which grantmaking is required by statute and subject to a defined statutory framework, the flexible and participatory techniques used in challenges could still be incorporated to attract more diverse and innovative solutions.

Why Do It:

  • Cost-efficiency: Crowdsourcing could provide a “force multiplier” for government to advertise and attract outside “micro-sponsors” for its own grantee projects. This could be especially attractive in an era of funding constraints.
  • Community: When government requires attracting community contributions to match its grantmaking efforts, it increases the odds that grant recipients are providing relevant services for their communities.

Why Not Do It:

  • Legal Constraints: Statutes may constrain he extent to which government can solicit or incorporate outside funds for its grantee projects.
  • Legitimacy: Private sponsorship can erode or be perceived to erode the public-mindedness of grantmaking efforts and the projects they fund.

Click here for the first post in our series on innovations post-granting, or head back to the table of contents for an at-a-glance look at the whole publication.