 Can everybody hear me in the back? Good afternoon, everybody. Welcome to Social Sector Transformation through Pay for Success. My name is Ian Galloway. I'm a researcher and the Oregon Field Manager for the Federal Reserve Bank of San Francisco. We have only 60 minutes, and we have an all-star cast on the panel today, so I'm going to try to get through this intro as quickly as possible. But I thought I'd spend just two minutes, very quickly, on what Pay for Success is for those of you who are not yet initiated into the movement. So let me just start by saying the fundamental transformation with Pay for Success is beginning to pay for outcomes as opposed to promising programs, which has historically been the way that we've funded much of the social sector. The reason for that is that even though we have a lot of evidence-based programs, there tends to be a gap between the promise of that program and the outcomes that they produce. And funders, particularly government, are increasingly getting frustrated with that. So they are now experimenting with this new approach called Pay for Success, which basically entails waiting until after the outcome has been delivered to pay for that service. So the nonprofit delivering the service does not get paid until the outcome is delivered, and only if the outcome is delivered as spelled out in a contract between that government and payer and that nonprofit. So that's the fundamental transformation potential of Pay for Success. There's a second component to this, which is equally important. And that is by waiting until the end of a process to pay the nonprofit for an outcome, it creates a funding gap. So that funding gap needs to be filled by an impact investor, because the nonprofit needs to keep the lights on, they need to run the program for the duration of the contract, waiting for the check to arrive from the government and payer when they produce the outcome. So that's when banks, foundations with program-related investments, high-net-worth individuals, impact investors step in, provide the upfront working capital to the nonprofit, and bear the risk, and this is equally important, bear the risk that that nonprofit will fail to produce the outcome that will trigger the success payment at the end of the contract period. So those are the two complementary components of Pay for Success. They're equally transformational, and it's beginning to take the social sector by storm. The folks on the panel today all have experience with this new contracting and financing mechanism. I'm very, very happy to introduce them very quickly. To my left, and going down, we have Carolyn Whistler. She's the co-founder and co-president of Third Sector Capital Partners. Andy Phillips is vice president of the Urban Investment Group at Goldman Sachs. Mary Ellen Wiggins is a senior analyst at the Office of Management and Budget in Washington, D.C. Louis Sheikwin is the executive director of Abode Services, which is the latest nonprofit to enter into a Pay for Success contract. There have been eight projects across the country, and Louis' is the most recent. And then finally, Michael Shaw, who is a program officer at the Kresge Foundation. So welcome all of you. Thanks for participating on this panel. So why don't we just very quickly, if you wouldn't mind sort of going down the row here, just spend a couple minutes describing why it is your organization is involved in Pay for Success and the role that you play in these transactions. Thanks, Ian, and welcome everybody to Socap. For us, why Pay for Success? I think, you know, we live in a world where our problems are getting larger on the social services side, and we are having, facing limited budgets in which to address those problems. And if you look over the past 30 years, we haven't improved on the amount of people in poverty in this country, and we haven't improved on many of the social problems in the developing world and across the world. And we think that, you know, it's not because we don't have enough money, it's because we're investing in things, and at least on a government level, we're investing in programs, and we don't really know if they work or not. We haven't been using data in a way where we can measure results, and we haven't been asking of our government agencies, of our providers, we haven't been asking them to measure and perform and haven't been paying them based on those results. And so we think there's just a huge opportunity. Our problems are getting bigger, our resources are getting smaller, and are constantly limited that we need to do better with the limited resources we have. And so at Third Sector, we're a nonprofit organization that's in the business of helping advise governments and service providers how to change the way they do business and really how to change how they contract for services. So on the government side, how do you think about what's the social outcome that we care about? How can we measure that outcome and define that for a specific population? And then how can we actually put out a contract where we would pay for that outcome? And think about the work that we would do with the service provider to help them measure and improve so we can focus our energies and limited resources on measurably improving the lives of people most in need. So at Third Sector, we are rolling up our sleeves, working, putting together these projects from initial identification of projects all the way to raising the funding and financing to launch and get government and providers thinking about and focused on that results orientation for people most in need. Thanks, Melanie. Hi, everybody. It's wonderful to be here at SoCAP. I think this is my fourth speaker. Can everybody hear? I think you're in mic, maybe. Is my mic not on? There we go. That is awesome. That's great. So lovely to be here to talk about social impact bonds or pay for success. People are often surprised to see someone from Goldman Sachs on a panel where the issue area we're talking about may be early education, recidivism, or chronic homelessness. It's not surprising to me. I sit on a team at Goldman, the Urban Investment Group, which is essentially an impact investing team. We invest both the firms' capital as well as client capital through our social impact fund in projects that provide a tangible and demonstrable social impact as well as have strong financial return. That really is our business model. Since we started about 15 years ago, we've committed about four and a half billion dollars and we're very proud of the results of that work. Up until maybe three or four years ago, the lion's share of those investments were really in the physical infrastructure of neighborhood. So we financed things like affordable housing, mixed income housing, health centers, schools, all the things that we wanna have in our neighborhood, the physical institutions that we wanna have in communities to make them places that we'd all like to live. So for us, when we came upon this opportunity to meet the capital gap that Ian mentioned, it was really an opportunity to say, we're in the business of using private capital to facilitate or drive social impact. We've done it before around real estate. This is a natural extension of that work to provide the working capital for service providers to enter into these pay for success contracts. So we are active investors in this space. It is very early days. There've been eight deals done in the US market so far. We are the lead senior investor on four of those deals and continue to look at investment opportunities in the space. Thanks, Andy. Hello, everyone. It's great to be here. This is actually my very first vocab. So excited to be joining you all today. And on a really simple level, pay for success holds a lot of promise as a way to help communities implement programming that works, very basic. So it can be used to help scale interventions that work, things that investors are really willing to put their dollars behind and do on a bigger scale. It can also be a really great way to take promising interventions that government might not otherwise be able or be ready to implement yet and have them implemented through a pay for success project in order to build more of an evidence base around them and help us really learn more about what does work. And then pay for success also has a really unrelenting focus on outcomes and whether we're really improving the lives of people and of families. So in terms of the federal government, we already work every day. We partner with states and local governments and tribes to make sure that people and communities are really getting critical social services and by supporting really thoughtful and rigorous implementation of pay for success, including evaluating projects as they go to make sure that the outcomes that are seen are really attributable to the intervention that happened and that government really is paying for outcomes. Putting that kind of thought and that kind of rigor into this work is one more way that we can help to really identify and really cultivate tools that communities can then use to make sure that they really are getting the best outcomes for the people and the families in their communities. So the role that the federal government has taken on has several different aspects to it. We do convening, we bring people together to help increase collective knowledge about this work. We've played a funding role and just helped to kind of lead some of the thinking and framing of how pay for success might be implemented in social programs. Great. So we're the eighth project about services. It's been an organization around the Bay Area for 28 years. We started as a very small homeless shelter provider, very typical model throughout the country. It's a model that quite frankly doesn't really work at ending homelessness. So we made a massive shift thanks to the support of some foundations and other supporters to a housing focus about 15 years ago. So when PACE for Success came around, it was a no-brainer for us to jump in in a proof-of-concept sort of role. We're actually pretty damn confident that our project will work. We're three months in and six days, if you're counting. And we're already ahead of the success curve. And confident that that will continue. There's nothing that suggests that it won't. We'll talk later about risk. There's risk involved for us and others. But the real motivation I think for communities and for providers is to change what doesn't work and move towards what does. What doesn't work is the contracting that we normally do with government. There's a starvation component in most contracts that we have with government, where quite frankly, government has 30 to 40% administration overhead and we're supposed to live on something less than 10% and actually perform. That model of PACE for Success offers an opportunity to have a conversation about what is really necessary for a provider to be successful, as opposed to an assumption on the party with all the power, which in our case is often the government entity, to tell us what they think we ought to be able to do it for. So this is a dramatic disruption of a set of assumptions on government. I make that sound adversarial. Quite frankly, in the county that we're working in, Santa Clara County, government led this effort. It's their idea to do PACE for Success because they know it's not working. They're seeing nonprofit social sector entities imploding all around them. And in the meantime, they're not actually using methodology that's making a change, moving the needle with large problems like chronic homelessness. So we're very excited to be in a place where we can participate in disrupting the normal thinking about how to contract and really move the whole community towards what works. In our case, it's about placing people in homes no matter how chronically homeless they are and wrapping around the services that they need. Great. So it's interesting, right? Like, I love these guys. Good job. Thank you. I love these guys. I've gotten to work with most of them and will continue to work with more of them moving forward. And the foundation's really getting after this whole disruptive piece. How do we accelerate the disruption in the social sector and how can we use our resources and our tools to do that? So the Kresge Foundation's been around for 90 years. We have a $3.4 billion endowment. We work, operate nationally to create opportunity for people with low income in America cities. And we see this tool as one of the multiple tools that we can use to transform a human service sector, transform a social sector to be one that's much more oriented towards solutions for people that are sustainable and can give them the opportunity to accelerate their life trajectories. So we've been in a series of deals. We've been and played a number of roles within them and hopefully we'll continue to do that. We've been an investor. We've played for feasibility. We've been a partner. We've been a convener. And that's the role, right? It's to help these folks be the glue that helps these folks operate and move forward with this concept. So we enjoy playing with you all. For the record, we love you too. Yeah. It's mutual. Caroline, I remember three years ago, the Federal Reserve published a concept paper that you wrote on pay for success. As far as I remember this correctly, there had only been maybe one or two deals internationally and this was completely a new concept for everybody in the United States. How do you explain the rapid acceleration of this idea domestically? We just passed the $80 million investment threshold. Eight deals. We have 50 in some stage of development across the country. In three years, it's incredible. Any thoughts on that? Well, I think the first thought is we actually got it to happen here in the US and not just once, but eight times. So the first thing that I think really helps acceleration is that you show folks that it's possible, right? And the first projects took three, four years from initial idea to conception took a long time to pull together. But what happened when those projects happened is all of a sudden, potential investors who had heard about this idea said, oh, wait a minute, it's actually happening. Is there a pipeline that's coming? And there's been enough interest coming from investors, coming from governments that say, oh, wait, Massachusetts did that, I want one of those. I want to be seen as the innovative government. I want to look at how they're serving young adults better and to be able to do that in my community as well. So there's a little bit of the see it's done there, a little bit of the peer pressure. Part of it is it's an idea that's time has come. There's governments have been collecting data for a long time, talk to the government and say, we got data, you say, that's awesome, what are you using it for? Say, well, we got data. And so it's now, I mean, pay for success is a way for these governments to say, wait a minute, we have data and we're using that to make decisions about how we allocate our resources. And we're using it to monitor how we're better at our jobs and how we encourage nonprofits to be better at our jobs. So I think the first thing is that the projects happened and there was not only interest in seeing how those worked, you could use some of those contract templates and take those to new places. Little bit of the peer pressure that happened but also really gave rise to more of a pipeline of more projects that are coming down the pike. And part I would have to mention that I think the other accelerating factor in addition to real projects, real possibility, the federal government took a real interest in pay for success and has pushed it forward in a couple of really important ways that got the attention of local government in new ways, sometimes we call it money from heaven. But if you're in a city or in a county or a state, just the idea of having a, the Corporation for National and Community Service put out 15 million to do competitions for feasibility. So which governments and providers are interested in looking at feasibility? That generated tons of interest in folks that wanted to take a step from, okay, this is cool too, I'm actually gonna roll up my sleeves and consider this and started to build a broader pipeline. And so I think the federal government has really encouraged that at the local level for through both the social innovation funds, some of their competitions with the Department of Labor and upcoming competitions as well. And what I really love about it, and I think it's one of the things that has appealed to folks in the field, is it creates a space for entrepreneurs to come up with solutions to problems that have been impossible to solve up until this point. And I think it just unlocks a creative potential that has been latent until this point. So that's one of the things I think that's also driving the rise of this tool. Andy, Goldman Sachs has been a leader in pay for success, an early adopter. You mentioned that half of the deals so far have Goldman Sachs as the senior investor. The first project that Goldman Sachs invested in, the Rikers Island Sib, recently was discontinued for lack of results. The nonprofit did not produce the reduction in recidivism that would have triggered a success payment back to Goldman Sachs. Can you tell us a little bit about that project, your thoughts sort of in the aftermath of this and its effect on Goldman's ongoing appetite for pay for success? Sure. So of course it was incredibly disappointing to get those results from the evaluator. And I think in fact most disappointing because to your point, collectively the partners, the investors, the intermediary, the government, the service provider, we all came together because we wanted to solve an incredibly challenging social problem around recidivism for adolescents on Rikers Island. And there's no way to say it's not disappointing that the program didn't achieve that goal. That said, I think we all also walked away from that experience saying while the program intervention didn't solve the problem in the way that we had hoped and expected it would based on our due diligence and our understanding of the investment structure. In fact, the financing mechanism and the notion of pay for success did work. We, all the stakeholders got together at the outset, identified what was the outcome that we thought was both achievable and would get to the results that the city and all of us were hoping for. We put in place a system for measuring those outcomes, for monitoring the program along the way. And then when we had that data from the independent evaluator, the city made a decision based on that data to then shut the program down, which is exactly what you would want this financing mechanism to do. And so while again the program wasn't successful, in fact we feel like the financing mechanism was. As investors, we go into this with our eyes open that there is risk in these deals. And we took a risk in this deal that in this case didn't pay off, but we continue to look at other investment opportunities and really sort of evaluate those on the merits. I will take the opportunity to say that we just this morning released the first year results from our second social impact bond or pay for success investment, which was financing early education in Utah. The really exciting news is that first group of four-year-olds who went to preschool in 2013-2014, gotta get my dates right, was in kindergarten last year, and their outcomes were better than we had anticipated. And so this is, yep. So incredibly exciting because, the program was effective at helping these kids start out in kindergarten on track with their peers. And so the program worked, the financing mechanism worked. That first year was a proof of concept like in Santa Clara County, that then the state passed legislation to be able to expand the effort. And so we're really thrilled with that. And I think with Rikers, obviously we're disappointed the nonprofit didn't deliver the results, but it's a huge win for public policy in my opinion. I can't remember the last time that a government discontinued a program within three years upon immediately finding out that program was not effective based on evidence. So to me it's a huge transformation of government's role in funding the social sector. So I completely agree with you. I'm encouraged by that. And obviously very encouraged about the Utah results. Yeah, just one thing that I will add is, we really feel like the service provider, Osborne Association and Friends of Island Academy delivered that program to the best that that could be delivered in a very complicated operating environment. And I think one of our biggest lessons from this was that we think pay for success and this financing structure is better suited to, again, a case like in Santa Clara County where you have an effective program with a track record or like our program in Utah that can then scale up. In fact, what we were doing on Rikers Island was asking those service providers to take a program that had been effective elsewhere and bring it into an incredibly complex and challenging operating environment. And all the parties in this transaction deserve a huge amount of credit for going first. They invented the model and I think it's not a surprise that there were some stumbling blocks along the way. Mary Ellen, I think sort of reflecting on the potential of the marketplace, this is destined probably to be a fad unless the federal government gets involved in a serious way. Can you talk a little bit about beyond the technical assistance grants that the federal government has already dispersed? Do you see an opportunity for big federal agencies like CMS, for example, Medicare and Medicaid, to step in and start paying for outcomes or are we going to be limited by the natural siloization of the federal government not to put you on the spot? Oh, yeah. Ian, I think that question sounded different when you said it's community. Wow, I so want to hear the answer to that one. No, it's a great question. Thank you and it's when we get a lot. And first of all, let me say thank you to Caroline for the shout out about the federal role and leadership. That's definitely, we feel really lucky to get to be part of helping so many really dedicated people think about how to implement this model as well and what we can really learn from it going forward. So thank you for that. So in terms of a broader federal role and how we can be involved, let me give a little bit of background briefly on some of the things that we've already done. So you mentioned implementation grants. The Social Innovation Funds awarded $12 million that are now supporting feasibility studies or transaction structuring for 43 different projects scattered around the country. So there's a big role being played there in terms of developing a really robust pipeline since you were talking about pipeline earlier. And thinking forward about money, the Social Innovation Fund called the SIF for short also received authority from Congress to spend up to 20% of their funds from a 515 fiscal year that we just ended also on pay for success. And they have until the end of this current fiscal year to do that. So right now I think they're really taking a lot of time to think about what are the lessons to be learned from the implementation grants that are already out there that feasibility studies, the transaction structuring but there is future opportunity there as well. A few other things. The Department of Justice, many of you may already know, got funding from Congress to spend $5 million each in FY 14 and FY 15 on pay for success working with a reentry population and using a permanent supportive housing model. So they're taking that $10 million total. They've been working really hard with the Department of Housing and Urban Development or HUD on a solicitation that relates to pay for success. So keep your eyes peeled because there will also be something coming there. And then in terms of really broad federal funding streams, the Workforce Investment and Opportunity Act also called WIOA or WIOA was recently passed and it does include pay for success like flexibilities in it. It says that local areas can use a certain percentage of their funding for what they call pay for performance contracting but it's really similar to pay for success as long as those contracts are focused on workforce development outcomes and then meet some certain other specifications that are spelled out in the law. So the Departments of Education and Labor are jointly responsible for implementing that law. It's something that's still in the works but that's something that you'll be hearing more about certainly. So that's just kind of the lay of the land in terms of things that have gone on so far going on now. And of course Labor had already awarded $24 million to Massachusetts and New York for projects that are ongoing. So thinking ahead and thinking about things that Congress hasn't already given us money to do the administration has a proposal for a $300 million pay for success incentive fund. So again it hasn't been enacted but it is gaining traction and it really gets to your question. Often we get people coming to us saying you have this really great state or local pay for success project and we know that it's gonna have these really positive impacts on your federal funding stream. Can't you kick in some money? And the idea is that this is still a new concept that we're testing and so what will be most helpful is to have one dedicated fund where people can go and the federal government would have a way to simulate kicking in money for a funding stream that might be affected instead of having to do all of the exploration and digging and looking at authority and looking at appropriateness in every single program where it might apply. So instead of looking at that question that you're asking in the silo of each program it just gives us one place where we can do that testing and then look at what really seems to be work and what really seems to happen. So the incentive fund is really kind of the centerpiece of this administration's proposal to help the government support outcome payments, evaluations, credit enhancement in a really big way. And then of course it's important as we go kind of thinking about your experience on Rikers also to make sure that we're really learning from what happened and so things that we learn in the context of pay for success whether it's about a specific intervention whether it's how to build capacity to really use data to drive decision making or to do performance management making sure that we're applying those lessons outside of the pay for success model as well. And there is such an incredible amount of sophistication around outcomes based payments already at the agency staff level. At least in my experience I feel like I'm constantly bumping into people at various federal agencies and they're pushing me on this and they say we need to make this the new normal. And I will note that that $300 million bill is a bipartisan bill. So this has Republican and Democratic support so there's a reasonably good chance that it may actually pass. Yes and it's also just so people know it's called the social impact partnerships bill. So you might hear it under a different name. There can be a lot of names floating around for this. We gotta get that figured out though. That's one of them, yes. The language. Lewis, you are the latest to dip your toe into the pay for success pool. Just feels like more in a toe. Yeah, to dive in. Hopefully you come up to the surface. What drew you to this, this fund? You mentioned a little bit in your introductory remarks. But what opportunities do you see for, about what challenges and risks do you feel like you're taking on by experimenting with this new approach? Well I think a way to describe viscerally how we got into this initially is my response to Melissa saying there may be a pay for success reentry opportunity out there that I'm gonna have to restrain myself from looking at. Because we certainly think that that model, we do that model at works and we'd love to do more but we shouldn't be because we have enough work right now. So I talked about disruption of government. I think it's also, I've been doing this for 22 years at a Bode and there is a calcification that happens within the social sector that I'm just interested as someone who likes to philosophize from time to time about disrupting how we do our work. And so it's internal as well as external in other words. So just the attracted, and quite frankly, we're headquartered in Fremont. My father was an engineer in high tech. We always bought the first Apple computers when they came out growing up. And the innovation of the Silicon Valley just feels like it's in our DNA. So I think there is a sense of opportunity around innovation that is provided in Pay for Success that's very unique for nonprofits that we don't really have anywhere else. So there's a jumping in in order to do things that we wouldn't normally do. For example, within the project that we're now implementing, we're in relationships that we would never be in otherwise. For example, a nonprofit affordable housing developers really don't like to serve homeless people because their behavior is unpredictable and it's kind of messy. So for years we've sort of been at odds with each other, the homeless service providers and the traditional nonprofit affordable housing developers. Well in this project we're in memos of understanding that commit us to provide a certain level of services and those houses to provide housing units to people who need them. That's a real disruption of something I've seen not work for all the years I've been in this work. Another one in the state of California unfortunately, we've been very slow to use Medicaid to provide services to homeless people as they go into housing. On the east coast there have been waivers that have been put into place that allow providers to bill for services provided to homeless people when they're housed. That seems like a no-brainer because the savings to the healthcare system and to the community as a whole are incredible but we just haven't in California gotten around to applying for that waiver. California now has applied for that waiver and I understand has received the initial indication that they will receive it. We're actually testing it in this project. We are going to be providing services that will be billed as a Medi-Cal services. So there's another intervention that and so I wouldn't normally have those opportunities to do that. I would also say the thing that provides a little risk for us and I'm glad to hear people talk about the New York Rikers Island example and the way I'm hearing it discussed. We need to have room for failure. This is what you get to do in the Silicon Valley. There's startups that are failing every single day. They had a great idea but it just it wasn't its time. Maybe they didn't get the right elements together and they have to move on and their ideas failing within healthy Silicon Valley companies that are getting reflection and massive amount of learning is coming out of that. You know, I mentioned Apple before. Apple is all about a bunch of failure in their experience. So I think for nonprofits, the risk is that the culture has been up to this point that you get punished for any failure and you don't get rewarded for taking risk and that's completely the wrong dynamic for innovation. So we're very happy to be in an environment where that can change. Really great. Michael, foundations historically have played the role of the incubators of new social sector ideas. I think one of the things that will happen if pay for success achieves any kind of real scale is you're gonna have a lot more risk capital in the innovation sort of social sector innovation space. What effect do you think that will have on the role that foundations will play going forward if the least risky things are being taken up by this mechanism leaving only the most risky things to the philanthropic community? So it's interesting, people have worked with foundations. They'll say if you've met one foundation, you've met one foundation, we're all unique to each other. We all have our own cultures. But what we're seeing is a real transformation in philanthropy as a whole. We're moving from a set of organizations that invest in what's new, what's the new program, what's the flashy thing to investing and looking at and focusing on what works. And we're also focusing more on adaptability and learning. And one of the things that we're learning is that there's a huge vulnerability in our social sector. And so we hear about Rikers, right? That's the hot topic right now and how that's a liability towards this product. But we don't hear as much around another story in New York happened in January, an organization called Feggs, $120 million annual operating budget that served 12,000 people a day and employed 3,000 people, went out of business in about four weeks, really quickly, right? And this is a story that we're gonna start to hear more of across the sector because these organizations are generally operating at 95% highly restrictive public contracts. They, these public contracts are generally underfunded by three to 5% requiring a significant amount of philanthropic subsidy. So philanthropy's role has been confused. We've been coming in and subsidizing the operations of programs rather than the innovation and the risk, which has created another significant problem is we've become risk adverse and more comfortable funding programs. So I think what you're gonna have, what we're gonna have to call upon ourselves to do is be more comfortable with that risk. And I think we'll all have to challenge each other to do that. So at Kresge, we have, we've looked at PFS, Pay for Success, Sibs as a model but not the only model to get towards the outcomes orientation. So not the only thing that can get us towards, away from production contracts and towards performance contracts, we've invested in the Colorado Coalition for the Homeless. We provided them a $3 million enterprise level program related investment attached to, I think it's 10 metrics where if they meet their goals we buy down their interest rate on the PRI that we have. We just launched the Strong Families Fund in partnership with Key Bank and with Goldman Sachs. An $80 million fund that works with low income housing tax credit projects that are providing wraparound services where providing performance dollars that they meet certain metrics. So we're starting to think of performance as a way of doing business and using our capital to leverage outcomes and a little bit more risk rather than looking at continuing to fill the hole of the subsidy and the bad contracts. And I think more of us will start to see the appeal to that. And I'm so glad that you mentioned that there are other ways to do pay for success. The ways, the eight projects that we talk about are sort of one type of pay for success approach, but there are others. As long as you retain that fundamental piece which is rewarding successful outcomes as opposed to paying for promising programs. Lots of ways to do this outside of the conventional social impact bond approach. So I wanna make sure that we leave at least 10 minutes for questions. So we're gonna do a rapid fire round robin here. So transformation can be good and it can be bad. Can you blue sky with us a little bit? And this is safe space. Live stream. Yeah, don't worry about it. Be very candid. To you, what is the best case, what is the best end game for pay for success? What is the utopian end game for pay for success? And what is the dystopian end game for pay for success? What are you concerned about if we take this to scale? Two minutes. So as you mentioned, we have eight projects. The utopia would be that pay for success becomes a part of core operations of government. And when I say corporations, I mean it's this feedback loop of rewarding outcomes and having a movie of impact where providers and government are looking together at being better and improving along the way and rewarding outcomes. And that you have a nonprofit community that is rewarded not for how they do things in a recipe like way, but rewarded for what they achieve. And this is how government does business and how nonprofits do business across the board. Dystopia, I think this is a lot of work. Folks think this is too much work. They think that if a program's not effective that it means they shouldn't do this tool. They think that using data to understand and improve impact is not the right use of data and folks shut down and they remain with the status quo and keep funding what once worked or what we don't know works and we don't make progress on social problems in this country. So I would agree with Carolyn that really for us, the magic in this is the transformation in the social sector and government and that it really is about both driving to outcomes and using that data in real time to do business better. I think Lewis is exactly right. The private sector does this all the time. We get feedback all the time from selling products, other metrics that we use and then use that data to manage getting to the outcomes that we want. And the systems are stacked against the service providers in doing that in part because of the structure of the contracts and so my utopian vision is really about the sort of widespread use of these kinds of outcome-based contracts by government as well as on the investment side creating products that are more scalable, more easily potentially tradable so that we can respond to the growing investor demand in impact investing. And I would also agree with Lewis's contention that if we can actually also help nonprofits to be able to generate net revenues and operate again in the way that private sector businesses have more of the luxury to do, I think that is also a strength along the way. And that part of the utopian vision is you continue to have these new stakeholders at the table. And so when you're talking about things like chronic homelessness, you have folks from financial services companies at the table that are caring about those outcomes too and I think that is gonna drive real social impact. Don't love the dystopic side of things generally. I think where I see the risk is that we as a sort of nascent industry spend so much time trying to construct the perfect deal that the perfect becomes the enemy of the good and that we really can't scale this. And so what is I think right now a great idea that has incredible transformative potential gets put back on the shelf because it's too hard. So I think I wanna end on a high note so I'm gonna start with a dystopia. Oh such a good idea. I agree with a lot of what's been said so I'm gonna really focus in on something I've talked a lot about which is evaluation and learning. So I think in the dystopia what would happen is that pay for success gets implemented in a way where evaluation is pretty lax and where we're not really sure that the intervention that got used is what caused whatever outcomes that are bad happened. We're not really sure whether government is paying or not paying for success and we're not taking the opportunity to really learn more about what's working. So that's the bad news scenario. I think the utopic version is really one where pay for success contracting generally or sort of the financing mechanism in particular is one tool that governments at any level can look to state, local, tribal, federal can look to scale something that does work. Or I know we've maybe seen this a little bit differently on the panel but also to find a way to implement something that is promising and not yet proven and needs more of an evidence base and help build that up and then can really focus on the fundamental skills behind pay for success around working with data and performance measurement and management and evaluation and apply those in these contracts or in these deals and then also in other areas where they're equally important whether it's in social services or in another realm. Well I agree with, so let me just go to dystopia in the interest of time. Ian and I were talking before we came out about the analogy of pay for success to low income tax credits which is one of the reasons my agency got involved in this. We do affordable housing development and we do it because of the reason I gave earlier that those who were doing it basically don't serve the people that we care about primarily. And so I'm concerned that pay for success will have unintended consequences of excluding populations or avoiding social problems that methodology really ends up encouraging, because the methodology encourages a creaming or avoiding difficult questions. Now the irony is the projects that have been chosen nationally have been done in such a way that the focus is on very special needs populations those who actually aren't getting the level of service they need, so that isn't the issue today but if we get to a point where this becomes a commoditized product, it could become something that we avoid serving the poorest of the poor with. I'm worried about that. I'll start with the dystopian. I worry about provider readiness. I worry that as investors show up to the table, as government shows up at the table, as the intermediaries show up at the table that there won't be enough providers who are ready to do this work and will miss our opportunity. I also worry that deals will be constructed around margin and not around impact. I worry that there are sometimes where incrementally better interventions have more margin than incredibly better interventions and that will start moving in that direction. Blue Sky, public sector uptake and better organizations. I worry about this vulnerability of the business models, the continued investment in the product and not in the container of these organizations and how do we make better organizations? Great, thank you for indulging me with the question. So we have about eight minutes left. We have a couple of questions. What I'd like to do actually because we don't have a lot of time and we have a lot of panelists. Let's get two questions back to back and then you guys can answer them as you choose. In the back there, nope, behind you, sorry. And right here, thanks. And in the back there, yep, no, you're turning around. Up, yep. Boris, yes. You, sir. And please, if you answer a question, can you repeat it? That would be helpful. Do you want to name? I can name bonds three through seven. It's a welcome. So in Massachusetts, you have one in homelessness, one in the area of juvenile justice, so that's two. New York State, you also have a project with Center for Employment Opportunities, so that's three. Chicago, you have Pre-K and then you also have Cuyahoga County, which is Cleveland, Ohio, which is a project in family homelessness and child welfare. And those are the projects that have been launched to date. Anybody want to take a stab at the first question? I'll take a stab at that. I think, we haven't said anything about this, but there's an incredible amount of transactional cost. And to echo what Michael just said about capacity, I think I'm sort of just lucky that I have the sort of staff I have at this particular moment to have gone through a process with a level of intensity around the transaction was, we all sort of are in post-traumatic recovery right now because it's an incredible amount of work to get it done. So that's what, from a provider's perspective, I wouldn't be interested in another project right now because of that. But again, I think when I hear Melissa say what a federal government might have communities get involved in rehousing reentry folks, there's a population, a big need, a incredible outcome impact. That's exciting. I can be talked into it. So from an investor perspective, we look for organizations and interventions that have a track record of operating at scale, have strong, like you would with any investing, a strong management team, good systems in place for performance management, professional development and staffing. And so those are the things we're looking for in the service provider and the intervention. There are also needs to always, because these are loans we're making, there has to be a payer at the table. So we get a surprising number of calls from organizations that say, I have a great intervention. Can I do a social impact bond? And I have to remind them that this is a loan. There has to be somebody on the other end of it who's gonna help pay that back through a pay for success contract. And I would add that none of this would happen without the leadership of that payer, so in many cases, government. And you're operating in a political environment where you may lose government leaders, so we really look for leadership at the executive or elected level, but then at the agency level, or the folks in the budget office, in the procurement office, at that Health and Human Services Agency committed, not just to kind of putting together for the press release, then the, you know, shouting out of this intervention, but the implementation, which like huge transaction costs, but these are four to six year projects and you need to have leaders on the non-profit side that are gonna be there and stick through the implementation and on the government side, because they are, it's not just about a contracting process, in many cases it requires government to change how they refer people, government to change their processes in order to allow an organization like ABODE to better triage the population they're serving and to better serve them. So government leadership and non-profit leadership is important. I have to throw in one more thing and that is just a lot of integrity in the deal or in the idea. Lewis, you talked about the idea of creaming and how these early projects have focused on the most vulnerable populations and how important that is, just making sure that their protections in place or performance measures really capture what's happening with the people who are most vulnerable and do most need services so that they don't get left behind in the interest of just getting another person to a good outcome who doesn't need it as much. So I think we have time for two more questions, second row and then there was a question here in the middle, right there, fifth row back. My question really goes to this whole issue of payer readiness. Obviously I'm a service provider, right? So I want to talk about payer readiness and I think that that is important. Is there somebody of work that is being done to get state governments and local governments and county governments to understand this approach because I can absolutely wipe out all of my capability and readiness just getting the payer to understand the story. That's your question. Right here in the middle. Thank you, just wanted to get your thoughts on guarantees for investors. Good, bad, what do you think? Should I take that one? Sure, you might have some say. Yeah. So this question gets asked a lot where typically we've been the senior investor in these deals in the Rikers investment. We benefited from a significant guarantee provided by Bloomberg Philanthropies. In other investments we benefit from subordinate debt from folks like the Fabulous Kresge Foundation and other philanthropists. So what that means in quite simple terms is we get the first dollars that come in to repay us before they get repaid. And for us, because we are what I would call commercial impact investors, we're seeking risk-adjusted returns. And so what those guarantees or that subordinate capital does is help to de-risk the deal so that the returns which have not typically been structured on the part of the payers, which is government, to provide outsized returns so that those returns that we're able to generate through the deal are aligned with what the risk is. That is a pretty common occurrence. So for example, the US Small Business Administration has a program called the 7A Loan Program that provides a 75 to an 85% guarantee for small business loans, for commercial banks who make those loans. It doesn't matter if that is a small business in a low income community, a small business in a high income community, and it doesn't matter the income level or profitability of the company, those guarantees are available from the federal government. Because the government decided that encouraging small business lending was something that was a social good. And so we think that it is a sort of natural occurrence or sort of a help to facilitate this market and the growth, particularly because it's very early days and this is a little bit of uncharted territory. But it also may continue because while maybe two years from now, there will be 40 deals out there and we'll know a lot more about structuring them. What may happen is that Carolyn and her team may come up with an idea that's in a totally new issue area and what will then happen is that will be then a riskier investment. How we will get that done is through bringing lots of folks to the table, forward thinking foundations who are willing to take some of that risk to leverage significant other investment capital. So I respond to that too. Very, very, we're over time and I want to make sure we get to this first question about fair readiness. We use them, we care about them. There's a value to it, right? It's to attract new capital or attract new partners to a project or to a product. But there's a concern, at least for me, that we're creating a... Can you do it in 10 seconds? Yeah. We're almost creating an expectation that that's gonna be there forever. So how do you then at some point wean that off and let the market manage? And so how do you educate governments to do this work really quickly? There's, so third sector is dedicated to that. So there are several organizations that are focused on educating governments and helping them actually implement and test out these projects. We do so through competitions, funded by the federal government and the Social Innovation Fund, which is great. There are also large national government associations that we've partnered with in that competition, National Governors Association, National Association of Counties and National League of Cities that offer workshops, trainings, and are exploring more to try to get governments to learn about what this is and to take that step from exploration to action. So there are resources out there that do that. Please join me in thanking the panel and thank you for coming to the session. Sorry, it's giving me the... Good job. You're welcome.