USAID microinvesting, incubating aid innovation

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One reason research and development incubators, such as DARPA, are able to bring new solutions to government's problems is that they take on some of risk that a venture capital firm or industry may want to avoid, said Thomas Khalil, deputy director for policy at the White House's office of science and technology policy.

But USAID's development innovation ventures program, which launched in October 2010 to increase investments to innovative solutions, is different, explained Maura O'Neil. O'Neil, chief innovation officer and senior counselor to the administrator at USAID, spoke March 14 at an event hosted by the Center for Strategic and International Studies in Washington, D.C.

The program doesn't fund high-risk, high-reward projects; in fact, USAID Administrator Rajiv Shah sees DIV as a risk mitigation measure, said O'Neil.

"We're being honest and upfront about the questions and the risk and the hypothesis, rather than just going out and doing things and hoping that something will happen," said O'Neil.

In stage one, proposals with a proof of concept can receive seed financing under $100,000. In stage two, teams are required to build the program to scale, get rigorous evidence that its working and at that point, USAID could invest up to about $1 million in the project, said O'Neil. "[For] stage three, we want you to scale it within a country and start it in two or three others and that's $6 to $15 million on average," she added.

Competitions are being utilized more and more across government and have a number of advantages, said Khalil.

"The government only pays if someone is successful. It allows the government to establish a goal, while being agnostic about what is the best way to achieve that goal, and it also helps capture the public imagination," he said.

USAID's chief concern is that DIV programs are scalable and sustainable without U.S. government support, said O'Neil, who called that requirement a "paradigm shift." What's more, USAID could care less whether the program is carried on by the public or private sector--whether the program is transferred to the host country's government, a for-profit entrepreneur.

"Our only rule is that technology transfer has to be actionable. It's not just, we're going to transfer this technology and hope that good things happen...[DIV programs must specify] this is how we're going to scale it, this is what's necessary," said O'Neil.

When a program emerges from an innovation incubator its success can also create problems. DARPA "has to deal with this all the time" said Khalil, because their innovations may disrupt existing programs.

"[DARPA] may be saying, well we can do the same thing, or we can do it better for one-tenth the cost or one-hundredth the cost," said Khalil.

In addition to focusing on challenges and competitions that will get innovative projects off the ground, managers would be wise to have change management strategies in place. One technique used by DARPA is to negotiate a memorandum of agreement with someone at a very senior level, said Khalil.

"So, they try to have a handshake about, 'Alright, if we're actually successful are you going to pick it up and actually provide the support to transition the technology?' So one of the things that you can try to do is pre-negotiate what people will do, once you have a sufficient level of evidence that something works and is considerably better than the status quo," said Khalil.

For more:
- view an archived webcast of the event
- visit the USAID Development Innovation Ventures website

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