Incentivizing Private Investors for the sake of Social Innovation

In 2009, President Obama created the White House Office of Social Innovation and Civic Participation with the primary goal of working with the private sector to enhance innovations that will solve contemporary social issues.  The Social Innovation Fund is one of the methods by which this department aims to achieve its goal.  This fund grants money to intermediaries (requiring a three to one private money to government money funding match) who then invest the money in nonprofits to enhance social innovations.  This program has been lauded for its efforts and results thus far, but it doesn’t come without pitfalls.  According to the director of the Social Innovation Fund, one of their major pitfalls has been fundraising and the intermediaries’ ability to get a 3:1 private money to government money funding match (1).  When we discussed the federal government’s Pay for Success program last week in class, my main concern was the ability of the intermediaries to find new private investors.  The Social Innovation Fund and the Pay for Success program are both certainly innovative ideas that will help foster social innovation, but it’s no coincidence that they both struggle when it comes to the goal of raising private money.  We’ve already talked about how crucial it is that government, non-profits, and the private sector all work together to augment social innovation, but it seems we keep running into the same issue of raising private money.  I think for the optimal future of social innovation, we must address this issue first.  This brings about the obvious question, how do you incentivize the private sector to invest in social innovations?

It's nice to know that some private investors really do care more about the social good than they do about private returns, but are all private investors that altruistic?  I don’t particularly think so.  In order for programs such as the Social Innovation Fund and the Pay for Success program to expand their reach among private investors, they need to be able to sell their idea to all private investors.  I reason through this by trying to put myself in the shoes of the intermediaries, or more specifically the individuals in charge of raising private money to get that 3:1 funding match.  Am I going to be more successful at raising private money by selling the idea of altruism and social good, or am I going to be more successful by selling the idea of social good and that there’s something in it for you as a private investor (profit, tax breaks, tax credit, etc.)?  I think we can reason that most people are self-interested so it’ll be easier to incentivize private investors if you can guarantee that there’s something in it for them.  I’m not exactly sure what it’ll take to get this to happen, but I think it’s a crucial point for creating and continuing an ecosystem for social innovation. 

(1)  https://ssir.org/articles/entry/innovation_to_impact_obamas_social_innovation_fund_at_four