THE BLOG
09/03/2007 03:52 pm ET Updated May 25, 2011

22nd Century Philanthropy: High Efficiency, High Leverage

So you're trying to fight cancer, solve poverty, educate children...solve the grand challenges of our day. How would you like to make sure that your philanthropic donation was actually used to solve your chosen challenge? Not to fund attempts at a solution, not to fund ideas, but to fund THE solution that would be known in history books as a pivotal moment when an intractable problem was conquered.

Hold on, it gets better than that. What if your donation caused others to jump on your bandwagon and spend 10 - 50 times as much to lick the problem? It's not a fantasy; it is the economic reality of incentive "X PRIZEs" -- a very efficient and highly leveraged way to drive philanthropic objectives... But more on this later.

There is a growing trend to make philanthropy more results-focused and efficient. Successful entrepreneurs are translating their business savvy into philanthropic enterprises that speak the language of the corporate world: venture capital, ROI, open information. Philanthropies like Google.org and the Skoll Foundation are turning .com success stories into .org business ventures that pay dividends in social benefit -- capitalism for the good of humanity.

The goal of this new generation of "philanthropreneurs" is to get the greatest return on every charitable dollar. To this end, a historically proven mechanism for success is re-emerging -- the "incentive prize."

Incentive prizes are a time-honored mechanism for driving breakthroughs. One of the most famous prizes in history -- the Longitude Prize of 1714 -- led to the development of accurate nautical navigation. In 1919, Raymond Orteig offered a $25,000 prize for the first nonstop flight between New York and Paris. The competing teams spent $400,000 in pursuit of the purse, multiplying Orteig's investment 16x. Charles Lindbergh won the prize in 1927. His victory captured global attention and launched a new aviation industry that revolutionized the way people travel.

Large incentive prizes break through market and government bottlenecks. They reach across national and disciplinary boundaries and attract the intellectual and financial capital required to achieve breakthroughs through innovation. Public competitions shape public attitudes and spur innovation adoption.

An incentive prize for achieving a specific goal stimulates entrepreneurial investment that produces a 10x - 50x return on the prize purse, and at least 100x in follow-on investment and social benefit. It offers foundations and philanthropists the opportunity to complement conventional giving strategies with low-risk, highly efficient, highly leveraged approaches. Best of all, purses are only paid on success.

Prizes are also incredibly liberating for the competitors. Unlike a grant, a prize does not impose budgets, reporting requirements or overhead. It frees entrepreneurs from the constraints they find most limiting. It says, "I don't care where you're from, where you went to school, if you have ever gotten a government grant... If you achieve the goal, you win and get the cash."

By clearly defining a finish line up front, prizes indirectly manufacture breakthrough results. People stop asking "can it be done?" and start thinking "how will we be the first to do it?" In the jargon of science, a paradigm shift occurs. Limits become mere challenges and barriers all of a sudden become breakable. Suddenly it's no longer a question of "if" but rather "when?"

Inspired by the Orteig Prize, the X PRIZE was announced in 1996 to stimulate a breakthrough in spaceflight by offering a $10 million prize to the first privately financed team that could build a three-passenger vehicle and fly it 100 kilometers into space twice within a 2-week period. As it was later titled, the Ansari X PRIZE for Suborbital Spaceflight inspired 26 teams from seven nations to compete and invest more than $100 million in pursuit of the $10 million purse. On October 4, 2004, the Ansari X PRIZE was awarded to Mojave Aerospace Ventures (Burt Rutan backed by Paul Allen) and it's SpaceShipOne, marking the beginning of the personal spaceflight revolution and signifying a renaissance in prize philanthropy.

The flight of SpaceShipOne was ground-breaking in two respects. First, by launching an entirely new industry of private spaceflight, it clearly established that non-government sponsored spaceflight was achievable and practical. Second, it underscored that large, inducement prizes are highly effective tools for stimulating creativity, inducing investment, and spurring innovative and unique answers to challenging problems.

The X PRIZE Foundation's truly unique innovation in philanthropy has attracted the attention and support of many forward-thinking, results-driven change-makers. Larry Page, co-Founder and President of Google put it best: "The success that the X PRIZE Foundation has achieved so far with minimal resources is astounding. It is the kind of leverage that we all look for. The X PRIZE model has huge potential to unlock innovation around the grand challenges that are important to each of us." Page joined the X PRIZE Foundation Board of Trustees to help turn the organization into a world-class prize institute.

The X PRIZE Foundation is now planning to launch $250 -- $500 million in prizes over the next few years. Our demonstrated expertise in identifying the principal impediments to progress -- whether lack of established commercial markets or the need for advances in technology -- uniquely qualifies us to extend the incentive prize model to other important domains that we identify as structurally, culturally, economically or technologically stagnant.

On October 4, 2006, X PRIZE Foundation announced the launch of its second prize -- the $10 million Archon X PRIZE for Genomics. Our goal is to greatly reduce the cost, and increase the speed of, human genome sequencing. This achievement will unleash a new era of personalized, predictive and preventive medicine, eventually transforming medical care from reactive to proactive.

We are currently investigating prizes in other key verticals: education, life sciences, exploration, global entrepreneurship (poverty), energy and the environment.

It is not unreasonable to forecast that with 10 - 15 successful X PRIZEs totaling over $250 million, the combined investment by the competing teams will exceed $2.5 billion, which in turn will result in more than $25 billion in industry development and social benefit. This is ultimately the goal of the X PRIZE Foundation -- to combine the best of philanthropy and entrepreneurialism to produce a better, more efficient mechanism of world-changing.