Thursday, December 1, 2011

Venture Capital Approaches for Aid

The U.S. Agency for International Development has launched the Development Innovation Ventures program to apply venture capital approaches to innovation in development. The idea is to use these methods to accelerate development outcomes while reducing the cost.

A model is to learn from the methods used in Silicon Valley and other innovation corridors that have fostered private sector innovation at blazing speed for decades. They could be useful in accessing the new capital flows in the developing world. Both academic testing and the venture finance models should jump the foreign assistance fence and become part of standard practice – a new development paradigm. 

The Innovative Ventures concept uses staged financing much like the Angel Investors in the Silicon Valley. DIV starts with small amounts of money to source and test promising ideas. Once the proof of concept is done, a little more is invested to find out if the market will actually adopt this innovation. And only then, once there is clear evidence that the innovation is working, larger amounts are invested to widely deploy the solution. 

It does not matter whether the innovation is planned to scale through the private or public sector. The emphasis from the beginning is that the idea must have the potential to improve the lives of millions of people and be sustainable in the long term without continued infusion of donor dollars. 

In just one year of operation, USAID is already seeing impressive results through DIV. One innovation is showing a 97 percent reduction in a self-test for the second most common reason moms die in childbirth. Another reduced fraud in the polling centers where it was deployed in elections last year in Afghanistan. Based on these results, it was used in the Ugandan elections with similar success. 

Maura O'Neill, the Chief Innovation Officer for USAID, writes in a recent Devex blog that "We know if we are to continue our quest in the development community to get cheaper, faster, more sustainable development outcomes, we need to grab great ideas from wherever they come. We need to seek real evidence that they can work at scale. We look forward to others building on the innovative financing methods so we might all learn together. Millions are counting on us. Time is not our friend. What methods are you finding that work?"

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