Outcomes-based financing

Overview

• What is Outcomes-Based Financing?

  Outcomes-based financing, such as Challenge Prizes, provide demonstrated returns on federal investment for small and medium sized enterprises, and help Government programs to deliver better results. Outcomes-based financing shifts the focus from paying for activities and outputs to paying for outcomes and impact, and issues payments only when outcomes have been accomplished. This market-based approach supports Canadian innovations by attracting capital and scaling in the global economy, increasing competitiveness. Impact Canada has primarily worked in the area of using Challenges to advance outcomes-based financing in the Government.

  The Outcomes-Based Financing team helps partners execute initiatives that reward innovators who deliver solutions to problems that matter to Canadians. Through our five phase approach, we provide end-to-end expert support to design, launch, and evaluate innovation competitions called Challenges and other outcomes-based financing initiatives that have a track record of producing measurable results, developing made-in-Canada innovations, and catapulting early-stage enterprises.

  

• Why it matters

  

  Our initiatives pay for outcomes, not promises. Instead of providing funding for future expenditures and activities, we use financial and non-financial incentives to reward measurable achievements. Outcomes-based financing initiatives fill a gap in the Government's policy and funding toolkit by leveraging Grants and Contributions to:

  • Produce high-performing solutions,
  • Stimulate new small- and medium-size enterprises, and
  • Ensure demonstrable results for Canadians.

• What we do

  

  An open and competitive approach to innovation

  Challenges crowd-in innovative ideas and solutions from a wide range of actors—including many who have never previously applied for government funding. A 2022 Impact Canada survey found that 63% of business applicants were first-time applicants for government support, reflecting how Challenges attract new talent and fresh perspectives. The structure and process of our Challenges make them more accessible and appealing to a broader pool of innovators than traditional Government funding programs.

• How we work

  We typically take a five-phase approach to our outcomes-based financing initiatives in order to provide our partners with expert end-to-end support and maximize results.

  • 

    1 Understand

    Identify and define the specific problem that the initiative will seek to address.

    • Select a policy priority
    • Conduct discovery research
    • Undertake stakeholder identification and engagement
  • 

    2 Design

    Set the design parameters that will support the most effective delivery of an initiative.

    • Selecting and structuring the type of initiative
    • Setting timelines, including stages
    • Determining eligibility criteria
    • Establishing assessment criteria
    • Setting incentives
  • 

    3 Test

    Validate the final design elements (testing is an iterative process that also occurs throughout the Understand and Design phases).

    • Engage with key stakeholders to select a final design
  • 

    4 Implement

    Launch and deliver the initiative.

    • Create a communications and engagement plan including the website
    • Develop the application form and applicant guide
    • Open applications and provide support
    • Jury selection of semi-finalists, finalists and winner(s)
  • 

    5 Evaluate & Scale

    • Measure initiative impact on societal, economic, and/or environmental outcomes: Federal organizations report and collect information on the impact our initiatives have had on achieving their broader objectives.
    • Evaluate initiative as a public sector instrument: In partnership with Statistics Canada, we conduct a horizontal impact assessment of our initiatives using quantitative and qualitative data.
    • Prepare plans for scaling and support execution: Support winners and finalists through Government of Canada off-ramps in order to ensure that solutions get beyond research and development.

• Added benefits

  

  Raise public awareness, engagement, and transparency

  Our initiatives raise public awareness by shining a spotlight on important policy issues. They also serve to enhance transparency and democratic decision-making by incorporating external perspectives into initiative design and applicant evaluation. We expand collaboration by engaging new partners from private, academic, and non-profit sectors often overlooked by traditional government funding programs.

  

  Big and bold ambitions

  Challenges are open competitions that use a mix of incentives to encourage innovators to demonstrably improve on a given outcome the Government wants to achieve. We use them to tackle problems where solutions are absent or underachieving, and they are especially effective at reaching for big ambitious goals. Incentives are typically structured through a stage-gated approach in which the most promising participants receive tailored incentives at different stages to accelerate their progress towards the goal.

• Types of initiatives we support

  

  Challenge Prizes

  Offer an outcomes-based funding award to whomever can first or most effectively meet a defined challenge or solve a specific problem according to a set of verifiable and pre-determined criteria. They focus on attracting innovators to help accelerate progress to address an identified gap – such as a lack of innovation in a particular area of the market.

  

  Pay for success

  These initiatives use performance-based funding approaches to drive measurable outcomes. This includes models such as base-plus-premium funding, social impact bonds, outcomes contracts, and microfinance. In each case, funding is tied to the achievement of specific results, aligning financial incentives with impact to improve effectiveness, encourage innovation, and reduce risk for funders.

  

  Competitive Accelerators

  Provide intensive and time-limited business support for cohorts of early-stage enterprises (e.g. start-ups). A creative application of challenges in an accelerator context sees prize funding (financial incentives) layered into traditional accelerator business supports to create a pull mechanism to reward enterprises that make the greatest progress towards a stated goal.

  

  Indigenous Innovation Initiatives

  Generate solutions inspired by Traditional Knowledge that can have meaningful, positive impacts on Indigenous communities. Borrowing elements from Challenge-based approaches, they rely less on competition and favor a more holistic, community-oriented frame that values interconnection and communal values over individual "wins." We partner with Indigenous experts to address barriers and explore ways to effectively accommodate cultural perspectives with sensitivity, humility and compassion.