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The Value of Innovation Bonds

According to Quantified Ventures, in 2017 the U.S. market for social impact bonds is $20 billion and is growing substantially at approximately 25% per year.

One of the biggest challenges investors face is a shortage of projects to invest in, suggesting large untapped funding opportunities. The average investment is $7-10 million, lasts 4-6 years, and offers 5-6% returns.

Knowing this…we are testing the waters.  We are using this model and will introduce more in this series as we move forward.

Social impact bonds involve a variety of stakeholders and allow the flexibility of including multiple payers and investors in any given transaction.

A CIB is a partnership in which impact investors (investors that seek social impact and financial returns) and philanthropic organizations—not governments—take on the risk of financing a solution to a difficult social problem.

Once NGOs and social enterprises (businesses that generate societal goods and services as well as financial profits) receive working capital from private investors or philanthropic organizations, they can work directly with their communities to implement an effective social service, for example, a reintegration program for soon-t–be released prisoners in county jail incarceration.

If these organizations are successful, the government pays the private investors (local employers) for the positive societal outcomes. And the third component at the center is sustainability through community investment.

As a result, governments can transfer the risk of testing innovative programs by paying only results. NGOs can access flexible and longer-term funding, and taxpayers get more rigor, accountability, and value for their money.

 

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