BY AHAVA ZAREMBSKI
Ahava Zarembski (SAIS ‘01) is a change maker, community builder and former CEO of Sun Buckets, Inc. She is currently supporting startups as a fractional ESG Director as she searches for the next great impact innovation to scale.
From my experience as the CEO of an energy impact innovation startup, I have come to understand several key challenges facing our ecosystem of impact startups. Current frameworks for initial funding make it difficult for impact innovations - designed to improve the ESG (Environmental, Social, or Governance) related challenges facing our world today - to receive the investment they require. In this piece I highlight both some core problems and potential solutions to the difficulties facing impact innovations as they attempt to scale up their operations.
Shortcomings of Transition to Scale Funding
Transition to scale funding for impact innovations is the abyss between incubation and scale given the barriers to securing financial support. Transition to scale funding opportunities for impact innovations exist with private funding giants, which require reports on impact but not on commercial growth. At the same time, many impact startups do not have the financial figures they need to secure support from “investors'' as opposed to “funders.” Today, while funders provide crucial support for innovation growth, they can delay liquidity, negatively impacting the progress of the startups they support. Meanwhile investors, even those providing “patient capital,” demand proof of growth before investing. These dynamics have served to create obstacles for impact innovations that their commercial counterparts do not face, as shown in the Elrha study Too Tough to Scale. In my own experience, the failure of grantors to ask for financial growth models and figures – and lack of mentorship in this area – is a failure by the system that impact innovation startups should be aware of.
Practical, operational, and financial forecasts should be regularly revisited and revised to guide decision-making through collaboration with top accelerators to hone business skills among innovators and expand funding opportunities. A positive addition in this direction is the Humanitarian and Resilience Investing (HRI) Initiative, created by the World Economic Forum in 2019, and the associated CrossBoundary Group Advisory platform. In my experience working with CrossBoundary, the platform stands out for its non-judgemental approach and ability to support innovation at various stages.
Impact Funders Advocate for Innovation to Secure Government Contracts
Collaboration with government agencies and multilateral organizations is crucial for the growth and branding of impact innovations. Unfortunately, in my personal experience, impact innovations face difficulties forming relationships with such stakeholders.
As the leader of an impact innovation startup, I encountered a lengthy six month contract negotiation process with Indian Oil Corporation. Even after receiving approval from the board of directors, the contract was rejected by the Ministry of the Environment. Additionally, my team faced significant challenges when attempting to become a registered vendor in the US government’s System for Award Management (SAM.gov). Although policymakers advised us that our initiatives were well-aligned with their objectives, we found support often ended there.
Often, the world of government contracts operates on the basis of personal connections and networks. Larger companies that have reached a significant scale can afford to establish dedicated advocacy departments. Grantors who invest in scaling impactful innovations must consider adopting similar strategies to effectively navigate the system and maximize their impact, and allocating a budget for advocacy can facilitate the process. Going further, creating government-partner relations departments within funding organizations can help steward contracts and support the growth of funded innovations.
A still relevant 2009 Stanford Social Innovation Review article explores the Policy Innovator funding model, a concept that is helpful to impact innovation startups as it enables them to harness advocacy in order to secure government funding for products and services that are not clearly compatible with existing government programs. However, navigating this process can be complex. I recommend that governments and foundations investing in transition to scale innovations also invest in professionals who will advocate for chosen grantee startups to secure government contracts, helping ensure their scaling and sustainability.
The Black Hole of Shipping Humanitarian Goods
Finally, shipping poses significant challenges for social innovation startups looking to scale. The cost of pre-scaled units and disruptions caused by international crises can halt the flow of raw materials and finished goods, jeopardizing the growth of companies. To overcome these obstacles, organizations can leverage the World Health Organization Emergency Service Marketplace (ESM) and World Food Programs Bilateral Service Provision (BSP) platforms, but gaining entry into these systems can be challenging.
In our attempts at Sun Buckets to connect with the aforementioned government programs, we were denied engagement due to being a for-profit social enterprise.
Advocacy support, specifically linking our innovative startup with multilateral shipping opportunities, could have greatly assisted us. Those of us who have worked with various programs within the United Nations understand that it often requires the dedication of one person to advocate and drive initiatives internally. However, finding that person can be a labyrinth. Grantors can smooth the entry process for impact innovations by themselves entering into collaborations with these services rather than expect already stressed scaling innovations to navigate these bureaucracies themselves.
Similar to the HRI Initiative, a professional initiative is required to bridge the gap for transitioning innovations seeking cost-saving opportunities within NGOs and multilateral organizations.
Conclusion
My experience as the CEO of an energy impact innovation company over the past two years has shed light on the challenges and gaps within the current transition to scale funding model. While impact investors are actively investing substantial amounts of money in search of groundbreaking innovations, there exists a notable disparity when it comes to scaling operations for such startups.
The funding journey for commercial innovations, supported by commercial investors , is relatively clear-cut and well-defined, allowing for a more smooth transition from a quarter of a million to 2 million dollars. However, this transition becomes significantly more challenging for impact innovations, which are driven by the goal of making a positive social and environmental impact alongside financial sustainability.
By addressing the gaps in the transition to scale funding model, we can foster an environment that encourages and enables the growth of impactful solutions. This requires collaboration among impact investors, policymakers, and stakeholders to develop new funding mechanisms, frameworks, and support structures specifically tailored to the unique needs and objectives of impact innovations.
Ultimately, by recognizing and rectifying the discrepancies in funding between commercial and impact innovations, we can foster a more equitable and sustainable transition to scale, propelling the development and implementation of impactful solutions that address pressing social and environmental challenges.
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