OpenCulture

Funding. It’s a funny old word, which has somehow become woven into the fabric of the UK culture sector, carrying with it a set of behaviours, values and models which are seldom tested. There are funders, and there are the funded. There are funding programmes, grants, calls for applications, initiatives and priorities. We have industrialised the process of distributing public and private money to achieve particular purposes. But what purposes? And is this really the best way to do it?

I was prompted to think about these things by a meeting of the Strategic Content Alliance’s Funding Advisory Council this morning. The purpose of this initiative, funded by JISC and the SCA and carried out by the splendid Nancy Maron from US-based ITHAKA (http://www.ithaka.org/), is to look at ways of connecting UK and US-based funders and helping them ensure that the outputs of their funding programmes are more sustainable.

From the outset, though, this raises an interesting question. Should it be the role of funders to fund sustainability? Can sustainability even be funded? I have long held the view that sustainability is a by-product, not a feature, and that specifically it is a by-product of the extent to which a particular project or product continues to satisfy a valuable use or business case on an ongoing basis.

In this view, it ought to be the role of funders not to ‘fund’ or ’sustain’ (one has to marvel at the tautology in the current crop of short-term ’sustainability’ funds) but to provide initial seed capital which enables organisations to invest in skills, infrastructure, products and services the upfront costs of which they could not otherwise afford to fund. The fund is not a gift, but a challenge - a challenge to the organisation to internalise the value of the product or service and to invest in its future growth and success.

I used the example of the classic 3-year startup model for a new business. I can finance the upfront capital costs of investing in equipment, people and product if, and only if, I can demonstrate that the people lending me the money are more likely than not to see a tangible return on investment in the 2nd and 3rd year of trading. The money is an enabler, but it is also a debt, and the aim is to transition out of debt so that I can grow the business on a sustainable basis.

This is not, however, the model for grant funding - which far too often in my experience sails too close to dependency. Even those funders that make it clear that their investment is a challenge to the organisation to internalise and sustain the resulting outputs, too many of these organisations find themselves surprised and dismayed, at the end of the stated funding period, that the original funder will not be dazzled by their success and pursuaded to reinvest to further build on this success.

Which raises the very real concern that we are simply operating two parallel but exclusive sets of success criteria. The view of success for the funder may well be more mechanical - were the funds distributed, were they spent, were they accountable, were they applied to the purposes set out in the funding criteria. To the recipient, success is usually more explicitly defined in terms of the specific project - does it get done, is it delivered within forecast schedule and forecast budget, is it exciting, interesting or popular with the target audience? The recipient often returns to the funder and asks them to share in their excitement at the ’success’ of the project when the funder is operating a totally different calculus of success and value.

At the meeting, we discussed our experiences of how Venture Capitalists tend to make value judgements about their investments, and particularly how they develop the skill of identifying which early-stage businesses or ideas are more likely to succeed than others. In some senses, it’s a brutally simple set of calculations. First of all, there is the question of whether the idea has a genuine, viable and sustainable market. Secondly, there are the characteristics of the entrepreneur or team responsible for  driving the idea. Are they passionate, are they experienced, are they motivated? Finally, there is the question of how much the entrepreneur is willing to put on the line to make the idea work - in short, how much of the risk are they willing to share? And yet, these are precisely the elements which receive the least attention in the majority of funder’s decision-making processes. Instead, they focus on the eloquence of the application and its apparent fit with the funding criteria, too often treating the idea of ‘match’ funding as an inconvenience, to be dismissed through fiscal sleight-of-hand.

We also spoke about the legacy of the New Opportunities Fund Digitisation Programme, and the way in which it illustrates different value judgements for funders. There is a view that NOF-Digi was a failure - the view that £50m of taxpayer-funded resources are sitting in a cyber-limbo, unloved, unused and gradually decaying. Then there is the equally valid view that NOF funded a once-in-a-generation transformation in the infrastructure, knowledge, expertise and ambition of the entire sector, a transformation which has led directly to the new vision of museums, libraries and archives at the forefront of a Digitally-literate society. Which is right? Both, and neither, of course. Was money wasted? Possibly, but only if you expect the return on the funding investment to be direct and tangible. If, on the other hand, your calculus of success is able to encompass donwstream, long-term, secondary impact then you could argue that the taxpayer’s investment was returned in spades.

But these are really just variations on a theme - they don’t go to the heart of whether competitive grant-funding, in the way we know it now, is really the best way to achieve long-term, lasting improvement for a museum, archive and library sector that is undergoing an epochal transformation.

The cultural funding industry model may have succeeded in the 90’s, in a time of massive Government investment, but as we now know, that model has proved in itself to be unsustainable. So, what might we replace it with? Two options include the model of microfinace, taken from the international development community (examples such as Kiva), and the model of tapered seed capital or challenge funding, taken from several other public sectors.

The microfinance model is interesting because it offers a potential solution to a perennial problem in the UK funding model - that it costs as much to apply for £5000 as it does for £50,000, and sometimes people only need relatively small amounts of money, but find themselves engineering large projects to fit into the model of industrialised medium/large-scale funding. One interesting example in the museums sector is the way in which Museums Galleries Scotland runs its small grants programme essentially as hyper-targeted investments (albeit as grants rather than loans) with a rolling deadline and rapid turnaround to support their community through specific points of transition or development.

It is interesting to set the idea of microfinance for the culture sector in the context of the Government plans for the Big Society Bank. Here, too, the problem is not big funds to big organisations, but small, agile and targeted interventions helping people who are willing to help themselves. I have written elsewhere about how we are moving towards a self-help sector, but it is interesting to look at how the funding model for museums, libraries and archives could morph into something more conducive to this kind of self-starting development.

Historically, the large-grants model has made it difficult for people to adopt the model of fail-once-fail-quickly, rapid innovation which is so widely espoused in the technical service community. The infrastructure and expense of bidding for, administrating and servicing a small grant is often disproportionate to the lightweight infrastructure needed for agile development. Microfinancing technical innovation in the culture sector could offer a way of releasing this specific area of research & development from the constraints of more admin-heavy models.

The second model, of tapered investment, is basically structured around the idea of a managed transition from incubation to the open marketplace. There is a risk that the end of a funding period essentially represents a cliff-face, and that a service or product currently has to make too sharp a transition from a nurtured, protected environment into a competitive one. Tapered investment, on the other hand, gradually withdraws support while at the same time gradually exposing the product to the marketplace.

The interesting thing with this model is that experience tends to suggest that even where you make grant recipients aware that the support will taper and eventually stop, they cling to the idea that it will continue - with the result that a significant number of new services fail at the point of transition.

The final point was to do with failure. although some may find this hard to swallow, it has, for many years, effectively been impossible to fail. Every project has launched with a fanfare, and been hailed as a success within 2-3 months - long before time and the audience have had a chance to test them. We have risked devaluing the currency of success - although recent successes such as the Pre-Raphaelites website from BMAG, A History of the World in 100 Objects from the British Museum and #followamuseum from @museummarketing on Twitter show that real excellence will always shine through. But for every one of these, there has been 20 small-scale services which achieve modest traffic before being quietly ignored into obscurity by their host institution. But failure - of funding applications and of funded projects - is an inevitable part of this environment. The skill is to ensure that we extract value from failure, including by recognising the simple human capital that is generated by getting people to work together on funding proposals.

It seems likely, as a corollary of the economic challenges to which I have referred in previous blogs, that the architecture of funding, developed as it has been over the past 10 years of large-scale (and largely unquestioning) public investment, will need to undergo its own transition in the next 18 months. On the one hand, it will become significantly more competitive, and therefore carry the potential for a far higher failure rate - which means that we need to find more and better ways of extracting value from failure. On the other hand, the industrialised and monolithic process of handing out chunks of £10,000 to £500,000 may need to scale down to become more micro-targeted and agile. At the same time, we may find that funders start to think of themselves much more like charity banks or incubators, providing upfront finance to enable people to do important, exploratory work. Just don’t be surprised if you find them knocking on the door and asking you either to demonstrate real return on their investment, or their money back.

Tags: culture microfinance

This entry was posted on Wednesday, June 16th, 2010 at 3:10 pm and is filed under Business Models. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.