Perspectives on Innovation

We recently worked with an organization that defines the lean, entrepreneurial startup model - 60° Pharmaceuticals. 60° Pharmaceuticals, run by Geoff Dow and a small team of  advisors, is trying to change the model of drug development for neglected diseases – using crowdsourcing to build virtual teams for specific research projects.  He then plans to invest a portion of the profits from drug sales into further disease research.  He calls it the “Philanthropic-for-Profit” model.  We asked Geoff to talk to us about his organization and his first Challenge, seeking a team to identify an early lead compound for the treatment of dengue fever.

Hi Geoff – thanks for talking with us today.  You call 60° Pharmaceuticals  a “Philanthropic for Profit” company.  Can you explain what that means?

Hi and thanks for the opportunity to share our plans with the Solver community.

I personally believe that the goals of rewarding investors willing to take risks and achieving an important social objective are not mutually exclusive.  I also think there is no fundamental reason that social missions should only be undertaken by 501cs.

From a practical standpoint it means that the company is structured in such a manner that it is feasible to seek a margin that is in line with community expectations given the kinds of diseases we are targeting. There will also be reinvestment of revenue into new neglected disease R+D. I perceive a great desire in the community for drug and vaccine makers to be more transparent about R+D costs and expectations regarding margins. We are thinking these issues through very carefully.

60° Pharmaceuticals has an interesting business model – with very few employees and a heavy reliance on open innovation and incentives to build virtual teams.  What drew you to this model and how has it worked so far?

That’s an interesting story! The team I worked with to write the business plan had a very spirited debate about the Linux model versus the Microsoft model of innovation. What would work better for drug discovery? My personal perspective is that the best ideas come from the crowd, but there needs to be vision and ownership to move a product forward successfully. From a business standpoint I think it will also mitigate risk and keep costs down.

Everyone in the drug discovery and development community knows from personal experience that there is a lot of risk. We have all heard that drug development is expensive and takes a long time. I do think these factors act as a barrier to innovation, particularly for diseases where margins are going to be lower. The way out of that box is to provide a way to reimburse drug discovery and development costs throughout the value chain based on success in reaching development milestones, so that risk and reward are not such binary outcomes. The FDA’s priority review voucher is a step in the right direction, but isn’t a complete solution. Our goal at 60P is to pioneer an incentives-based approach for drug discovery for neglected diseases.

Your Challenge specifically targets dengue fever.  Can you tell us about the disease and the current state of research? (more…)

We recently posted a Challenge with ACCION of Texas (ATI), seeking a way to more accurately evaluate micro-loan applicants who may lack traditional credit history. We asked Veronica Flores-Paniagua, VP of Communications for ACCION, to talk to us a bit about their Challenge and some of the people who will be helped by the solution.

Hi Veronica, thanks for being with us today and talking to our Solvers about your Challenge.  Microlending is a topic that may be new to some of our Solvers – can you tell us a bit about microlending in general, and the people or businesses that typically receive funding in this way?

Sure.  Most people may be familiar with microlending in the Third World, where business loans even as small as $100 can make an enormous difference in a family’s life. The philosophy driving microfinance in the U.S. is similar – lift individuals and, thereby, lift communities. But, out of necessity, domestic microfinance is done on a larger scale. By the definition of the U.S. Small Business Administration, a microloan is any business loan smaller than $50,000.

Why microlenders and not banks?  Two reasons. One: The average loan to ATI customers is about $16,000. Traditional lending institutions typically won’t touch such a “small” commercial loan because the administration of it is not a good value proposition. Two: Banks are regulated and must be more rigid in their standards to protect their assets. As a nonprofit, ACCION can be flexible. We still rely on collateral and character, as banks do. But we look at it differently. Where a bank looks at a minimum FICO score of 680 for a commercial loan, our average customer has a FICO score of 575.

A microloan customer is typically a business owner who’s just starting out. ACCION Texas clients include underemployed and recently laid-off workers who are willing to work but cannot find employment. These potential clients often have the desire, ability, and vision to operate their own businesses, but cannot access capital through a conventional bank loan. ACCION’s borrowers are 85% minority and more than 40% women, two groups that have been historically underserved by commercial lenders.

Can you give us some examples of people who have achieved success as a result of receiving a micro-loan? 

Absolutely.  One success story we like to tell is about Jerry Parker from New Orleans.  As owner of Greater Opportunity Developments, Jerry received an ACCION Texas Inc. loan to buy run-down properties, renovate them back to health and then rent or sell them – leaving neighborhoods in better shape than he found them.  So far, he’s renovated eight properties around the city, replacing blight with hope. He expects to create at least one part-time job, resulting in another small, yet positive change for New Orleans.

Another great story is about Lisa McGrath, who owns Tails Natural Pet Market in San Antonio, Texas.  Lisa’s pet store sells unique products that are environmentally friendly, all-natural or made from recycled materials such as men’s vintage neckties that now serve as doggie collars. Her business helps San Antonio pet owners  make more eco-friendly decisions when it comes to pampering their pets.

McGrath received a loan from ACCION Texas Inc.’s green loan fund to start her business. Tails Natural Pet Market also works with other socially- and environmentally-responsible companies such as its Web-hosting service, Sustainable Hosting, and Dharma Merchant Services, a certified green business that donates a percentage of credit card fees to McGrath’s preferred charity – Alamo Area Partners for Animal Welfare (AAPAW.) Even McGrath’s business cards are made from recycled product packaging.

You can read about some of our other borrowers here.

In addition to providing seed money, you provide training and support to small businesses – can you tell us a bit about that? (more…)

By Simon Schneider, General Manager, Grand Challenges & Head of EMEA, InnoCentive

In the wake of the global financial crisis and ongoing challenges facing the world economy, companies, government agencies, and non-profits need new ways of funding large prizes. There are many instances where organizations come to us with grand problems, but lack the finances to put up the entirety of the substantial prize money they would need. So can we find a new way to fund Grand Challenges?

We’ve started to explore this question by breaking it down one piece at a time, each of which we’ll explore in a white paper. There are of course many different features of the current funding environment, so our first step has been to narrow it down very specifically. We’ve decided to look at what has happened to one of the traditional financiers of early stage projects: Venture Capitalists (VCs).

Driven by the recession, VCs are increasingly financing later stage (and lower risk) projects. This is going to affect many of the projects that our Grand Challenge clients are looking for – as they often need to be launched from the very early stages of development, and look for the crazy, risky ideas to solve a problem that the usual ideas have not been able to solve. Can we draw VCs back into the earlier stages, and into the projects that our clients are looking for?

The idea, which we’ve explored in a recent white paper, is to make a trade. VCs have initial capital, but are also looking to identify profitable opportunities. Prize competitions are an effective tool for generating a lot of great ideas and picking out the best ones, but might lack the initial capital input required in certain Grand Challenge cases. So our concept, Prize Venture, makes a trade of initial capital for identified ventures.

Our white paper has only been a first step in taking this concept forward. We’re already working with some partners to put this theory into application by combining venture capital and prize competitions. One thing that has already become clear is that it is better suited to some industries than others.

There is clearly a lot of potential for such a  model, but it should not be applied to every problem and every field. Our new white paper series is set to explore other aspects of the investment environment, so that we can keep building up a bigger picture of where new funding ideas can fit together with prize competitions. Take a deeper look at the white paper, and keep an eye out as we share more of our findings.

We’re trying out a new crowdfunding initiative, which is still in its very early stages. Here’s what we can share with you already – if you’re interested in knowing more, get in touch!

Do you have an interest in new technologies in smart sensor systems? We’re looking to run a Challenge in this space, and half the funding has already been pledged by a government entity. We are looking for individuals and organizations that would be interested in contributing to the prize fund. Minimum contribution is $1000 and we are looking for a minimum of $50,000 in pledges. This is a great opportunity for anyone who is interested in open innovation Challenges and the smart sensor space, but is not ready to fully fund the project alone. If you’re interested or would like more information, please contact jslater@innocentive.com by April 26th, 2012.

In late March, we announced the winner of the Economist-InnoCentive Transparency Challenge.  Benjamin Skowera, an associate at SEI Investments presented his solution at the Ideas Economy: Innovation event on March 28th in Berkeley, California. The InnoCentive Challenge, which attracted more than 600 problem Solvers and received more than 115 submissions on the InnoCentive website, asked participants to identify an emerging technology or a national or global information platform and propose an innovative way to use this resource to motivate governments to engage in productive and open discourse with citizens.  Below is a video of Benjamin and Matthew Bishop, US Business editor and New York Bureau Chief for the Economist discussing Benjamin’s winning solution at The Economist’s Ideas Economy: Innovation 2012 event in Berkeley, California.