Giving Compass' Take:

• Third Sector Capital Partners explores the Pay For Success model for government-backed social programs, and makes the case for exploring less traditional avenues of funding.

• The upshot is to educate those who may be hesitant about outcomes-oriented contracts. What can we do to make sure impact investors know what they're getting into?

• Here's an example of how Pay for Success works in action: trying to make bail reform a reality.

The Pay For Success (PFS) field is evolving from initial Social Impact Bond-style projects launched by governments and supported by third-party (i.e., non-government) funding to agency and multi-agency engagements that shift the practice of how existing public funding streams are deployed for specific social programs. Across these projects, traditional cost-reimbursement service contracts are being amended or replaced with outcomes-oriented contracts.

Scaling the systems that implement these new outcomes-oriented contracts for urgently needed social service programs requires funding, but some of the original funders who supported early project SIBs are “waiting on the sidelines” to see if real outcomes are validated from these original investments. Meanwhile, the above transformation is proceeding and new private and public funders are needed. Third Sector believes that if we can demystify the work stages and risks involved in broader outcomes-oriented engagements, we can demonstrate a number of new funding opportunities that might appeal to both new and traditional investors and align with their respective investment guidelines.

The future market for outcomes-oriented contracting initiatives with governments is going to be expansive. While very exciting for our PFS field, we’ve pointed out here that funding liquidity beyond traditional funders has to improve at early development stages of these projects for a sustainable long-term market to be achieved. We hope that this first blog will encourage new investors to consider the impact opportunities and learn how to address the real challenges for investing in an outcomes-oriented contract world.

Read the full article about funding for government social programs by Aurelle Amram and Rick Edwards from Third Sector Capital Partners.