Philanthropic grants should be the ideal funding for social innovation. Donors can handle high levels of risk, and do not need the certainty of returns of the private sector. Yet there has been surprisingly little attention to how finance could best support innovation, and what mix of funding for individuals, teams and enterprises works best, or how to stage funding to maximum effect. We anticipate rapid evolution in this space as philanthropists develop more sophisticated hybrid tools that can combine grants, loans and equity.
Here, we focus on grants and the relationship between donors and recipients. For more methods see ‘commissioning and procurement’ and ‘public investment, loans and means of repayments’ for ways in which the public sector can support innovation within the grant economy.
Increasingly, donors are trying to avoid some of the limitations of traditional grant funding. Some are using prize funds to catalyse innovations and others are treating grants more like investments, alongside project involvement, technical support, continuous funding, and the coverage of core costs.