In part one I set out why impact investing and models of social funding that are based on our westernised industrial growth mindset are unhelpful at best. They lead to both funder and fundee dancing to an illusionary tune to prove that they are both doing good in the world. The former wants certainty around the introduction of new ideas and the latter offers it despite both knowing this can’t be the case. 

Having set up, run and generated learning from a new initiative, the recipient organisation is caught in a double-bind. If the new idea has been proven to be effective it requires additional resource. As we have seen this means the work is now a much less attractive investment proposition. And it is certainly not a viable proposition if the initiative hasn’t been successful. Perhaps it’s even worse than that because in reality it doesn’t matter what happens to the project, the funder will always want something new to invest in. Time, energy and expectations are dashed on the rocks of orthodoxy. How can we change the way this game is played?

The more strategic game here is to use the funding to develop a close and trusted working relationship with the funder so that they continue to invest in the organisation’s initiatives; you focus on developing a reputation as a ‘safe pair of hands’, an organisation that can be trusted, that is a viable investment bet because it is well run, operates great processes, learns through its work, invests in its staff, and so on. All of these, though, are core costs, which are usually even less of an attractive funding proposition than investing in what works. Yet to not invest in those running costs of an organisation is to neglect the maintenance of the aircraft while asking it to fly new and increasingly uncertain routes. Or, to put another way, an arrow shot from a bow arcs true towards the target; trim off the fletchings in the name of efficiency, though, and it will snake wildly off to one side then the other before plummeting to ground with the target a distant dream. We neglect our foundations at our peril. 

Still, there is little to no funding available to help organisations develop their foundations. The capacity to help the organisation learn and continuously improve, share that learning, train and develop its staff, research into what works, monitor and evaluate its work, and so on. It can be challenging to persuade funders of the need to add a percentage to the delivery costs of a project to cover these overheads. Full cost recovery is hard to achieve. But it is the stronger and well run, well aligned organisations that offer a safer bet for funding, as it is in reality the organisation we invest in more than it is the idea itself. The stronger organisations get stronger as they attract more funding and can invest more in these areas. 

Organisations that are not so lucky, perhaps without a high public profile, multi-million pound endowment, or which don’t have aspirations of growth, are left to forage for funding regardless of whether this is in the fundee’s area of expertise. They may undertake some strategic contortions, selling their core work as in some way new and innovative, or pivoting to new initiatives. At an extreme, they will drift away from their founding purpose as their de facto strategy becomes to shape-shift to meet funder’s changing requirements. All of this stems from the prevailing paradigm/belief system which assumes that we can buy solutions and specify what they look like. We make this assumption not only because it is what we are taught but also because to think otherwise is to recognise that sometimes we might not know what is needed. This is perhaps the biggest challenge to overcome. There are two main reasons why we might not know what is needed. 

The first is a result of the power dynamic mentioned in part 1. What legitimacy does the funder have to specify what the fundee should do with the resources given them? How close is the funder to the problems they are trying to address? Simply creating a specification can be a process of control, an instrument to reinforce top-down, hierarchical power imbalances that centre one set of solutions at the expense of others, often sidelining local community innovation and indigenous wisdom from the potential solutions available. We see this in the international sector with aid agencies and governments, and the same dynamic plays out in the with Government funding into UK communities, and so on. 

The second reason that we might not know what is needed is the complex nature of the challenges we are investing in. I’ve written before about commissioning in uncertainty and what an alternative might look like, founded on the core insight that not all problems are created equal. Sure, many challenges can be resolved, for which we can thank the scientific method. We have a road system for personal transportation, accounting procedures to pay bills, operations to replace defective hearts, satellites to provide us with communication, and so on. However many of our challenges are a result of complex, adaptive systems. Think about your own fitness, the culture of an organisation you belong to, or the global economic system. If we want to change them we can’t specify a solution because we can’t ‘solve’ for fitness or culture by identifying and fixing a constituent part. Sure, we can intervene – run more, amplify the behaviours we want to see, or change interest rates. But just when we think we’ve got things where we want them we realise that sense of stability was just an illusion. Instead we need a continuous inquiry, an ongoing endeavour. This is not something we can capture in a specification for work or a job description because to do that assumes an end game to be reached.

This is why we need a systems-informed approach to funding. This in turn requires alternative approaches and tools created from a different viewpoint. One that recognises our focus on a complex system must be on generating learning and insight. This in itself is a noble investment. One that also recognises we can level up the power dynamic by experimenting with new forms of collaboration that generate this learning and insight. The role of funders shifts to be less hierarchical and transactional and more supportive and relational, aligning with their recipients to work together to understand the system and the challenges they are mutually interested in. 

Funders and investors can further leverage their position and power in more constructive ways, not to subvert or control the fundees but to share and amplify their insights, to mobilise for systems change, draw in more funding and so on. They might think about investing in core programming and activities, in strengthening organisations individually and collectively, perhaps supporting network-building to create resilience across the sectors we are most interested in. We certainly need to ensure that we are not asking organisations to run at a loss while they are meeting our stringent requirements, which is what happens when overheads and core costs are not adequately accounted for and funded, or when we might ask for pro bono or in kind contributions from our bidders too. To so this is to double-down on the extractive, competitive and controlling world view that ultimately serves no-one. 

I’m looking for those who are working to a broader account of value, a deeper set of relationships and a more collaborative approach. Dark Matter Labs for one are doing deep work in this space, and there will be others. Perhaps these are signs of hope that we can rethink and reinvent what it looks like to truly address some of the most pressing issues in society.