By Simon Schneider, General Manager, Grand Challenges & Head of EMEA, InnoCentive
In the wake of the global financial crisis and ongoing challenges facing the world economy, companies, government agencies, and non-profits need new ways of funding large prizes. There are many instances where organizations come to us with grand problems, but lack the finances to put up the entirety of the substantial prize money they would need. So can we find a new way to fund Grand Challenges?
We’ve started to explore this question by breaking it down one piece at a time, each of which we’ll explore in a white paper. There are of course many different features of the current funding environment, so our first step has been to narrow it down very specifically. We’ve decided to look at what has happened to one of the traditional financiers of early stage projects: Venture Capitalists (VCs).
Driven by the recession, VCs are increasingly financing later stage (and lower risk) projects. This is going to affect many of the projects that our Grand Challenge clients are looking for – as they often need to be launched from the very early stages of development, and look for the crazy, risky ideas to solve a problem that the usual ideas have not been able to solve. Can we draw VCs back into the earlier stages, and into the projects that our clients are looking for?
The idea, which we’ve explored in a recent white paper, is to make a trade. VCs have initial capital, but are also looking to identify profitable opportunities. Prize competitions are an effective tool for generating a lot of great ideas and picking out the best ones, but might lack the initial capital input required in certain Grand Challenge cases. So our concept, Prize Venture, makes a trade of initial capital for identified ventures.
Our white paper has only been a first step in taking this concept forward. We’re already working with some partners to put this theory into application by combining venture capital and prize competitions. One thing that has already become clear is that it is better suited to some industries than others.
There is clearly a lot of potential for such a model, but it should not be applied to every problem and every field. Our new white paper series is set to explore other aspects of the investment environment, so that we can keep building up a bigger picture of where new funding ideas can fit together with prize competitions. Take a deeper look at the white paper, and keep an eye out as we share more of our findings.