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The American Banker in 2012 dubbed Karen Shaw Petrou "the sharpest mind analyzing banking policy today – maybe ever.”  In 2017, the International Monetary Fund referred to her as “one of the most prominent non-governmental voices on financial regulation,” and in 2018 Bloomberg’s banking analyst described her as being “widely viewed by both sides of the bank regulation debate as incredibly smart.” 

Karen Shaw Petrou is the co-founder and Managing Partner of Federal Financial Analytics, Inc., a privately-held company that since 1985 has provided analytical and advisory services on legislative, regulatory, and public policy issues affecting financial services companies doing business in the U.S. and abroad. Central banks, financial regulators, vendors, and financial-industry investors also rely on the firm’s advisory services. The firm’s practice is a unique blend of strategic advice and policy analysis that does not include lobbying or any other projects that would compromise its objectivity and independence. 

Petrou is a frequent speaker on topics affecting the financial services industry. In addition to presentations to the U.S. Congress and U.S. government agencies, she has spoken before such organizations as the Japanese Diet, the Office of the Comptroller of the Currency, various Federal Reserve Banks, the Economist’s Buttonwood conference, the Securities Industry and Financial Markets Association, the American Bankers Association, The Clearing House, the Financial Services Roundtable, the Institute of International Bankers, the Conference of State Bank Supervisors, the Brookings Institution, and many other industry, academic, and policymaker audiences. She has also authored numerous articles in professional publications such as the American Banker and International Economy, as well as general-interest media like The New York Times and Wall Street Journal. Petrou appears frequently in the media as an expert on banking legislation and regulation. 

Prior to founding her own firm in 1985, Petrou worked in Washington as an officer at Bank of America, where she began her career in 1977. She is an honors graduate in Political Science from Wellesley College and also was a special student in an honors program at the Massachusetts Institute of Technology. She earned an M.A. in that subject from the University of California at Berkeley and was a doctoral candidate there. She has served on the boards of banking organizations and sits as a director on the board of the Foundation Fighting Blindness and the Fidelco Guide Dog Foundation.

Every day, all of us read about early-stage success with research curing cancer, restoring vision, healing damaged hearts, renewing mental health, or restoring physical mobility. And each day when we read these stories, each of us thinks of someone we love and wish research could move faster. With more money for high-quality biomedical research, it will. With Bio Bonds, the institutional investors now largely on the biomedical-research sidelines, will finally be able to fund perhaps our most critical social-welfare goal: lengthening life, easing suffering, and facilitating independent, productive living. Legislation now moving through the U.S. Congress could make Bio Bonds a billion-dollar market reality in the next year or so, paving the way to a new social-impact construct in which the billions of institutional dollars now locked out of social-impact investing fund high-quality biomedical research secure in the knowledge that a federal guarantee backs half the risk.

Bio Bond Basics

There are indeed many investors hoping to do good along with doing well with their dollars. Much work is also underway to make it easier to do good with environmental, social, and governance (ESG) obligations by improving disclosures, increasing asset-manager certainty, and creating a clearer legal framework for pension funds and other fiduciaries. However, it will always be challenging to raise real money -- the billions needed for biomedical research, very much included -- if bonds or other financial vehicles do not earn a rate of return close to or equal that of a like-kind investment with a similar risk profile. As green bonds proved, unlocking the key to the financial market’s own demand for money-making instruments creates huge balances of new investments that then accelerate critical ESG objectives.

How did this work for green bonds? Despite the widely-shared goal of reducing fossil-fuel dependence and global warming, funds for sustainable energy-and-environmental programs were scarce until the World Bank guaranteed the first of what we now call green bonds in 2007.1 Depending on how the market is measured, it has grown since then to at least $580 billion in total issuance through 2018.2 The reason for these hundreds of billions is not that sustainable finance suddenly got safer, but that the World Bank guarantee encouraged other governmental backstops that reduced risk to the point that institutional investors believed that their fiduciary duties were satisfied along with their own personal hopes of a greener, cooler planet.  

And, the more knowledge institutional investors gained about green finance with these backstops, the more confident they became, the more the money flowed, and the less need there was for a governmental safety net. The majority of the most recent green-bond issuances are freestanding private-sector capital-market offerings held not only by social-impact focused investors, but also across the entire spectrum of investors looking for the particular risk/return package individual bonds present. The market now is also facilitating efforts to increase the size and depth of the green-bond market, with trade associations in March of 2019 pioneering definitions for loans that ensure that these extensions of credit meet sustainability goals.3

Importantly, green bonds are almost exclusively debt instruments -- that is, the investor takes a stake in a bigger loan to the bond’s beneficiary (i.e., a solar-energy producer). Institutional investors -- i.e., pension funds, life-insurance companies, most asset managers -- are generally reluctant to take an ownership -- i.e., equity -- stake in commercial ventures because of the far greater risk involved. As a lender, you are repaid, or the fund beneficiary is forced into bankruptcy and you as the lender get at least a bit of your money back. As an owner, all your money is gone in the bankruptcy, leaving you little financially but in contrast a lot of residual liability for risks such as any environmental damage the project may have caused in the interim. 

How Would Bio Bonds Work

Starting with a pilot bond program to speed treatments and cures for blindness, Bio Bonds harness billions in institutional capital with the backing of a limited guarantee from the U.S. government. Many nations now have similar guarantees for equity investors in “translational” biomedical research -- that is, research bridging the gap between basic work with test tubes and mice and research demonstrating safety and efficacy in people.4 However, there is no such program in the U.S., in part because the U.S. Government (USG) has a strong aversion to anything akin to an ownership stake in a private venture. This is not only because equity stakes are riskier, but also because U.S. policy is premised on sharper distinctions between public and private finance than is common in many other nations. Yet, the U.S. has a lengthy history of backing guarantees for debt instruments, including the almost $7.3 trillion of mortgages now backed by the U.S. taxpayer5,6,7 energy loans, as well as  those to small businesses.  

As detailed below, the Bio Bond construct works within the confines of U.S. policy to craft new laws to create truly translational funding for under-funded biomedical research -- that is, private capital investment that bridges the gap between direct government spending for basic research and high-return, short-term biomedical-funding sources such as those provided by venture capital (VC) firms. Pending legislation, the “Faster Treatments and Cures for Eye Diseases Act,” is the legislative vehicle that brings Bio Bonds into the market. Here’s how it works.

The Valley of Death

Media are replete with reports that excite hope about dramatic new medical treatments -- “Blind Mice See” or, “First-Ever Patient Cured of Deadly Cancer.” And, then, it seems to and often takes decades before a promising treatment or cure is approved for widespread use. The period between promising basic research and drug approval/commercialization is called the “valley of death” in biomedical circles because it’s where viable research dies all too often not due to a lack of scientific merit, but because of the dearth of funds.  

Federal spending such as that from the National Institutes of Health (NIH) and patient charities fund much of the basic research needed to test hypotheses and then to ready research for clinical testing -- that is, for formulating drugs to test dosage, safety, and -- of course most importantly -- efficacy. But clinical trials cost millions in order to ensure rigorous testing, patient safety, and sufficient sample size.  

And, the more progress a treatment or cure takes, the more it costs -- drug development from initial pre-clinical work to final approval on average costs $2.6 billion.8 Biopharmaceutical and VC firms come in towards the end of this process, cherry-picking the most promising treatments for the largest patient populations requiring the most pills at the highest cost for the biggest impact in comparison to other possible treatments and cures. Most of these firms generally do not come in as the valley of death dawns before a promising biomedical researcher because they don’t lend money; they instead make equity investments that give them ownership rights over a drug or device. These rights are of little value if one has to wait years to know if there will be any return on investment -- the earlier the investment, the greater the return, but the greater the risk -- and then some.

I have seen the quicksand in the biomedical valley of death all too clearly from my perch as a director of the Foundation Fighting Blindness (FFB). FFB is the leading source of private-sector, philanthropic funding for treatments and cures of inherited retinal disease (IRD). Although it seemed for years that scientists had done little more than breed another mouse with another type of IRD for testing purposes, the field has taken off in just the last few years. One reason is not only the personal, family, and economic hardship wrought by blindness, but also the fact that the retina is often called the “window to the brain.” Testing drugs, gene therapy, and stem-cell treatments in the retina is a way scientists can literally see what a treatment does; similar observation in a living brain is often difficult, if not impossible. This has sparked a raft of extremely promising research, but FFB -- despite resources well above those at most patient foundations -- can fund only a small number of the projects its scientists believe could make an important difference.  

At a meeting in which the FFB explored the gap between deserving science and the funding to move it forward, a group of venture capitalists said that, as much as they would like to invest early in the biomedical process, their business model does not allow it. Their investment timeframe is short -- three to five years -- and their return on investment is high -- usually at least 20 percent. Too many projects take too long, cure too few patients, or do so at too low a price to warrant VC investment, especially long before proof of success is readily apparent.

Extensive financial-market research bears this out. Andrew Lo at the Massachusetts Institute of Technology (MIT) has been a pioneer in this field, charting the funding gap for cancer9 and proposing a novel investment vehicle to encourage institutional investors to speed treatments and cures in this life-or-death field.10 However, years after his ground-breaking research, institutional investment remains largely sidelined from translational biomedical research, leaving the valley of death almost as deep and its quicksand almost as deadly as before.

Seeing the Way with Eye Bonds

The following graphic shows one example of how Eye Bonds would work and thus how they chart the path forward to Bio Bonds. The steps below occur after an Eye-Bond has been “floated” (i.e., sold to investors), providing the $250 million of funding used for cures and treatment fighting blindness as discussed below.

1.  A trust is created to lend money to eligible projects selected by the National Eye Institute (NEI) under terms and conditions that prioritize likely cures and treatments and protect the taxpayer. NEI expenses for project selection are reimbursed (say for $1 million) from bond proceeds so that the taxpayer does not pay for any administrative costs. The cost of underwriting and issuing the Eye-Bond (to be determined by rule, e.g. $5 million) are also deducted before proceeds are distributed to researchers, leaving at least $244 million for cures and treatment.

2.  The Eye-Bond has a maturity of 20 years with no interest due until the maturity date. The bond does earn interest at a preset rate (e.g., five percent annually), but the interest payments accrue for 20 years at which time they are payable to the investors. The bond carries a partial federal guarantee equivalent to no more than 50 percent of the principal (e.g., $125 million).

3.  As a loan for a project is repaid, the trust may invest the proceeds in approved securities until the bond comes due and is also free to make loans to a new project deemed acceptable by NEI and the underwriter.

4.  All cash proceeds received from the repayment of an Eye Bond are first used to reduce the amount of principal guaranteed by the government and the government has a senior claim on all assets and collateral under the Eye Bond to the extent the guarantee has not been extinguished. In practice, this means that the trust will notify the Treasury Department at the time when the assets it has in hand are equivalent to the amount of the Federal guarantee of the Eye Bond (i.e., $125 million using the example above). At that time, the Federal guarantee of the Eye Bond principal will end along with any taxpayer risk and the payment of principal and interest to the eye bond investors will come solely from the assets held in the trust.

1. A Limited Focus on Blindness

Ideally, new U.S. law would kick-start the Bio Bonds market as a whole to speed treatments and cures for a wide variety of diseases and disabilities. However, the huge scale of biomedical research, the all-too-many diseases and disabilities it confronts, and the cost of successful research doom so ambitious an initiative from both a political and policy perspective. We know from the financial research cited above that risk to both taxpayers and investors dramatically increases if an investment pool includes a little blindness, a little cancer, a degenerative muscular condition or two, and a few other syndromes of varying causes, patient populations, severities, and likely cures. Perhaps private bonds someday will cover lots of diseases in a single financial instrument, but investor and taxpayer protection now has to come from a targeted group of projects selected by experts with knowledge across a single, but entire field of biomedical research to increase the chances that as many projects as possible will succeed. After projects are selected, a financial institution determines which biomedical researchers want loans to fund these projects, how much makes sense, and whether the borrower has the capacity to repay the loan even if the drug or device doesn’t work. Loans to eligible projects are then crafted into bonds up to a dollar amount small enough to make taxpayer risk acceptable and big enough to diversify risk across a spectrum of different projects aimed at a single outcome: sight in this case.  

And, finally, the bond program must be big enough to make a meaningful difference to patients and their families -- small gains in scientific research are all to the good, but real progress only comes with real dollars. Real dollars are also necessary to get the attention of top-quality financial institutions and deep-pocketed investors. Eye Bonds now and Bio Bonds to come cannot be “one-offs” -- the program must be big enough to create a deep, liquid pool of continuous low-cost, long-term financing for translational biomedical research.

2.  Why Blindness

There’s no particular reason to start with blindness other than we thought of this construct in connection with the challenges facing the Foundation Fighting Blindness. We know, though, that to prove the viability of this new biomedical-financing instrument and at the same time limit taxpayer risk, we need to start with a clear target: i.e., one over-arching syndrome in which varying causes work through similar mechanisms known well in a defined biomedical field. Eye Bonds legislation picks one well-defined field -- ophthalmology -- and establishes a high-quality source of expertise -- the National Eye Institute (NEI) -- as the arbiter of projects ready to move from basic to translational trials that would then be funded by private investors backed by a federal guarantee.  

Vision research has the advantage of subsuming many types of causes -- injury, diabetes, neural damage, structural defects -- and many possible cures -- drugs, gene therapy, stem-cell treatments, and even whole-eye transplants. Severe vision impairment and blindness also have many sufferers -- an estimated 4.24 million adults in the U.S. alone.11 Blindness also has a particularly pernicious impact on economic independence for both older Americans fearing loss of independence due to reduced sight and younger people struggling to succeed in the work force. 70.5 percent of working-age blind adults are not employed full time,12 with vision impairment costing the U.S. economy an estimated $138 billion per year.13 

With NEI (part of the NIH) picking scientific projects, Eye Bonds solve for the cost of selecting top-flight research. By focusing on one field, Eye Bonds ensure both measurable risk and diversification, enabling the structuring of viable financial instruments. However, Eye Bonds meets investor demand in one other critical way: the government backs debt, not equity stakes in biomedical-research firms. An equity investor wins or loses it all if a biomedical project succeeds or fails; a lender gets its money back as long as the researcher has the capacity to repay. This makes the cost of funding lower and bond terms can be for a longer time period. Importantly, the final cost of a drug or device is likely to be less because long-term -- not high-risk, high-return -- funding backed a treatment or cure.

3.  A Billion Dollar Guarantee for a Five-Year Trial

Pending legislation, the Faster Treatments and Cures for Eye Diseases Act, reflects all of the facts above by sending up a trial balloon that, if it floats for investors and the federal government, will prove the Bio Bonds proposition. The bill authorizes a $1 billion Eye Bond program over five years with the following key terms and condition:

  • Eye Bonds would start up during the first year in which a set of tough rules would be set by the Department of Health and Human Services (HHS) in concert with the Department of the Treasury and, in several cases, the Securities and Exchange Commission and bank regulators. These rules -- which will be tested by annual reports to Congress from the General Accountability Office (GAO), demand strict adherence to statutory taxpayer-protection provisions along with a single-minded focus on curing blindness.
  • Over the next four years of this five-year pilot, as much as $250 million in Eye Bonds per year will be issued for a total of up to $1 billion in eligible instruments. The legislation expects these to be bonds comprised of loans to numerous eligible researchers, but terms and conditions are not detailed to ensure flexibility to identify ways to attract investors without increasing taxpayer risk. One unbreakable rule, though, is that bonds are issued by private financial institutions under the rules described above, not by the Treasury, avoiding any confusion with direct USG obligations.
  • As noted, the National Eye Institute, an arm of the National Institutes of Health, will pick the projects eligible for Eye Bond funding. It won’t determine a borrower’s capacity to repay -- the financial institution underwriting the bond would do that -- but it will survey the entire landscape of U.S. vision research to pick the projects most likely to treat and cure blindness or severe vision impairment. Many of these projects began with basic funding from NEI. As a result, Eye Bonds leverage the taxpayer’s intellectual capital in biomedical research to ensure that great science isn’t left behind due to scant funding.  
  • Each bond would be backed by a full-faith-and-credit USG guarantee for as much as 50 percent of the principal amount of the bond. As payments from borrowers come in, these would be set aside, with investors entitled only to proceeds above and beyond any risk taxpayers absorb.  

4.  Negligible Federal-Deficit Impact

As the Eye Bond legislation was crafted, a lot of thought went into how it will be “scored” -- that is, judged for purposes of its federal-budget impact. With the U.S. deficit growing to record heights, the less a proposal costs, the better its chances of enactment.

It is likely that the Eye Bond legislation would score at only a small cost to the U.S. Treasury, if indeed it is deemed to cost anything at all. There are start-up costs -- i.e., those for writing the rules and for setting up NEI’s project-selection process (which might well include outsiders with translational-biomed expertise). However, bond proceeds in the first year would pay back any such appropriation and bond proceeds going forward would do the same for still smaller administrative expenses. The costs of the private financial institution underwriting the bond and the “trustee” managing it on behalf of the taxpayer and investors also comes from bond proceeds, as is usually the case with fully-private financial instruments.

The big risk of course is that some or all of the 50 percent guarantee gets called. For this to happen, losses first would have to be more than half of the bond principal since, as noted, investors are only entitled to be repaid by the USG for $50 out of $100 of principal if things go awry. Losses of this magnitude are unlikely to happen due to the diversification and focus of the bonds (see above), but there are also additional buffers to protect both investors and the taxpayer. The most important of these derives from the fact that the financial instruments in an Eye Bond are most likely to be debt and debt must be repaid even if the project being funded fails to meet its goals. Equity investors only win if a drug goes to market; secured lenders are repaid no matter what and take steps to obtain the collateral securing their bonds if payments fall short. Should this occur for a borrower within the Eye Bond debt pool, the bond trustee would move in, require the borrower to repay, or receive bond collateral -- e.g., intellectual property -- to honor at least some of the outstanding obligation. In short, it’s like your mortgage -- fail to pay and the bank gets your house.

Curing Blindness and Beyond

Top ophthalmic scientists have told me that a billion dollars will cure blindness for almost every patient in no more than 10 years. This would of course be a miraculous sight, and not only in the U.S. Worldwide, there are at least 36 million blind individuals and another 217 million with moderate to severe vision impairment,14 with the obstacles to economic independence even more formidable for many outside the U.S. A cure to blindness would also open the world’s beauty to those who have never seen it before and those who remember it all too well despite subsequent vision loss. Surely, this is an important social-welfare objective on par with sustainable energy, affordable housing, enhanced education, and many other worthy focuses of social-impact finance and federal spending.

To gain this hope of vision, the worst that can happen to investors is that they lose 50 percent of their initial principal investment -- a high cost, but one that happens every day in the financial market. $500 million is a miniscule drop in the institutional-investment bucket, which amounts to more than $93.8 trillion worldwide.15 The worst that can happen to taxpayers is that we lose $500 million, a lot, but again a minuscule portion of a federal budget of $4.5 trillion of planned spending in fiscal 2019.16 

What’s the best that could happen? It’s even better than just curing blindness. Successful Eye Bonds will pioneer Bio Bonds and Bio Bonds will speed treatments and cures for much of what ails us. Wouldn’t that be something. 

Works Cited

1 Hagan, Shelly, “Green-Bond Sales Surge Toward Record as Borrowers Burnish Brands.” Bloomberg. July 18, 2018. Accessed March 20, 2019.

2 Pronina, Lyubov, “What Are Green Bonds and How ‘Green’ Is Green?” Bloomberg Businessweek. March 24, 2019. Accessed March 26, 2019.

3 Loan Syndication Trading Association (LSTA), Loan Market Association (LMA), and Asia Pacific Loan Market Association (APLMA), “Sustainability Linked Loans Published.” LSTA. March 20, 2019. Accessed March 27, 2019.

4 Shaw, Matthew and Drake Palmer. Overview: Translational Biomedical Research Funding in Advanced, Market-Based Economies. Washington: Federal Financial Analytics, 2018. Accessed March 20, 2019.

5 Federal National Mortgage Association (Fannie Mae), Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Fannie Mae. Form 10-K. February 14, 2019. Accessed March 27, 2019.

6 Federal Home Loan Mortgage Corporation (Freddie Mac), Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Freddie Mac. Form 10-K. February 14, 2019. Accessed March 27, 2019.

7 Ginnie Mae, “Ginnie Mae MBS Outstanding Increases to $2.056 Trillion.” Ginnie Mae. March 18, 2019. Accessed March 27, 2019.

8 Sullivan, Thomas, “A Tough Road: Cost To Develop One New Drug Is $2.6 Billion; Approval Rate for Drugs Entering Clinical Development is Less Than 12%.” Policy & Medicine. May 6, 2018. Accessed March 20, 2019.

9 Fagnan, David E., Jose Maria Fernandez, Andrew W. Lo, and Roger M. Stein, “Can Financial Engineering Cure Cancer?.” American Economic Review: Papers & Proceedings 103(3) (2013). 406-411.

10 Das, Sonya, Raphael Rousseau, Peter C. Adamson, and Andrew W. Lo, “New Business Models to Accelerate Innovation in Pediatric Oncology Therapeutics: A Review.” JAMA Oncology 4(9) (2018). 1274-1280.

11 Varma, Rohit, Thasarat S. Vajaranant, Bruce Burkemper, et al., “Visual Impairment and Blindness in Adults in the United States: Demographic and Geographic Variations From 2015 to 2050.” JAMA Ophthalmology 134(7) (2016). 802-809.

12 National Federation of the Blind, “Blindness Statistics.” National Federation of the Blind. Updated January 2019.

13 Wittenborn, John and Daivd Rein, “Cost of Vision Problems: The Economic Burden of Vision Loss and Eye Disorders in the United States.” (Presentation, Prevent Blindness America, Chicago, IL, June 11, 2013). 58.

14 World Health Organization, “Blindness and vision impairment.” World Health Organization. Updated October 11, 2018.

15 Segal, Julie, “The Asset Management Industry is Getting More Concentrated.” Institutional Investor. October 29, 2009. Accessed March 22, 2019.

16 Amadeo, Kimberly, “FY 2019 Federal Budget: Trump’s Budget Request.” The Balance. March 13, 2019. Accessed March 22, 2019.

Author bio

The American Banker in 2012 dubbed Karen Shaw Petrou "the sharpest mind analyzing banking policy today – maybe ever.”  In 2017, the International Monetary Fund referred to her as “one of the most prominent non-governmental voices on financial regulation,” and in 2018 Bloomberg’s banking analyst described her as being “widely viewed by both sides of the bank regulation debate as incredibly smart.” 

Karen Shaw Petrou is the co-founder and Managing Partner of Federal Financial Analytics, Inc., a privately-held company that since 1985 has provided analytical and advisory services on legislative, regulatory, and public policy issues affecting financial services companies doing business in the U.S. and abroad. Central banks, financial regulators, vendors, and financial-industry investors also rely on the firm’s advisory services. The firm’s practice is a unique blend of strategic advice and policy analysis that does not include lobbying or any other projects that would compromise its objectivity and independence. 

Petrou is a frequent speaker on topics affecting the financial services industry. In addition to presentations to the U.S. Congress and U.S. government agencies, she has spoken before such organizations as the Japanese Diet, the Office of the Comptroller of the Currency, various Federal Reserve Banks, the Economist’s Buttonwood conference, the Securities Industry and Financial Markets Association, the American Bankers Association, The Clearing House, the Financial Services Roundtable, the Institute of International Bankers, the Conference of State Bank Supervisors, the Brookings Institution, and many other industry, academic, and policymaker audiences. She has also authored numerous articles in professional publications such as the American Banker and International Economy, as well as general-interest media like The New York Times and Wall Street Journal. Petrou appears frequently in the media as an expert on banking legislation and regulation. 

Prior to founding her own firm in 1985, Petrou worked in Washington as an officer at Bank of America, where she began her career in 1977. She is an honors graduate in Political Science from Wellesley College and also was a special student in an honors program at the Massachusetts Institute of Technology. She earned an M.A. in that subject from the University of California at Berkeley and was a doctoral candidate there. She has served on the boards of banking organizations and sits as a director on the board of the Foundation Fighting Blindness and the Fidelco Guide Dog Foundation.


More and more organizations are trying to influence the systems that are responsible for social problems. Developing impact strategies for system change can be challenging, though. In fact, one of the first questions in that process turns out to be one of the hardest: which system do we want to change, and in exactly which way?

Ashoka Globalizer is an accelerator program that helps advanced social entrepreneurs from around the world develop strategies for systems change. Many of these entrepreneurs have decades of experience with the systems that they work in. Even in these cases, it often takes several weeks to identify the specific systemic levers that we want to focus on with our strategies. By sharing the thought process of some of these social entrepreneurs, we hope to help other organizations identify the right system change goals for them.

We ask four questions to evaluate candidates for system change goals, in increasing order of priority:

  • How costly is it to achieve this goal (time and effort needed, and risks involved)?
  • How beneficial is this goal (improved health and outcomes of the system)?
  • To what extent can we use the unique strengths and assets of our venture to promote this goal?
  • Does the goal align with our values and motivation?

Given that we are dealing with complex, adaptive systems, trying to quantify the cost/benefit ratio of system changes is a fool's errand. Still, there are ways to get at least a rough sense of how different candidates compare. For example, a superficial change in a low-level system that is blocked by a dogmatic debate] is less attractive than [fairly deep change on a national level that might be achieved with a swift campaign.

A rough sense is also sufficient when it comes to the organization's strengths. The actual strategy is still to be defined, so it's hard to say exactly how relevant specific skills or relationships will be. We like strategies that allow social ventures to better leverage existing strengths for a particular systems change with only manageable adjustments to their current approach. That doesn't mean that we shy away from developing new skills, knowledge, and relationships. We just might not want to focus on a policy change as a systems change goal, if the venture has no advocacy skills, no relationships to decision makers, and no credibility when it comes to conducting studies and making policy recommendations.

Finally, and most important, we look at the values of the social venture and the personal motivations of the team members. This might seem counterintuitive, and it took us a while to realize this. The reason is simple, though: it's astounding what small social ventures can do if their approach is aligned with their values and motivations, and it's similarly astounding how little progress is achieved when there is a mismatch. Fortunately, most social entrepreneurs are aware of this and will reject any potential system change goal that might make sense on paper but does not resonate with them on a personal level.

Let's take a look at an example to see how these criteria play out in practice.

Meditech, founded by Dr. Rubiano, is improving the emergency and trauma care systems in the Andean region. Trauma care is a critical part of health systems. Colombia, for example, has 300,000 victims per year of severe trauma and a mortality rate of 50 percent. Andrés suggests that an effective trauma care system could reduce the mortality rate to 30 percent, which would save 60,000 people per year in Colombia alone.

During the strategy process, we considered three candidates for intended system changes. The first was better protocols for different steps of the trauma care paths in the Andean region, like recommended first aid procedures and initial checkup routines when patients arrive at hospitals. In systems terms, this would be a change in the rules and norms that regulate behavior, as well as better flows of information. This option got high ratings for all four criteria and soon emerged as a favorite:

  • Cost/benefit: good protocols have been shown to reduce error rates and improve health outcomes significantly in many fields, including trauma care. Copying protocols from Europe or the U.S. would not work, because health systems in the Andean region often lack the infrastructure and the medical equipment that these protocols require. Still, because of these examples, many stakeholders already believe in the value of protocols, and there would already be data to build upon. Better protocols can also lead to improvements quickly, and these improvements are easy to measure. Andrés and his team are confident that these data and success stories can be used to create traction and accelerate adoption without having to intervene at many institutions directly.
  • Unique strengths: Meditech has the experience, credibility, and connections to advance that goal. The organization helped create several other intermediaries and was even called the "founder of the emergency care system." Founded in 2001, Meditech also has a strong track-record of conducting scientific studies, as well as experience with developing protocols.
  • Values and motivation: Andrés and his team love the idea of protocols. Meditech's values include being scientific and driven by evidence, and the team wants to work with partners on an ecosystem level.

The second candidate for a systems change goal was to use the time and emotional support of patients' friends, families, and communities to ensure better rehabilitation after patients are released from hospitals. In systems terms, this would unlock a new resource to the system and allow new types of actors to assume the role of caregivers. The team quickly discarded this candidate based on a simple insight: improvements early on in the trauma care path have much more effect on health outcomes compared to improvements later on. Compared to better protocols, the benefits of this systems change would be low. Since there was also no obvious way to achieve this goal much more cheaply than the protocols, it just couldn't compete in terms of costs and benefits.

The third candidate was to turn firefighters into better first responders for trauma incidents. The team first discarded this goal based on a quick cost/benefit analysis: in contrast to hospitals, reaching firefighters would involve a grassroots approach, and even if this effort was successful, it would only cover a small part of the pre-hospital segment of the trauma care paths. This decision didn't feel right for the team, though. They had been working with firefighters for many years. The connection is so close that Andrés was named an honorary member of a national firefighter association for his contributions. The team particularly admired voluntary firefighters, as they have a genuine motivation to save lives, often without getting any compensation. Since Meditech was in a unique position to work with firefighters, and because this aspect of their work was important for the team on a personal level, we decided to include it in the strategy after all. We then realized that there are strong synergies between the goal to turn firefighters into better first responders and the goal to improve medical protocols: by working with firefighters, Meditech might be able to improve issues in the hand-over stage from pre-hospital to hospital care that also applies to other groups like ambulances. Also, the strategy for improved protocols would involve researchers, training institutions, NGOs, and many other stakeholders. Many of these partners work in the pre-hospital part of the trauma care path, so the existing relationships to firefighters might get pilot projects and local networks started more quickly. Finally, in the context of these pilots, firefighters would secure buy-in from local communities. This is because firefighters are respected members of these communities, and because the changes in procedures are very tangible and produce better outcomes quickly.


Many of the social entrepreneurs that we work with have decades of experience. Even in these cases, it often takes several weeks to identify the system change that we want to focus on. It's worth it, though: a clear system change goal allows for a robust impact strategy and often leads to a greater sense of focus and purpose in itself. In order to have that effect, potential system change goals should be evaluated not only in terms of costs and benefits, but also in terms of the venture's unique strengths and the team's values and motivations. 

We hope that these four criteria will help you find the right system change goal for your team as well!

Notice that all three candidates for Meditech's intended system change are very specific -- better protocols, a new resource, and an extended role --, and refer to very specific sub-systems -- the trauma care paths in the Andean region. In another article [], I discuss the advantages of these "Targeted System Changes". In "Mastering System Change" [], Seelos and Mair discuss one advantage of this approach in more detail: by focusing on relatively small changes in specific sub-systems, there is less risk of doing harm, and more opportunities to learn and adjust one's approach as needed.]

As part of The Social Innovations Journal’s special series, “The Social Innovations Finances Series,” Social Innovations Partners’ President Mike Clark interviewed leading bank analyst Karen Shaw Petrou to discuss her vision for the eradication of blindness and vision impairment through Eye Bonds and the future potential of this new fiscal instrument to partner groundbreaking research with needed financial support to change the future of health care.

Q: What are Eye Bonds? Can you explain the concept, how they are structured, etc. 

A: Eye Bonds would be new financial instruments authorized by new law to provide a limited federal guarantee to make it possible for institutional investors to fund projects, speeding treatments and cures for blindness. The legislation creates a five-year, $1 billion pilot to test this new construct and, if it works for blindness, pioneer a new way to speed treatments and cures across the spectrum of disease and disability.

Q: Why are the needed? How did you come to this solution? 

A: Eye Bonds and, more broadly, the Bio Bonds we hope come next, are needed because, quite simply, disease and disability are an urgent human and social-welfare problem that has yet to be advanced via innovative funding. There is now a deep, long “valley of death” between federal and philanthropic funding for basic research and the late-stage trials that prove whether a drug or device is safe and effective. All too much great science gets lost in this valley, delaying or even blocking treatments that would ease suffering, prolong life, and enhance independent living.

Q: What will help to make Eye Bond a reality? Our series is called IF (Innovation Finance). Finish this sentence: If (blank) happens, then Eye Bonds will become a reality (could be legislation, investment, etc.)…

A: Eye Bonds will be a reality if authorizing legislation is enhanced into law. Bipartisan legislation to do so is being introduced in the House and must then move through passage on the House floor and Senate consideration. President Trump would then need to sign it into law. At each of these steps, advocacy from patients, families, foundations, the financial industry, and public will make an amazing difference making this happen.

Q: If Eye Bonds are successful...what will that look like? What will the social impact be? Could this instrument be applied to other research fields? 

A: If Eye Bonds are successful, scientists tell us that the $1 billion of additional funding may be enough to cure blindness in a decade. That would be awesome enough. However, successful Eye Bonds will craft a new financial instrument useful across an array of disease and disabilities. As a result, quick action on many problems would result.  

For more information on the future of Eye Bonds and the full interview listen to the podcast here.

At Ashoka, we work with social ventures that try to solve social problems in new and creative ways. Unfortunately, it is still hard to mobilize the support that effective social innovations need to change the systems that are ultimately responsible for these problems in the first place. Social entrepreneurs, donors, and intermediaries need to ask themselves: how can we fight the root causes of social problems rather than merely treating the symptoms?

Aim for System Change

Many interventions work directly: a need is met with an offer, like hunger with soup or problems at school with mentoring. Direct interventions are easy to understand, seemingly low-risk -- and thus attractive for donors. Unfortunately, the soup and the mentoring program rarely change the systems that are ultimately responsible for hunger and deficits at school. As important as direct services are, they tend to only touch the tip of the iceberg. If we want to improve the situation in the long run, we need to look below the water surface.

Unfortunately, this is where things get muddied: different systems and root causes are intertwined, and it is not always clear what kind of intervention might have a positive impact. We found that social entrepreneurs who want to improve social systems and who try to deal with these complexities need a special type of support.

Consider GESINE Intervention, a program that helps doctors, hospitals, schools, youth centers, and teams in public administration to detect gender-based violence and to respond appropriately. Founder Marion Steffens says,“We know how to work with each type of stakeholder. Now we need funders who want to work with us long-term to bring these different pieces together in more regions across Germany.” An initial investment is needed in each region to align schools, hospitals, youth centers, and administrators behind a shared vision and to build a culture of collaboration. Once such a network is established, the whole system operates much more effectively. Because the impact of this approach is indirect, it is perceived as less tangible and riskier than helping victims of gender-based violence directly. In other words: what makes the program successful on a systems level also makes it a bad fit for many donors.

Steffens has a second request: “Invest in evaluations!” Studies can give credibility to a new approach, which is important to help it spread and institutionalize. This effect can be much greater than simply implementing a model at a new location. Again, these studies are hard to fund, because their impact is more indirect, and because studies are often allocated to "overhead costs," which many donors try to avoid.

Building networks and conducting studies are two of the most common types of systemic initiatives that social entrepreneurs find hard to fund. Here is another example. Annette Habert, founder of the nonprofit Flechtwerk 2+1, prevents relationship breakdowns between parents of children who live in different cities after a divorce. The organization connects parents who visit their children in other cities with volunteer hosts, which reduces the costs of the visit. This offer is easy to explain as it provides a benefit to parents directly. It only tackles a small part of the problem, though. Where does a father go with his two-year-old on a weekend, when many places suitable for children are closed? Flechtwerk wants to make rooms at Kindergartens available for that purpose. Some Kindergartens are already indicating support, but don’t know how to pay the staff that is needed to open their doors on weekends. A donor could set up a fund that repays this expenditure to 200 or so Kindergartens for one year. Habert is convinced that one year of support would be enough to achieve a small but relevant system change: parents would voluntarily take over responsibility, work rosters for cleaning staff would be adapted to allow them to open the doors on weekends, and some city councils would also chip in financially.

Nobody knows if these changes would actually happen. Funding systems change always involves uncertainty. The potential upside is very attractive, though: a currently underutilized resource in the German education system might help thousands of parents each year on an ongoing basis with minimal additional costs. Funding systemically involves identifying levers for change and taking risk to give these levers a try.

Promote Indirect Impact!

Once a system change goal is defined, the question becomes: how this goal can be achieved in the most efficient way? We looked at a range of successful social entrepreneurs in our global network and found a common principle: the focus of the strategy needs to be on indirect impact.

Take WASH United, an organization that helps local governments in developing countries implement proven interventions for better access to clean water and sanitation. For this work, Wash United needs experts in the fields of interaction design and communication. “This approach and the cost for these experts doesn't fit with traditional funding strategies," says Thorsten Kiefer, founder of WASH United. “It would be easier to find partners if we worked directly with the people who ultimately benefit from our work. But we want to enable local actors to do this job -- and to do it on a much bigger scale than we ever could.”

Helping replicators or making an approach openly available under a free license are only two examples of how indirect impact can be achieved. Money that is invested in these kinds of strategies often generates much more impact than allowing organizations to grow to reach more people directly.

Fund Long-term and Without Restrictions

Changing social systems usually requires quite a bit of time. This is true even if that change is relatively small and targeted, like unlocking underutilized rooms in the German education system or improving common practices in the rural water management system in India. This is why, after thorough examination, Ashoka grants social entrepreneurs a life-long membership to the Ashoka Fellowship. We believe that, likewise, donors could achieve more impact on a systems level by supporting promising social entrepreneurs on a long-term basis. 

Long-term financial support becomes even more powerful if it is granted without restrictions on how the money can be spent. Give teams the freedom to do what they believe will have the greatest impact, and to adjust their approach if needed. Promote transparency and reflection -- for example via the Social Reporting Standard -- while acknowledging that system change requires constant listening, learning, and adaptation. Short-term commitments and rigid restrictions make system change work unnecessarily difficult.

Great support for system changing social entrepreneurs rests on three pillars: a clear systemic goal that is shared between the donor and the social venture, a strategy that focuses on indirect impact, and long-term support without restrictions.

Laura Haverkamp and Odin Mühlenbein work for Ashoka, the world’s largest network for social entrepreneurs ( examples mentioned in this article are based on selected Ashoka Fellows from Ashoka's global network.

This article first appeared in a similar form in DIE STIFTUNG in August 2018. Translation by Odin Mühlenbein with help from Michael von Straaten.

As we think about the theme of this issue -- “Social Innovations in Community Civic Engagement: Parents as Consumers of Education?” -- we might do well to start with several questions:

  • Why do educators need to be engaged with parents?
  • From their perspective, why should parents want to be engaged with you? What do they want from being engaged?

Spend a minute or two to reflect on these questions. Then, perhaps jot down your responses.

As experts, either through formal (e.g., professional) expertise, or through personal (lived) expertise, we almost always have normal, knee jerk answers to the questions proposed, let’s rethink those answers.  

Let’s start by rethinking what we mean by engagement (either civic or community), as well as how that rethinking may lead us to the steps we need to take to bridge what Daniel Yankelovich calls “the expert-public gap.”

The Metaphors of Engagement1

The term “engagement,” whether “civic” or “community,” or any of a number of other possible modifiers, is a metaphor that brings different images to different people’s minds. When I’ve asked people what image comes to mind when I say the word “engagement,” I get three different kinds of answers:

  1. There are responses that bring to mind what I would call rules of engagement, a phrase that conjures up images of the military, or the 2000 movie with that title. Rules of engagement are essentially rules that govern the conditions under which -- times, places, and ways -- soldiers may come into contact with the other side, the enemy. They are designed to maximize one’s control over the situation, one’s own safety and, if necessary, inflict the greatest damage on the other.
  2. There are responses that bring to mind the image of gears engaging -- two or more objects coming together as part of a larger mechanism. When those objects come together correctly, the mechanism works well. When they don’t, there’s a terrible grinding experience.
  3. The final set of responses this term brings to mind, is of images of people getting engaged to be married -- what I’ve come to call “reciprocal engagement.” In reciprocal engagement people come together with a sense of reciprocity -- of giving and getting, of both teaching the other, learning from, and learning with the other. In reciprocal engagement all parties are engaged with others in ways that brings the others in as collaborators or co-constructors.

The Expert-Public Gap2

Daniel Yankelovich, once referred to as the “Dean of public opinion polling” and co-founder with Cyrus Vance of the Public Agenda Foundation,3 has argued that there is typically a gap between the public and formal experts in any field. This gap is created because experts tend to view the world through the lenses of their area(s) of expertise -- education, economics, public policy, technology, etc. -- while the public tends to look at the world through the lenses of daily experience. This leads to three kinds of differences between the ways experts and the public view the world, which I will briefly illustrate using education as a focus:

  • Different points of departure:
    When thinking about curriculum, school leaders tend to focus on grade-level curriculum or on how students will move through the curriculum from year to year. Parents, on the other hand, tend to concentrate on what their child needs now or is learning at any given moment. 
  • Different/confusing uses of language:
    When talking about curriculum, and sometimes when talking about how students are progressing from grade to grade, educators may talk about scope and sequence, or about scaled scores on standardized tests. At best, such language is opaque to parents, at other times it can alienate parents who really want to talk about whether their child is succeeding or not, or how much progress their child is making, often defined by a teacher-given grade.
  • Different notions of what counts as a solution:
    When describing school or grade-level improvements, educators often work to provide programs that serve the needs of most, if not all, children at a given grade level, or who are experiencing different kinds of challenges. Parents, on the other hand, focus on whether the program engages their child(ren) in day-to-day experiences that help their child experience daily success.

These gaps are not insurmountable but closing them requires experts to change their perspective about, and approach to, parents.

Closing the Gap through Reciprocal Engagement

There are three broad reasons to engage with others, each of which is associated with a different metaphor of engagement: 

  1. To inform them, or tell them things we want them to know -- most often associated with “rules of engagement;” 
  2. To get feedback from them, or hear their response to our directions, suggestions, or requests -- most often associated with mechanistic engagement or gears engaging; and 
  3. To build common ground or areas where we can work together so we can all be more effective in achieving individual and shared goals -- most often associated with reciprocal engagement.

It should be clear that reciprocal engagement requires that experts shift their relationship with parents, adjusting their language, eschewing expert terminology in favor of using words and concepts that connect with parents’ experiences. They must also work to understand and connect with the parents “points of departure” -- often, where parents’ concerns come from. At the same time, experts must work to understand what parents believe are acceptable solutions. Doing all of this can help close the expert-public gap. 

Engagement as a Platform

One implication of closing the expert-public gap by moving to reciprocal engagement is the notion that such engagement creates something like a social platform in which “consumers” or “customers” and “producers” are interchangeable -- think Lyft or Air BnB.4

In the model proposed by Van Alstyne, et. al., producers create the platform’s offerings, while consumers buy or use the creator’s offerings. In Lyft, for example, someone may be a driver on one day, but a rider of Lyft the next. Or I might stay in an Air BnB offering in one city, while someone else is staying in my house as an Air BnB user at the same time.

While the platform analogy to education is not perfect, talking about reciprocal engagement as creating a kind of platform in education might well be instructive.  

The normal, pipeline view is that educators are the producers and that students go through the pipeline and come out a finished product (e.g., with a diploma). Students, or perhaps their parents, consume the service provided by the educators. Engagement between producers and consumers is either on the “rules of engagement” or “gears engaging” model.

If we think about shifting to a “reciprocal engagement model” we ask how and what educators, students, and teachers can give and get from each other; what they teach to, and learn from with each other. Indeed, great educators at all levels -- pre-K through graduate level -- will often say they learn as much from their students as they believe their students learn from them. And one of the premises of having students, parents, and educators together at meetings to develop and assess progress on Individual Education Plans (IEPs) is that each actor has lots to learn from the others. Together, they collaborate on, and co-construct, not only the student’s learning plan, but the instructional plan of the educators, as well as co-construct the way the parent-student-teacher relationship will evolve to support those plans.

The Pottstown School District Example

We see this emerging in the Pottstown Early Action for Kindergarten Readiness (PEAK) program in the Pottstown School District and community. Over the last three years, we have been working with them to create opportunities for reciprocal engagement among teachers and those parents/families who have been least engaged with district/community education programs. As part of this work, we’ve worked with the district to create a “family advisory council” (FAC) composed of interested, but disengaged parents/grandparents. And we’ve worked with the FAC to create “Let’s Talk” forums in which parents come to talk with each other about specific issues -- e.g., bullying, behavior at home and school, homework, social-emotional learning, special education, and more. Each forum starts with a short presentation from the district after which participants break into small groups to talk about what they heard and what that might mean for their behavior and for the way they work with the school district. The FAC develops recommendations for parents and for the school district based on the results of those forums, recommendations which are then discussed, and when appropriate, implemented by the district. In this relationship, it’s difficult to tell who is producer and who consumer, who is the expert and who is a non-expert. 


Rethinking what we mean by engagement can lead us to rethink the roles of producer and consumer in education. Focusing on “reciprocal engagement” can, in turn, lead us to think of education as a platform in which the role of consumer and producer can shift among students, parents, and educators so that rather than thinking about buy-in, we think about the ways in which they become partners in co-constructing the educational experience of each. 

1 Sokoloff, Harris. “Engaging the Public: How school boards can call for community involvement in important school decisions.” American School Board Journal, September 2001, pp. 26-29.

2 Yankelovich, Daniel. Coming to Public Judgement: Making Democracy Work in a Complex World.  Syracuse University Press, 1991, pp. 91-98.


4 Van Alstyne, Marshall W., Parker, Geoffrey G. and Choudary, Sangeet Paul “Pipelines, Platforms, and the New Rules of Strategy.” Harvard Business Review, April 2016.

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