Prize Annuity Funds – An Alternative Method to Solving Big Problems

yoav@negevdirect.com 05/28/2008 Fundraising Strategy
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This is a re-post from rafefurst from his blog Complex Adaptive Systems. The blog post is called “X Prize Annuity Funds” and proposes a new system to tackle some very big world wide problems that many non-profits strive to solve today such as cancer, global warming, poverty, etc.

If we going to be ambitious and solve some or all of these overwhelming issues then we are going to have to think big. I think rafefurst begins to do just that in his proposed solution.

I’ve posted this so that some of our non-profit staff readers might get a fresh new insight into problem solving on some of the issues that they face daily.

Here’s the post:

“Big Problems:

There are some very big problems in the world that can be solved but only if there is collective will to do so. Global warming, curing cancer, poverty traps, and so on. Free markets alone cannot get us there because of inherent externalities and insufficient market structure geared towards the problems at hand. One way this has been addressed is via internalizing externalities (e.g. pollution markets). But such an approach requires global political consensus for most big problems. Another approach that obviates this roadblock is to externalize incentives with large cash prizes, ala the X Prize Foundation. What I propose is to set a self-organizing system for the X Prize approach, but for arbitrary problems of interest to a critical mass of philanthropic citizens.

A Proposal:

The basic idea is a series of close-ended prize funds targeted at specific problems with specific fundraising goals. There are three stages: fundraising, pre-award, post-award. In the first two stages the fund returns interest. Once the prize is awarded, the principal is a charitable donation and the fund is dissolved. Each individual investor (be it a person or an organization) receives one vote irrespective of their capital contribution. Each year during the pre-award stage the fund votes on whether the goal has been achieved. Once it has, all claims on the prize are vetted and formal decision process is used to award the prize, possibly across multiple claimants in differing amounts.

Example: Cure Cancer Annuity Fund

Opens in 2010 with the simple goal to “cure cancerâ€
Fundraising target: $10B
Minimum investment: $10K
Interest rate during fundraising: 15%
Fundraising goal is reached in 2013
Fund consists of a combination of 9347 investors
Includes individuals, corporations, charities and trusts
Guaranteed interest rate during pre-award: 5%
Award is adjusted for inflation
Excess returns beyond 5% are dividended out pro-rata
Cure cancer goal vote achieves super-majority in 2020 after creeping up each year prior
Prize is awarded in differing amounts to 34 different recipients
Range is from $4B to $2M
Recipients include individuals, corporations, academic institutions, non-profits and collectives thereof
Decision process is done via percent allocation aggregation:
Each investor gets 100 units to allocation to claimants in any combination
Allocations are added and normalized to 100%
Depending on each investor’s local tax structure they may receive credit for:
Capital contribution post-award
Capital contribution at point of investment
Exemption from tax on interest
etc.

Please note that the above is straw-man example, just a starting point. No doubt the model can be improved upon in many ways.”

Full post here: https://rafefurst.wordpress.com/2008/03/11/x-prize-annuity-funds/

Yoav

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