Case studies in funding innovation: Can't do it a-loan How innovation funding helped Kiva launch and develop

Kiva, an online platform that connects lenders and borrowers across the globe, is often cited as one of the most exciting social innovations of the last decade. Here, we look back at the history of how the innovation was discovered and supported.

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Introduction to the case studies

Innovation has long been an essential part of philanthropy. But the process of searching for and supporting new approaches can be messy. The reality is that the path from idea to impact is often long, winding, and unpredictable, and there is no simple, step-by-step methodology for finding and funding new ideas.

That doesn’t mean, however, that philanthropic funders can’t be intentional about the approaches they use to seed and scale social innovation. In our 2014 Stanford Social Innovation Review (SSIR) article “The re-emerging art of funding innovation,”(1) we highlight the ways that the processes, strategies, and structures required to deliberately seek out and support early-stage, breakthrough ideas can be quite different from those used in more traditional grantmaking.

To further illustrate what it really takes to fund innovation in practice, we have developed five case studies that aim to capture the realities of the innovation funding process. Each looks at the process of supporting innovation from a different angle:

  • Reverberating impact: How the Robert Wood Johnson Foundation’s Pioneer Portfolio helped seed and scale Project ECHO dives into how a foundation can help an early-stage idea blossom into something that may grow to be transformative.
  • Can’t do it a-loan: How innovation funding helped Kiva launch and develop looks at the innovation process from the other side, starting with a high-profile innovation and looking back at how it was found and supported by philanthropy.
  • A few wild and crazy ideas: How the Gates Foundation’s Grand Challenges Explorations program finds and funds radical new approaches from across the globe looks at the deliberate processes that one innovation funder has developed to find and select ideas with transformative potential.
  • Keeping cool: How a coordinated ecosystem for innovation supported the growth of Promethean Power Systems explores how The Lemelson Foundation has created the infrastructure and support to help many new innovations develop over time.
  • Diffusing innovation: How an ecosystem-based approach is helping social impact bonds to spread examines a different sort of ecosystem—one designed to help diffuse a potentially powerful innovation more rapidly.

None of these cases alone tells the whole story of what funding innovation looks like; they explore a range of approaches that emphasize very different aspects of the process. But we believe that the collective set of case studies begin to paint a well-rounded picture of many of the processes and approaches that innovation funders can use to nurture and scale new ideas with transformative potential.

It’s important to recognize that these stories are not about the innovations themselves. They don’t explore whether Kiva should actually be considered a truly game-changing financial innovation, or whether the Gates Foundation’s Grand Challenges program should have hit a “home run” already after 10 years of operation. Those are questions for another time and place.

But each of the examples described in the cases is showing important signs of promise, and because creative funders were willing to embrace a different way of working, the innovations have been able to grow from the seeds of ideas to full-fledged experiments. It’s still too early to answer whether they will ultimately prove to be transformative—but it’s clear that if the funders involved had been wedded to more traditional grantmaking approaches, we might not even be able to ask the question.

The innovation processes described in the cases here are inherently complex, full of stops and starts, iterations, and failures. And one of the clearest takeaways looking across the stories is that there is simply no straightforward recipe for funding breakthrough ideas. But the cases do help to illustrate an emerging set of “innovation funding principles” that can allow funders to better identify and support early-stage, high-risk, high-reward projects:

  • Seek out ideas from new places. Finding ideas with the potential to create lasting transformation means reaching beyond the usual suspects to find promising new solutions.(2)
  • Select ideas to support based on their potential for transformation. As Eric Toone, vice-provost and director of the Duke University Innovation and Entrepreneurship Initiative, explains, “When you’re doing innovation, the first question is not ‘Is this going to work?’ but rather, ‘If it works, would it matter?’”(3)
  • Provide risk capital. Many nonprofits and social activists operate with limited resources and are so focused on accomplishing their goals that they have little time and money available to experiment with new ideas. Providing flexible, unrestricted financing that can be used to try new approaches can be critical to promoting innovation.
  • Support innovations with more than money. Virtually all funders try to support the work of their grantees, but early-stage innovations often require an especially hands-on approach to help mold emergent strategies, prototype new concepts, and build necessary systems and networks.
  • Build ecosystems for innovation. Because foundations are rarely positioned or staffed to provide all of the different supports required to help an innovation grow and spread, it is often important to put infrastructure in place that can provide the necessary assistance required to move innovations ahead.
  • Allow for iteration and failure. As Van Jones, a senior fellow at the Center for American Progress, has explained, funders need to “stop giving grants and instead start to fund experiments.”(4) This means building an appreciation for iteration, failure, and learning—it’s not necessary to know all of the answers and outcomes right from the outset.
  • Focus on learning and improving. Funders need to be careful not to mistake wrong turns for roadblocks. Innovations often follow a long and circuitous path, and funders need to balance the tension between “failing fast” and allowing enough time for ideas to iterate and develop.
  • Think about scale and spread of innovation from the start. Innovation funders need to start thinking about scale and diffusion early by recruiting other funders to support later-stage innovation, exploring how to connect innovations to markets, soliciting support from government, and disseminating information and building capacity to help promote widespread adoption of new ideas.

Perhaps unsurprisingly, these principles mirror many of the key elements that were discussed in our 2014 SSIR article related to the sourcing, selecting, supporting, measuring, and scaling of innovation. As we explained in that piece, innovation funding shouldn’t be seen as an alternative to, or replacement for, strategic philanthropy; funding innovation is actually an integral part of good, strategic philanthropy. And we believe that embracing these innovation funding principles can help with virtually all aspects of a funder’s grantmaking.

For many funders though, taking risks on high-potential projects won’t be necessary or appropriate for all of their work. Instead, the principles are better applied to just a subset of their giving activities. And much as financial investors try to build a diversified portfolio—placing the majority of their assets in investments with safe and steady returns, but using a smaller percentage for higher-risk opportunities with the potential to produce outsized rewards—funders, too, should consider using a portion of their resources to support innovation alongside their investments in more consistent and proven approaches.

Eric Schmidt, the former CEO of Google, used to describe what he referred to as his 70/20/10 rule: 70 percent of management’s effort should be dedicated to core business tasks, 20 percent should be focused on projects related to or adjacent to that core, and 10 percent should be dedicated to unrelated but high-potential new businesses.(5) Using this type of portfolio approach allowed Google to focus the majority of its resources on proven strategies that formed the heart of its business while ensuring that it wasn’t missing out on important new opportunities and impact.

For funders, 70/20/10 may not be the right ratio. Each foundation and donor will need to think about its own unique risk-reward profile. But imagine the potential impact if all funders dedicated 10 percent of their giving to experiments that may have a high likelihood of failure but that, if they succeed, could transform a critical system. With so many more ideas being supported, if 1 in 10, or even 1 in 100, of the innovations could succeed, it could change the world.

We hope you enjoy the story of innovation funding that follows, and we hope that it illuminates some of the ways that your organization might embrace supporting breakthrough ideas as part of your funding portfolio in the future.


(1.) Gabriel Kasper and Justin Marcoux, “The re-emerging art of funding innovation,” Stanford Social Innovation Review, spring 2014,

(2.) For more information on this topic, see Gabriel Kasper and Justin Marcoux, “How to find breakthrough ideas,” forthcoming as a blog post in Stanford Social Innovation Review.

(3.) Kasper and Marcoux, “The re-emerging art of funding innovation.”

(4.) Ibid.

(5.) CNN Money, “The 70 percent solution,” December 1, 2005,



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“When we started, we wrote letters to about 35 foundations describing our idea,” says Kiva cofounder Matt Flannery, “but we didn’t get very far with that approach.”1 In fact, only one wrote back.

DUP_1316_A-loan_300x416It’s easy to see why Kiva struggled to gain traction. In 2005, cofounders Flannery and Jessica Jackley were inspired by the promise of microlending and decided to build an online platform that could connect lenders and borrowers across the globe. But they had neither a product nor a market, they lacked formal finance training, and they weren’t even certain that their idea was legal.

Ten years later, Kiva now boasts an online platform with over 1.3 million lenders, who have provided over $600 million in loans to more than 700,000 budding entrepreneurs around the world.2 In its efforts to alleviate poverty and improve lives, Kiva partners with microfinance organizations to find entrepreneurs across the globe, and connects them electronically with investors who lend as little as $25. The platform allows farmers in East Africa to access the capital they need to buy fertilizer for cultivating food, shopkeepers in Honduras to regularly restock inventory, and taxi drivers in Kosovo to upgrade their vehicles. And as the support helps businesses like these grow, entrepreneurs are able to repay their loans, allowing online lenders to recirculate their dollars and make new loans. To date, the repayment rate for loans on Kiva’s platform is over 98 percent.3

But Kiva’s journey from obscurity to mass-market microfinance was full of twists and turns. As Flannery and Jackley struggled to create the organization in their spare time, they needed seed capital for their unproven idea, and they needed help building the organization from scratch. Taking this sort of experimental, early-stage innovation from idea to scale required something different from a traditional grantmaking approach.

While the jury is still out on whether Kiva will ultimately prove to be transformational for underserved communities in the developing world, looking back at the organization’s path to scale and building a better understanding of what it takes to help an organization like Kiva grow can provide important lessons for philanthropists interested in funding high-risk, high-reward ideas.

The beginnings of Kiva

The seeds of Kiva were planted at a speech given by Muhammad Yunus at Stanford University several years before he won the Nobel Peace Prize for the development of microfinance in 2006. Matt Flannery had completed his undergraduate studies at Stanford, and Jessica Jackley was working at the university’s Center for Social Innovation, when, on a whim, she decided to pop in on Yunus’s talk.4

Jackley had long been conflicted by the way charity to the poor had been traditionally described—that the only way to help was to give the poor the things they needed, such as food, clothing, and shelter. Yunus, however, spoke differently. As Jackley recalls, “He was talking about strong, smart, hardworking entrepreneurs who woke up every day and were doing things to make their lives and their family’s lives better. All they needed to do that more quickly and to do it better was a little bit of capital.”5 In March 2004, a few months after hearing that speech, Jackley packed her bags and traveled to East Africa to work for the Village Enterprise Fund to help entrepreneurs start and grow small businesses.6

All they needed to do that more quickly and to do it better was a little bit of capital.

Back in California, Flannery was working full-time but also hatching his own Internet start-up ideas. When he spoke with Jackley, he connected the business issues that East African entrepreneurs were facing with his own experiences. Flannery and Jackley, who had previously donated to sponsor children in Africa through church groups and with their own families, asked what it might look like to “sponsor” a business through loans. Soon after, they created the plans for “an innovative online platform,” Kesho (Swahili for “tomorrow”), with the goal of creating a better future for entrepreneurs and their families.7

During 2004 and early 2005, Flannery and Jackley built out their idea but struggled with a number of formative questions. They weren’t sure whether their platform should be a for-profit or nonprofit, whether they would return interest to their lenders, and whether their model was even legal. In fact, Flannery cold-called the US Securities and Exchange Commission, where a representative said that as long as they didn’t return interest, Kiva would probably be fine.

Pushing forward, Flannery and Jackley created a working online prototype and, with the help of a Ugandan pastor, uploaded pictures and stories of seven businesses that were looking for a total of $3,500 in loans. They officially launched in fall 2005 and changed the start-up’s name to Kiva (which means “unity” in Swahili). Flannery traded his electric guitar to a designer in exchange for creating the new logo for the fledgling organization.8

Things grew quickly for the expanding team. In January 2006, Premal Shah, an expert in mobile payments from PayPal, joined Kiva, providing some of the business acumen and experience needed to help Kiva grow. Along with an army of volunteers, the Kiva team recruited and vetted microfinance partners to distribute even more loans, primarily in Africa. Despite this activity, by the fall Kiva was running low on funds (from the $125,000 it had raised from donations, some from supporters on the website and some from its board). By October, the organization had about $15,000 left in the bank and wasn’t sure that it would be able to meet its payroll in the coming months.9

The first injection of innovation funding

Back when Flannery was writing letters to foundations explaining the idea of Kiva, the one foundation that expressed an interest was the Draper Richards Kaplan Foundation (DRKF).10

The foundation had been established four years earlier, in 2002, by venture capitalists William “Bill” Draper and Robin Richards Donohoe, along with executive director Jenny Shilling Stein.11 DRKF operated differently from most: It was set up like an early-stage venture capital fund—raising resources and investing in new social entrepreneurs with transformative potential, taking a very hands-on role in helping the entrepreneurs succeed.

The foundation was looking into the microfinance space and had its eye out for promising new ideas. Shilling Stein invited the Kiva team in to share its vision. DRKF staff helped Flannery and the Kiva team refine their early strategy, business plans, and financial projections in a process that was at times grueling, but, as Flannery noted, “They actually helped us shape our model.”12 As DRKF grew more comfortable with Kiva’s model and the team behind it, Flannery and Shah were invited to make a formal pitch to the foundation, and, in February 2007, Kiva received its first-ever institutional grant.

DRKF’s grants to social entrepreneurs come with clear guidelines. The foundation will support the organization for three years, giving $100,000 each year in general operating support and often taking a position on the board. After three years, DRKF’s financial support ends, and its board member steps down so that foundation staff can help the next set of social entrepreneurs in its portfolio.

During the initial three years, DRKF works to ensure that the recipient organization can be sustainable after its formal funding period ends. A key step in this process is to help the organization form the right relationships. Shilling Stein joined the Kiva board and worked to help strengthen the group, as well as assisting in the recruitment of additional board members. And the foundation’s investment served as a seal of approval that Kiva used to attract other high-profile philanthropic backers. As Flannery recalls, Draper and the DRKF staff spoke up for Kiva, convincing a number of other foundations that the team was really on to something. Within a year, the organization had received six large foundation grants of $200,000 or more.13

DRKF also helped connect Kiva to people and organizations that could help with necessary operational functions such as accounting, pro bono legal support, communications, and marketing. As another DRKF grantee describes the deep involvement, “It’s not ‘Here’s a check, tell us what you did.’ It’s ‘Here’s a check and tell us what else you need.’”14

Taking Kiva to the next level

For a time after DRKF’s first grant to the organization, Kiva was in both growth and survival mode at the same time. The team measured progress against metrics such as new site users, new borrowers, and new grants and donations to the organization. But really just staying afloat was a win. “Our real goal was to escape death,” says Flannery.15

Other foundations also provided critical support to help Kiva tip the scale toward survival. The Skoll Foundation, whose mission is “investing in, connecting, and celebrating social entrepreneurs and the innovators who help them solve the world’s most pressing problems,” had actually learned of Kiva’s work back in late 2005. But at that early stage, the organization didn’t yet have the evidence of impact required for the type of “mezzanine level” funding that the Skoll Foundation typically provides. In an effort to support Kiva’s early growth and development though, in 2006 Skoll connected the Kiva team to staff at PBS Frontline/WORLD, which was doing a story about microfinance that ended up prominently featuring the new start-up.

The story generated so much traffic that Kiva's website was down for three days.

The story generated so much traffic that Kiva’s website was down for three days. But for such a new organization, the early press was crucial. “I think it was the most important thing that ever happened to us,” says Flannery, “and I’m not sure that we would have survived without it.”16 Later, in 2008, after the organization had built more of a track record, the Skoll Foundation awarded Kiva the three-year, $1,015,000 Skoll Award for Social Entrepreneurship.

Another innovation funder that supported Kiva’s growth was the Omidyar Network. In 2010, after an extensive period of discussion, Omidyar gave Kiva a three-year, $5 million core operating grant to support its growth by improving the organization’s technology platform and expanding its network of field partners.17 The grant, the largest that Kiva had received, marked a new period of expansion. “We had such a scarcity mindset for most of the organization’s history,” says Flannery. “Now we had the luxury to innovate again.”18 Beginning in 2011, Kiva used the new resources to launch a number of new experiments, including Kiva Zip, which allows small businesses in the United States and other parts of the world access to zero-interest loans with a unique reputation-based “social underwriting” system, and Kiva Labs, which coordinates nontraditional, longer-term, or higher-risk loans. Omidyar Network also provided other non-monetary support as well, with Omidyar partner Amy Klement taking a seat on the Kiva board and Omidyar Network’s human capital team providing advice to the organization on senior leadership recruiting, executive coaching, and organizational talent review.

With all of this early-stage risk and expansion capital in place, Kiva now stands on solid ground with a core of 2 million users and $600 million in total loan volume, as well as a series of new experiments to deliver more impact.19

Lessons for funders

Looking back at Kiva now, it is hard to imagine the long, winding, and unpredictable journey that the organization took. And the journey almost never began.

The early forms of Kesho and then Kiva did not fit neatly into a traditional grantmaker’s portfolio. The organization was brand new, it was led by people new to the nonprofit space, and its loan vehicle was only “probably” legal in the United States. Funders using a traditional due diligence process would likely have been quick to write the organization off. That’s why, when funders interested in innovation consider early-stage, high-risk, high-potential ideas, they often need to draw upon a different set of practices and principles than more traditional funders do. Some of the key lessons from the story of Kiva’s growth include:

Consider the stages of the funding cycle. New innovations can take years or even decades to develop from seed to scale. Kiva, for instance, is a Web-based platform that took several years to grow into a sustainable organization. For other innovations that require physical inventions or products, the timeline can be even longer. It is important for innovation funders to remain patient and understand these timelines, although it can also be difficult for funders to commit to funding a new idea for 5–10 years.

Fortunately, it is possible for funders to take on a more bite-sized piece of an organization’s growth by defining where in the funding cycle they want to provide support. For example, when funding Kiva, DRKF made a deliberate decision to invest just as the organization was forming, providing funding and taking a board seat for a limited three-year start-up period. In this way, the foundation helped to “seed” Kiva just as it was forming. Other innovation funders such as the Skoll Foundation and the Omidyar Network still chose to invest early in the organization, doing so within the first five years of its existence, but their role was to provide “growth” capital to help the newly formed organization expand.

Unfortunately for funders, there isn’t a clearly delineated “capital market” structure for philanthropy as there is in the venture capital world. So it can be difficult for funders to figure out exactly when they should step in and when they can wind down their investment. As Jim Bildner, the managing partner of DRKF, puts it, “We’re in the business of taking risk for profound social change. We understand that there are no clear exit vehicles for foundations who invest in these kind of social enterprises, which is why it’s so important for funders like us to play such an active role. Funders in this space need to understand the day one challenges and opportunities they face at the beginning of the investment cycle so that they have a clear transition plan for their grantees to ensure that they’re sustainable and that they grow their brand, build a strong board, and think dynamically about the long term.”20

Get engaged. Looking back at DRKF’s initial grant, while the funding was crucial in helping to get Kiva on its feet, the foundation’s other forms of support were equally valuable. DRKF helped connect Kiva to lawyers, accountants, and media, as well as to other funders. For a new organization with its head down focusing on creating impact, some of these crucial organizational functions can become somewhat of an afterthought. By quickly helping newly formed organizations build these skills, funders can play a more active role in the organization’s success.

It's important for innovation funders to remain patient and understand these timelines.

For DRKF, one critical way that it gets involved in its grantees’ success is by taking a seat on the board for three years. With a short window to help emerging organizations, the foundation finds that it can have the most impact in the shortest amount of time by becoming deeply involved and being a thoughtful voice on the board. And with each successive organization it has worked with in this way, DRKF staff has been able to build experience and provide even more helpful advice and support.21

The practice of a funder taking a board seat, while common in venture capital, is less common in organized philanthropy. That’s because many foundations actually prohibit staff from taking board seats on the nonprofits they support to avoid any potential conflicts of interest when making future grants. And many foundation staff members simply can’t dedicate the time necessary to serve on the boards of the organizations they fund, especially if they are responsible for large portfolios of grants and focus most of their time reviewing grant applications, conducting due diligence, and tracking progress. For many funders, staff time, not money, is the limiting factor. But for those interested in supporting early-stage innovation, assistance often can’t be limited to just making a grant; figuring out how to best provide ongoing support to help recipients succeed is an essential part of the process.

Fund in packs. DRKF is different from many other philanthropic funders in that it raises funds from more than 15 different donors in addition to the organization’s founders.22 This approach more closely resembles a venture capital fund and allows donors to outsource the responsibility of finding and supporting new ventures. The appeal of this type of structure—working through an intermediary to find early-stage ideas and help them grow—was a large part of what fueled the popularity of “venture philanthropy” during the late 1990s tech boom. Today, there are a number of philanthropic venture funds that can help donors with the intensive efforts of growing new organizations, including New Profit Inc., the NewSchools Venture Fund, and Venture Philanthropy Partners.

While these funds can be an effective way to aggregate capital and centralize efforts, they are not right for all givers. Some donors struggle to give up decision-making rights, especially when looking to support specific issue areas, geographies, or approaches that may be only partially aligned with the broader fund’s focus. Additionally, the specific tactics and strategies employed by these funds can be a bit of a black box, making it hard for donors to access learnings or to fully integrate fund investments with their own work. And many donors are looking to support more than a portfolio of isolated solutions, also wanting to address issues at more structural or systemic levels.

Nevertheless, many donors have come to recognize that supporting early-stage innovation is quite difficult, and that it helps to invest in “packs.” Whether using pooled funds, formal or informal funding syndicates, distributed networks, or approaches not yet imagined, funders may find that there is benefit in innovating alongside others.

Balance the people and the idea. When funding new and experimental approaches, it can be hard to weigh the quality of the idea and the quality of the people who are executing, and harder still to understand which aspect matters more. Some open competitions, such as the Gates Foundation’s Grand Challenges Explorations, actually delete any personally identifiable information so that the ideas stand on their own and everyone applying has a fair chance, regardless of who they are. Other approaches, such as the entrepreneurs-in-residence program at the Robert Wood Johnson Foundation or the MacArthur Fellows Program, prioritize the people even if their ideas are only partially formed, or sometimes not formed at all.

According to Shilling Stein, DRKF tended to focus first on people. “With more traditional foundations, it’s about alignment—whether you’re achieving the goals they want you to achieve,” she explained. “For us, it was more bottoms-up. We wanted to fund innovation, and we were pretty open about the direction it headed. We cared about what you did, but we wanted you to follow your passions and instincts about what would make a difference.”23

In the case of Kiva, it was a mixture of both the people and the concept. The idea was groundbreaking, and the entrepreneurial team of Flannery, Jackley, and Shah was a crucial piece of Kiva’s success. It is important to note that timing and context also played a key role in their success. Kiva emerged at a particular moment in history: It was able to ride on the wave of the growing popularity of microfinance when Yunus won the Nobel Peace Prize, the established infrastructure of microfinance lenders that allowed Kiva to grow more quickly, and the increasing ubiquity and security of connective Internet technology that allowed for mass connection and large-scale money transfers. (In fact, the first submarine fiber optic cable connecting Europe, East Africa, and Southeast Asia was only laid in 2000, and was upgraded in 2005.24) In Kiva’s case, it’s hard to say whether the team, the idea, or the timing contributed the most to the organization’s success. But funders looking to support early-stage ventures should think explicitly about the extent to which they are searching for great people, great ideas, or proposals that pass both filters.