i-lab Resident Spotlight: Instiglio

Photo: Richard Howard

Imagine you’re rushed to get from Cambridge to Back Bay for a job interview. Instead of taking the T, you jump in a cab going down Mass Ave and breathe a sigh of relief when there’s no traffic. But while crossing the bridge, the cabbie stops short; the bridge reaches to within 150 feet of the banks of the Charles, but no further. The bridge was never completed; the construction company was paid by the government up front but walked away after completing 90 percent of it. You’re left just where you were before the project was ever started.

This is unthinkable to us, but it happens throughout the world. Insufficiently aligned incentives between governments and contractors result in incomplete, or even un-started, projects. It even happens in the United States—sure, not with bridges, but with social services.

And while some have a shared sense of defeat and wash their hands of creating change, or make minor adjustments that are akin to putting a Band-Aid on a foot-long incision, others believe that what is needed is a transformational change in how the game is played.

This is where Instiglio sees itself; refereeing a game change. It’s a company that focuses on incentivizing key players in social systems to own the social and financial benefits of their actions. They take pay-for-success social impact bonds to developing countries. Under these contracts, Instiglio raises investment capital to identify and scale up proven programs that work. If those programs delivered the promised outcomes, governments pay Instiglio, enabling Instiglio to return the money plus a return on investment to its initial investors. Governments pay only for success, service providers get more money to scale their programs and investors get access to a new investment that enables them to make money while still doing good.

“The service provider has to take a bet. You’re actually only getting paid if it works,” says Instiglio Founding Partner Mike Belinsky. And the government is paying a prize instead of a fee. “It’s like, if you can avoid us [the government] incurring that cost, we’ll share the savings with you,” he explains.

Instiglio would find the best contractor and create higher accountability standards by more stringently requiring feasible plans from them, and loan them money to complete the project. The government would only pay when the project is done with the desired result achieved—for example, the bridge built. Now think about taking this model and applying it to youth violence in Colombia, or HIV/AIDS in Botswana—or wherever money is going but is not tied to the right outcomes. They want to be the middle man in the intersection of academics, policy makers, and businesses.

“We could just be an organization that goes to the government and explains this,” says Belinsky. “The goal is to put us in a rough spot. Let’s actually get paid on outcome.

“We have social goals, and we can bring in the business world to accomplish this goal. We have a predominantly social goal, and they have a predominantly financial goal and we can use social impact bonds to do both.

“Our mission is to take them to developing countries.”

They will focus on the systems that require completion for improvement. “A 90 percent built bridge is useless,” says Avnish Gungadurdoss, Founding Partner at Instiglio. “It’s not like a car that goes 49 miles an hour instead of 50. What if we’re paid not to build a bridge, but for each person who crosses the bridge? It takes all of this pressure off the government to measure success instead of failures.”

It’s an ambitious undertaking to be sure, and takes the right team in the right environment to pull it off. Instiglio is three Harvard Kennedy School graduates (class of 2012): Belinsky, Gungadurdoss, and Michael Eddy. The environment is here.

“Harvard is integral,” explains Gungadurdoss. “For you to be able to play in this field you have to bring something better than what is out there; money or credibility, or expertise. What we are is an intermediary. You leverage resources and leverage connections. First, all the knowledge experts, and subject experts. I know a little about HIV/AIDS, but they know a ton. Then, trying to bring in the private sector. We know very little about the private sector, we’re in our mid-twenties. But there are people here connecting us with stakeholders and deciders in Colombia [one of the pilot sites]. I can’t imagine doing this anywhere else.”

The team came together during lunchtime discussions at the Kennedy School. “We found ourselves thinking the same way about improving government incentives in developing countries,” says Belinsky.

“It’s not a solution that applies to every country and every place,” Gungadurdoss admits. There’s a reason why social impact bonds haven’t been done even though the concept has bounced around the social enterprise space for years: getting government support and finding service providers is difficult. “This is going to be super challenging and one thing we constantly struggle with. Whenever someone is doing good work they should be encouraged and scaled up. The worst case is when there’s a window of opportunity and no one takes advantage of it. For whatever reasons, funding restraints and so on. These are windows we’re trying to take advantage of.”

The i-lab has been a base for them in the Spring 2012 semester, and this summer as residents, they’re here full-time. Belinsky says, “This is not only a central meeting place for our team, but also a community where we can bounce around ideas with people in completely different fields of work. And free snacks and coffee don’t hurt either.”