Stop Ranking Startups
An imperfect correlation between innovation and awards
I recently won a grant from a fairly well-known philanthropic foundation that I won’t name out of respect for our generous new partners. (But trust me, you’ve heard of them.)
Winning felt good.
Applying did not.
I spent 15 hours typing away at the application. So did another member of our senior team, and we had editing support from a third. Our application was 5,000 words. That’s 5-10 times the length of my average essay here, my readers.
5 other solutions received funding alongside us in the end.
318 applied.
I hate writing grant applications and I hate playing games with bad odds. But I do anyway, because I started a social business, and there isn’t a lot of money out there for companies like mine. 1% of global impact investing dollars go to Kenya where my start-up lives. Most investors in Kenya target mature businesses. So philanthropic capital helps plug the gap that angel and seed investors fill in other markets.
Like our other early stage peers, we go for whatever opportunities we see for capital, no matter how painful the process.
An Asymmetrical Investment
If we think social entrepreneurs’ time is valuable – let’s say they could earn $200/ hour consulting on their area of expertise? – these applications are costing an organization ~$6,000 each time they apply. More, in the opportunity cost of a start-up founder’s time.
And everyone knows that winning money is a numbers game. So all of us are trying to do 10-20 of these applications a year (at least!).
An entire industry of grant writers has sprung up around this problem. From an efficiency perspective, I understand why specialized people should do specialized work. But it definitely means organizations that are better funded and more sophisticated are much more likely to win more money. It takes a lot more than simply being impactful or innovative to be recognized as such.
Scrolling through the public list of entries for this particular grant we bagged, I recognized a bunch of the other entrepreneurs. Many were friends, and people I hung out with at conferences around the world.
We won this time, but a lot of these guys had beat us in other competitions over the years. It didn’t feel like there was one definitively best idea submitted. Yet often, the winners are announced in ranked order at glitzy ceremonies claiming to have found the “best solutions” or the “most impactful businesses” out there.
I’m sure we could separate a pool of 300 innovations into weak / better / best buckets, but by the time you are ranking the top 10%, it really just comes down to the experience and preferences of the evaluation team. What do they know a lot about (that could cause them to be more excited by, or more strict on, certain types of applications). What are their current interests, what do they believe about the future of healthcare? What went wrong in their last grants program (risks they are particularly attuned to, criteria never spelled out in a call for applications).
318 organizations made this $6,000(ish) investment in applying– that’s about $1.9 million spent by healthcare innovators around the world writing 1.6 million words.
A total of $500,000 was awarded back to the healthcare ecosystem.
Towards Rebalancing the Scales
I’ve won grants and other entrepreneurial prizes for my start-up, lost a bunch more, and sat on selection committees to help pick other winners. Fellow substack writers Adam Mastroianni and Scott Alexander have listed in detail many of the problems with grants. There are a lot of structural and institutional reasons why giving away money is so inefficient so much of the time. Definitely check out Adam and Scott’s articles to read more about why it is all so broken.
There are too many problems worth solving to waste time and money trying to give away money. I think there is room to completely reimagine a system of supporting public good. I’ve written about a decentralized model for impact investing in the past. But there are a few baby steps we can take too.
For starters, let’s stop ranking entrepreneurs like they are beauty pageant contestants. This will be the most contentious suggestion I make, since the entrepreneur pageant is often essential to the CSR and PR budgets that fund these programs. But it’s worth asking.
Phased applications are a good way to rebalance the scales. My favorite grant came from Open Road Alliance, who had us start by sending an email with our ask. They asked for just enough information at each phase to decide if they wanted to learn more. They respected our time, and by the time the slightly more cumbersome, custom questions came in we knew we had a good chance of being successful. It was an honest conversation between two potential partners mutually determining fit.
Narrowing scope is also important. No one should be comparing a microfinance program in Pakistan providing goats to female entrepreneurs with a diabetes clinic in Egypt, and then claiming to have found the “Most Impactful Innovation.” Narrow scope should attract fewer applicants. A metric of success I’d challenge funders to take on is to increase their acceptance rates by being specific about what they want.
We can start to chip away at the asymmetrical investments and power dynamics inherent in social startup grants and prizes today. Lots of cool organizations are testing things. Changing things means accepting a little bit of risk along the way, but we can’t risk maintaining the status quo.