The Question That Tech-for-Good Funding Should Care Most About

Rose Marie Cleese displays a handful of old photos and with the help of Kerri Young of Historypin scans the historic pictures at a workstation on the main floor of the California Historical Society Friday, July 17, 2015. (Mike Koozmin/S.F. Examiner)
(Mike Koozmin/S.F. Examiner)

 

Grant funding has a vital role to play in social technology innovation. It can support the higher costs and risks of early stage R&D and help bridge tech-for-good teams to larger pools of impact investment. Excitingly, an increasing number of grant funders and philanthropists are making the move into funding social technology, either through the encouragement of technology-first proposals within their existing programmes or as separate, dedicated strands of funding.

This has come with its challenges for these funders, as they work to fit the distinct needs and risks of technical development into investment structures that have been designed for more traditional forms of intervention and delivery. Investment in social technology delivers a fraction of its potential impact during its development stages – if any at all. Pretty much all of the value of tech-for-good projects accumulates as they scales and grows, which may be many years into the business plan and development roadmap.

As a result, funding criteria that prioritise specific benefits for a certain number of people over the period of funding aren’t appropriate. Moreover, it means that if social tech projects fail before they reach scale (as most do), they represents a larger waste of investment than non-technical projects, which may have never been rolled out but at least started delivering impact at a small scale almost immediately. The rewards of successful social tech projects are huge, with the prospect of greater scale, less cost per beneficiary, wider replication and better integrated impact measurement on offer. But the risks for funders also also much larger.

As well as facing these structural challenge, funders are also investing in a comparatively inexperienced sector. Many charities and social tech startups are making very exciting progress towards impact at scale, but the number that are there already can probably be counted on one hand. Social technology, as a sector, is only just learning what all of the milestones on the way to real success look like, with many questions still unanswered.

All of this points to the need for as much discussion and collaboration between funders and social tech teams as possible, which asks fundamental questions, challenges norms and shares best practice. The recent launch of the Centre for Accelerating Social Technology (CAST) is very timely in this regard (and I’m excited to be contributing as a Board member). Set up to help bridge the gap between early stage ideas and the delivery of impact at scale, they are well placed to broker closer ties between the supply and demand of tech-for-good funding.

At Shift, over the last 7 years, we have worked on a large number of grant funded social tech projects – through the development of our own ventures, pieces of consultancy and formal and informal mentoring. Through all of that, there is one question that the best social tech funders care most about – and that we put at the heart of our funding relationships:

Where am I dropping you off and who is picking you up?

This question reflects the nature of all technology development, which is based on a roadmap. This roadmap consists of a series of cycles of design, building and learning that take place over a number of years, followed by further cycles of acceleration and growth.

Angel and venture capital investors in commercially focussed technology ventures have always been obsessed with this roadmap and its various milestones. And for good reason: if you don’t make your investee more investable, you lose your money.

The best social technology funders learn from this approach and apply it in their own way, understanding that they have to be even more obsessive about making their grantees more fundable, identifying and brokering relationships with further investors and agreeing deliverables that target specific development milestones.

Commercial tech investors can afford to take a narrow view of value accumulation, sometimes so narrow that they don’t have to engage with actual future value – just how it appears to the next investor or at the next point of exit. Social tech funders can’t just look one or two milestones ahead – they have to plot a route right to the end, when their investment is delivering measurable and sustainable impact at scale. And because there are less people waiting on the roadside to put more money in, we have to plan and navigate the route with great care. It is far too common to see social tech projects disappear down the gaps between these milestones or, as often happens, for projects to plateau at a very modest level of scale and impact, sustained by soft money that doesn’t question or understand how further progress happens.

So what do these milestones of social technology look like? Here are some starters for ten, which reflect what Shift has learnt over the last 7 years:

Milestone 1: Evidence of need and opportunity


This is work that is normally undertaken between 3am and 6am before a funding deadline. But, as we have
written about before, we believe that this is a specific phase in itself, which represents extremely good value for social tech funders: it increases the quality of design and development, it lowers risks and assumptions and it reduces the amount of new social technology that doesn’t need to be built at all.

At the end of this phase of investment, social tech teams should arrive at their first milestone equipped with:

An evidence-based Theory of Change. This identifies specific target audiences, tangible behaviours and concrete, measurable outcomes. It represents a must-have for those that might fund design and development phases, by rooting plans for these activities in a robust hypothesis that draws on credible existing research.

Market research. This fundamental work identifies, segments and understands target users via their needs and priorities – not just the social need that relates to them (e.g. certain audiences needing healthier diets is not the same as those audiences wanting them). Like the evidence base for the Theory of Change, this work lowers the risk for further funders by removing assumptions about what people will or won’t do and do or don’t want, because it has to identify existing behaviours and preferences.

A technology and competitor analysis. This demonstrates that there is a need for new development activity and investment. Ideally, these kinds of very early research and scoping grants would encourage and reward evidence of the opposite, i.e. funders should welcome evidence that existing tools can be leveraged or re-engineered to meet the same social and user needs.

A target product category. If social tech teams cannot point to an existing category of products or services that they seek to join, they represent a huge risk to funders. Vastly well resourced companies like Google and Apple can embark on the creation of entirely new categories of products and services, that introduce completely new forms of user behaviour and new types of business model, but that’s not remotely realistic for social tech teams. By identifying a target destination within the market, teams can assess example business models and routes to market, in order to generate hypotheses for how something new could find its ways to lots of users and sustain itself.

Milestone 2: Proof of concept & value proposition

In the most pure and effective design processes, teams arrive at this second phase of work armed with insights, data and a clear picture of social and user needs, which are then used to develop new concepts.

However, given that much social tech innovation starts with a specific idea, this pure design process is rarely possible. Regardless, funders should give their grantees the freedom to emerge from this phase of work with a totally different concept to the one they arrived with. Future funders and investors will be more impressed by a concept that has learnt from and responded to real things – like users, live testing and impact measurement – than by one that has sought artificial validation and ignored opportunities to evolve.

By the end of this second phase, teams should be equipped with:

Evidence from the real world that something works. By supporting and pushing social tech teams to work through a series of quick, cheap cycles of proof of concept development and testing, funders are equipping teams with invaluable evidence for future funders. Evidence that they know who their target users are and they can access them; evidence that they can meet user needs and drive the user behaviours they want; evidence that, through these user behaviours and via their Theory of Change, they can have impact; evidence that something new is really needed (or not); evidence that this team can deliver an agile design and development process. And by identifying, hacking and running real tests with an existing proxy (or several), rather than rushing to building a new prototype, they can demonstrate great value.

Subjective and objective data on target audiences. This represents an upgrade to the team’s evidence that they understand their users. It is not especially useful as a tickbox exercise that seeks subjective validation for nailed down concepts, but is invaluable when done well, through ethnography, observation, interviews, focus groups and analysis of quantitative data on existing patterns of behaviour.

Measurement and evaluation framework. This framework links the initial Theory of Change with the refined concept proposition to demonstrate that the team have prioritised impact measurement. Even stronger, the proof of concept development and testing process will generate impact data that enables an initial evaluation.

Commercial proposition. Teams should be able to illustrate a realistic proposition for how the concept will generate revenue that can scale alongside use and impact. This proposition might aim to convert some users to paying customers, to sell consultancy services off the back of the digital product, to win commissions from local government, to sell to schools or to generate sponsorship from companies – it doesn’t matter, as long as it doesn’t just say: we’ll keep getting more grant funding.

Prototype development and testing plan. Funders that invest larger amounts of money in the development and testing of a prototype (i.e. the next stage), will want to see an agile development process laid out clearly and credibly – not detailed specifications for the product, but a detailed process for its development. Agile isn’t easy to run for teams that haven’t successfully delivered it before, so the proposed development resources, across team members, consultants and advisors, should seek to reduce these potential risks.

Value proposition. All of the above more than equips the team to be able to articulate the proposed social, user and commercial value of the concept. The more concise, compelling and evidence based this value proposition, the more likely it is that the team will be able to secure further investment. As a funder supporting this stage of development, any help to develop and refine this proposition and get feedback from potential further funders is hugely valuable.

Milestone 3: Prototype and business plan

From the first day of discussions about funding for this stage (day one of funding is already too late), funders and social tech teams should be talking about exactly what point they are aiming for and what investment will support them from that point onwards. The transition from prototype funding to further investment represents a difficult gap to bridge and there are several reasons why social tech ventures often struggle to progress from this milestone to further development investment, including:

  • Prototypes still represent something new, which some grant funders traditionally prefer to something that has been built and kind of works (despite the fact that everything brilliant kind of worked at some point in its development).
  • The costs of developing a market-ready product or service are much higher than developing a prototype and the runway required is longer and there is considerably less of this kind of grant funding available.
  • Social tech teams that want to make the transition from grant funding to more sophisticated types of impact investment, such as equity, quasi-equity or debt, can find themselves stuck in no-man’s land – not ready for more commercial investment and too far advanced or commercially structured for grants. This is often reflected in “entity anxiety” where social tech ventures don’t know whether they should be straightforward charities, limited companies or an inbetweener, like a CIC or mutual.
  • Many social tech products can start generating some revenue even with a prototype – creating white-labelled versions for clients, selling consultancy services off the back of it, bringing in bits of sponsorship etc. In some ways, this helps bridge the gap, but in others it stunts and skews the development of the product and its business model, because it is happening before the product is ready and when dedicated product development investment would be far better.

With the risks and challenges of this transition in mind, there are three main outputs from this phase of funding that will significantly increase the potential to move forward:

Live prototype delivering value. There are some great methods and resources to support an agile prototyping process, not least the Lean Startup movement, which is as valuable for social tech projects as it is for commercially focused ventures. But in amongst this agile process, the task of identifying and agreeing a milestone for the end of the funding period is more difficult, particularly as the number of design, build and learn cycles will depend on the level or length of funding. However, funders and social teach teams can focus on accumulating and demonstrating value during this process, so at every point there is greater potential to unlock further investment – and ideally more sophisticated, demanding investment. We always look at this growing value as three intertwined strands:

  • Social value – increasing evidence that the prototype is reaching the target audience, driving the behaviours and and delivering the intended outcomes.
  • User value – increasing traction amongst target cohorts of users, with analytics data showing more and more users choosing, using, re-using and referring others.
  • Commercial value – prototypes that can demonstrate evidence of actual revenue streams than can be replicated and scaled are ideal, but even without this potential, they can build a stronger and stronger hypothesis for financial sustainability and growth throughout prototyping.

We recently met a social tech team whose deck was full of great acquisition stats on their prototype product, with sign-up numbers increasing all the time. This was exciting, but if I was a funder or investor, I wouldn’t have gone near them – they had no idea of the impact on users because their Theory of Change was too lightweight and full of assumptions and they had a very shaky hypothesis for generating revenue. They needed their existing funders to push them hard to fill in these gaps.

Impact evaluation. In our experience, a high standard of evidence of impact trumps almost everything else in attracting further investment for social technology and the gold standard of evidence is a randomised control trial (RCT). Some funders, like the Education Endowment Foundation, are highly focussed on supporting grantees through the design and delivery of RCTs, financially and with considerable expertise. This approach provides social tech teams with an incredibly valuable asset when they are dropped off by EEF, making the next investment considerably more likely.

Business plan and investment proposition. Again, there are some great resources available to help structure business planning, such as the Business Model Canvas and SOSTAC planning model. For funders and teams that are working towards the next milestone, the best approach is an agile one: draft, present to potential funders, redraft, present again. Like the value proposition during the previous stage, the business plan and its articulation through an investment proposition should be discussed as regularly as possible, with an active role for funders to get their grantees in front of potential future funders. Regardless of whether or not social tech projects can or want to graduate to more commercial forms of impact investment, angel and VC investors represent an ideal sounding board. Even if teams want progress through further grant funding or more slowly through organic growth of early revenue streams, this litmus test will demand and demonstrate robustness and genuine potential.

From a technical development point of view, the transition from prototype to market-ready product is gradual and iterative. However, from a business planning and investment perspective, there are substantial benefits to creating a firm line of separation between the two phases. In our experience, market-ready product development and launch is very difficult to do with small pockets of grant funding, the odd commission and a few bits of consultancy. By drawing a line between these phases of development and by fixating on what is required to secure substantial, fit-for-purpose investment to go to market, teams have a much better chance of crossing this line with a real shot at success.

Milestone 4: Post-revenue

Post-revenue is one of those slightly ugly phrases that you overhear a lot in Silicon Valley coffee shops. But it is often underused in social tech development planning and funding partnerships. If grant funders support social tech teams to go to market, then a crucial milestone for that product is the establishment of scalable revenue streams and the activation of their business model.

We have been mentoring a startup team recently that feels like progress has been slow, but, in fact, they have managed to sell their product to 15 schools. Despite all the holes in their technology and impact measurement, this product has identified its customer, developed a product proposition that meets their needs and gained traction for a revenue model with substantial scalability. This represents invaluable evidence for attracting further investment. Of course, due diligence from that investor would examine how sustainable and replicable that revenue really is, but they can do this based on actual income, not just a hypothetical business model.

There is a often a nervousness within social technology about asking users to pay for products and services. These teams are often targeting low income users, community organisations, social and cultural institutions or public services. In turn, they feel strongly that providing products and services for free will increase access, reduce barriers to those most in need and improve impact.

This might be true and there are major social tech successes that stick to this approach, like Wikipedia, Khan Academy and CoderDojo. But, trying to get users to pay for things is an incredibly valuable process, even if you decide ultimately to make it free. A payment reflects genuine value creation for users and therefore pushes teams to really deliver this value. Internally, this increases discipline and quality in design and development – there is no hiding from paying users. In terms of impact, when users choose to pay for something, they are far more likely to use it properly, regularly and sustainably. Conversely, when you separate the user from the main source of revenue (e.g. funders, local government, sponsors, parents), you risk never addressing this question of genuine value.

Funders that support social tech teams to go to market can push them hard to try and sell their product or service to at least a proportion of their users. If the team can drive sales and revenue, but only from higher income users, then it might be concluded that payment for all would curtail the intended impact. That might lead to a ‘pro’ service that separates these user groups or a model that maintains it as free for all, through sponsorship or a donations model.

Either way, the next investor will have evidence that the product is of enough value to be paid for directly by users and that the team has learnt a huge amount about their business model, which represents powerful illustrations of future potential.

Milestone 5: Specific upgrades to the proposition

If you made a list of all of the social technology products and services that had been launched in the last 10 years that are still live, but pottering along at a very modest level of use, revenue and impact, it would be very long.

Shift would be able to pop some things on there, like Buttons, which has helped 20,000 people get more out of being online, and has a steady stream of users travelling through it and getting benefits. But, unlike our more recent products, its user acquisition rate is flat and it doesn’t have a scalable business model.

Many of these social tech projects, including Buttons, don’t have the potential for substantial growth. But, many post-launch projects do and represent excellent opportunities for funders to generate greater impact than funding new projects. If funders want to unlock the potential of these projects and leverage often substantial existing technology, they shouldn’t just support business as usual activities. We believe that they should invest in specific activities that upgrade the overall proposition and increase the potential for the team to access larger pools of further investment or to start generating higher revenue. These include:

Updated Theory of Change. An evidence-based Theory of Change represents a crucial building block for social technology projects, but many teams won’t have had the experience, expertise or resources to put one in place at the start. As a result, neither they, nor potential investors are confident enough about the impact they are having or about their ability to deliver more profound, larger scale benefits. Re-examining the Theory of Change can lead to the conclusion that the some of the design assumptions were simply wrong, but that’s ok. If there is still genuine potential for the product, then this re-establishment of the fundamentals is crucial.

Customer segmentation. Again, this is ideally a foundational activity, but, again, this is something that social tech often teams struggle to do early on – for many reasons that aren’t their fault. So, they plough on not knowing exactly who their users / customers should be. As a result, they provide rather vague types of value, waste time and resources marketing too broadly and struggle to measure impact and generate revenue. A fairly quick, high quality phase of market research can dramatically improve the future potential of existing social tech projects.

Evidence of impact. Funding for high quality, independently evaluated impact trials, like an RCT, if it is appropriate, is invaluable at any stage of development. We meet an endless stream of social tech projects that have some user traction and can generate some revenue, but have no clear picture of their actual impact, so their potential to access proper impact investment is substantially reduced. If teams don’t really want to find this out and are happy with vanity metrics and smoke and mirrors for funders and commissioners, then they shouldn’t get a penny more from anyone. But if they’re genuinely committed to investigating and improving their impact, then this represents excellent value for money for funders.

Analytics. Access to detailed data on exactly what users are doing is critical for good design and development, but many social tech teams may not have been able to get this in place early on. They may have the basics, but their ability to set up events or undertake cohort analysis, both of which will allow them to dramatically improve their ability to meet needs, reduce drop-off and increase retention and referrals. Specific support to get this in place may unlock considerable growth and improve use and impact metrics to the point where they attract new investment.

Generating sales. Many teams, including us circa 2010, just wanted support for marketing resource. We have a great product, but no-one is helping us get it out into the world. Fairly obviously, we needed to show, specifically, how investment in adding scale would improve our sustainability. Investment in activities that demonstrate the ability to drive sales, win customers, secure commissions and generate sustainable, scalable revenue, even on a very modest scale, will equip teams with what they need to grow.

You’ll notice that none of these suggested units are for development or marketing, which is what most live social tech teams will need and want. Of course, keeping the development runway going for longer and supporting growth are important, but I don’t believe that they are often good value for grant funders supporting social technology.

If all the numbers are going up, across user traction, impact measurement and revenue generation, then these social tech ventures are on their way and they can attract the investment they need to grow and accelerate from debt or, if appropriate, equity. Grant funders, with less available, can still play an incredibly important role by investing smaller, more targeted amounts for specific units of development to get them closer to this milestone.

As part of our three year partnership with the Nominet Trust, we have had a chance to discuss some of the fundamental questions about how social tech investment relationships should be structured, supported and measured. This kind of ongoing dialogue is not common enough and the benefits have been substantial. Through this, we have worked hard to examine, codify and share what we have learnt – and these milestones represent the next output from that process. They are neither particularly novel nor are they an attempt at the definitive, but by making them an explicit part of our funding partnerships, we have substantially increased our chances of delivering impact at scale, sustainably through social technology.

Recently, we have had particularly challenging and valuable support from Bill Liao at the Nominet Trust, who has pushed us hard to get in front of more investors with more compelling, specific propositions. The effect of this has been really interesting for us. When you flood your work with feedback from potential investors, it becomes very clear whether or not you are reaching the milestones described above. Sometimes it is a question simply of not being far enough advanced to meet the needs of certain funders and investors, but more often it is either because we haven’t gathered enough data on our progress or we aren’t telling a good enough story about it. The “Bill effect” on Shift, which has upped our rate of monthly investor asks by 4-5 times, is something I would recommend very highly to other social tech teams.

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