How to run a Lab: making better funding decisions
This is one of a series of blogs reflecting on how Nesta’s Innovation Lab works and what we’re learning about our craft. In this blog we reflect on five lessons we've learnt about how to make better funding decisions when you're backing innovation.
How to run a Lab: making better funding decisions
Over the past four years Nesta’s Innovation Lab has worked directly with hundreds of organisations to help them generate, develop and test ideas that they (and we) hope will make the world a better place.
We’ve covered fields as diverse as digital education, health and the arts. And we’ve worked with partners from schools to GPs surgeries, community groups to national charities, early stage social entrepreneurs to government departments.
We support those innovators in lots of ways (the subject of a future blog), but most of the time it involves small amounts of finance, usually in the form of grants.
It’s a big part of our method. Not all “labs” around the world use financial support as a way to stimulate and support innovation. We do.
It means that a big part of our job is selection. Put another way, a big part of our job is saying no and disappointing smart, capable people.
In a world of scarce resources and imperfect information we have to take choices about where to allocate money. Over the years we’ve definitely got some things wrong and hopefully some things right.
Here are five things we’ve learnt about making better funding decisions when backing innovations.
Ideas matter, teams matter more
Most of the time we set out to find ideas that address a problem: how can we get more kids coding, how can arts organisations use technology to reach more people, how can we help people live healthier, longer lives.
Of course, we’re interested in the ideas, but what we know is that even the best ideas don’t stand a chance if they aren’t owned by a strong team.
So we put more effort into the people behind the idea; we don’t rely on paper based applications; we need to know we can work together too.
We’ve tried different approaches. Pitching sessions are useful, but you need to allocate enough time to get beyond the pitch and have a conversation; and one conversation is never really enough.
We create opportunities to meet teams even before they apply, like workshops that bring together people working in the same field. For our Rethinking Parks programme we held events around the UK (and webinars for those who couldn’t travel).
For those who make our shortlists, we take up references and speak to customers, partners and other funders. And we’ve learnt the value in staging our support, with relatively small initial awards and more substantial backing if the idea and crucially the team, shows promise.
One area we haven’t cracked yet is how we manage changes in the teams we back. Great diligence doesn’t count for much if key people leave as soon as we’ve signed the grant agreement.
Information has a cost
Getting the balance right between having enough information to take good decisions and minimizing the wasted human effort from unsuccessful applications is a constant concern.
When over 900 organisations submitted expressions of interest to the Centre for Social Action Innovation Fund we were both delighted and horrified. It was great to see that the fund had struck such a chord, but at the same time we knew that at least 850 of those applications wouldn’t be taken forward.
One way we try to minimize the cost to innovators is by being clear what we are looking for when we open a programme or fund. That carries its own risks with many talented fundraisers out there with a gift for telling us what they think we want to hear. What we really want is to understand the innovation, the team behind it and the potential for impact.
One technique that seems to work is conference calls where we answer questions and clarify our goals before we ask teams to tell us their proposals. This seems to lead to a higher proportion of quality applications and less wasted effort all round.
We’ve also tried to lower the costs with a much lighter expression of interest stage now commonplace before full applications. That has led to some disappointment when people feel we haven’t allowed them to explain their idea, but on the whole it has been welcomed.
Every contact should aim to add value
One of our guiding principles is that every contact with Nesta should add value to the innovators, even if we don’t back them. If we’re taking up their valuable time, they should feel it was a good use of it. We know we don’t always achieve it, but it’s the standard we aspire to.
Often that’s about designing the selection process in a way that increases the knowledge or skills of the teams applying. We’ve held workshops on how to prototype and test ideas, connected people with coaches and experts, and supported teams to develop their theory of change. All of which we’ve done before awarding any funding. Our capacity is limited, but we think this is something we should be doing much more routinely.
We also add value by orchestrating the knowledge about what’s already happening, like with our living maps of ageing, jobs or parks innovators. One of the reasons we introduced video applications on the Innovation in Giving Fund was to create a rich online resource that people could use to find out what else was happening and who they might collaborate with.
Feedback is one of the ways that we know we can add value, but the reality is that we don’t have the resources to give detailed feedback to everyone who applies to us for backing. Instead we’ve started to publish feedback explaining why we took the decisions we did for a programme or fund (e.g. on digital makers) and this is something we will be doing much more in future.
Reach out for different perspectives
Getting the right criteria is important, but the truth is that most of our decision making is about judgement.
We back innovations and that means that we have to embrace uncertainty and risk. We haven’t found a simplistic formula that we can apply to our selection processes (if you know of one, please get in touch). What we do know is that we get much better decisions when we seek out different perspectives.
At the team level, this means that every application is reviewed by more than one person and we make sure deliberation and moderation happens throughout. We spend a lot of time debating and challenging each other’s logic.
We also pull together amazing panels of advisers and experts to help us take good decisions (like this one on Social Action).
Across all of our programmes, prizes and funds we draw on a wide body of talent from outside Nesta, including people with direct subject matter knowledge and expertise, entrepreneurs, funders and others who help us assess the viability of the idea and the plausibility of the team.
We’ve also experimented with peer review – where teams review and score each other’s proposals – and other methods of getting feedback from customers, peers and the general public. We haven't got this right yet, but we're still trying out different methods. Watch this space.
Expect iteration, know when to walk away
The one thing we know about the innovations we support is that they will change. Feedback from users, commissioners and other funders should drive teams to make their services and products better; the policy environment is rarely stable; and – yes – sometimes an unexpected opportunity for partnership or a change in direction will present itself.
Too often funders of early stage (particularly social) innovations try to lock them down. It's one of the differences between giving grants and making investments. The trick is in balancing the certainty you need for accountability and the flexibility to allow innovations to evolve and pivot towards (hopefully towards greater impact).
There’s no magic to this, it’s about staying engaged and working with the teams you’re backing to understand what’s happening and checking that your goals remain aligned.
Sometimes the right thing to do is walk away; never easy after you've invested not only money, but your time and reputation into an innovation. It's not something we ever do lightly and sometimes we have definitely stuck with an idea or a team for longer than is we should have. But stopping funding an innovation is just as important a decision as choosing to fund it in the first place.
Helen Goulden and Philip Colligan co-lead Nesta’s Innovation Lab