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A new multibillion dollar economy is emerging at the intersection of start-ups, government, and impa

Discussion in 'General Business and Entrepreneurship' started by jmsczl, Aug 27, 2015.

  1. jmsczl

    jmsczl Entrepreneur

    [This is a long read, but I believe it is worthwhile insight - I'd love to hear your thoughts]

    There is greater potential than ever before to serve the underserved in society. But striking the balance between social impact and profit is no easy matter - until now.

    A new multibillion dollar economy is unfolding, and no one seems to be watching.

    It will take place at the intersection of start-ups, government, and impact investing, under an innovative revenue model known as pay-for-success.

    A pay-for-success bond is a contract with government to pay for a company's product or service if it achieves target metrics of social change. Meeting these metrics will save the government millions of dollars because they will not need to spend on social programs that address the same issues. Those savings then convert into PROFIT through the bond, at zero risk to the taxpayer.

    The US government spends $700 billion annually on social programs. With that much money on the table, there must be better solutions, and plenty of opportunity for savings (and profit). Compare to sum of venture capital investments in 2014

    Pay-for-success brings the government to the table as a paying customer! Allowing scalable technologies to be invested in.

    How it works is relatively straight forward: Investors provide seed funding. If the company succeeds, the government pays, and investors get their return. If the company fails, investors lose their money, and no tax payer dollars are lost.

    Pay for success started in 2010, in the UK. A few states in the U.S. were inspired by their success, and in 2013 began to pilot programs. Bonds ranging from:

    • $5bn for improved reconstruction efforts after natural disaster

    • $20M aimed at reducing recidivism of young offenders

    • $7M to increase school readiness among at-risk preschoolers
    Just recently in 2015, an act is being proposed to allocate federal funding to pilot pay for success. It is called the Social Impact Partnership Act - it has passed House and is waiting on Senate.

    These are incredibly exciting first steps toward sustainable change, and new entrepreneurial opportunities

    I envision a world in which exists companies and ambitious start-ups no longer focused on profit, leaving people and planet as a secondary consideration. Instead, the new currency is pure, no bullshit, unadulterated impact.

    If we support this mechanism for change, we can begin to act, not just talk about it. Creating more opportunity for highly scalable solutions to our world's most intractable, wicked problems.

    Let's start thinking about what new businesses might emerge with such a radical revenue model. What problems might we face? Feel free to express your support through govtrack
    EF-Roger likes this.

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