Blockchain and Outcome-based donations
Interview with Dani Ismailov (Alice)
Trust in the charity sector is in crisis. We've all seen too many examples in the last few years of major charities misspending our donations - most obviously in Haiti where one charity took five years and half a billion dollars to build just six houses.
Today there is apparently over $1 billion out there in additional donations that people would give - if only they felt that they could trust the charities that were there to spend that money.
This plus the advent of a more tech savvy, younger generation is driving a real shift in charitable giving: shifting from ‘throwing money into wishing well’ to people wanting to see their money deliver tangible, measurable outcomes. This is a shift that is now starting to touch individual givers just like you and I.
Alice is at the heart of that shift: using blockchain and smart contracts, they are starting to form a new technology backbone that helps to make outcome-based giving simple and accessible for all of us. Using their platform, for example, you could give $100 to make sure that someone had a place to sleep for the night and your money wouldn't be touched until there was concrete verified evidence that that it actually happened.
By helping all kinds of charities to start fundraising based on real tangible outcomes, Alice isn't only trying to shift the mindset of an entire industry, but it's also helping to put the beneficiaries of our spending right at the heart of the ecosystem.
Equally, it's also helping to automate and rip out back office costs for charities and to add new levels of trust to an industry that really, really needs it.
The end objective: to make sure that every dollar we give is and transparently delivering meaningful change for those who really need it and restoring faith in an industry that desperately needs our support.
It's a real pleasure to have Dani from Alice here today to talk us through exactly how that works in practice.
To give you an idea as to how that works. You give your money. If the project succeeds, as it says in the project description, then you see exactly the impact that your money has had through the milestone achievements. We like to have these outcomes rather than outputs – so that you can see exactly the number of beneficiaries or the type of beneficiary that you've helped.
If you don't see the project achieved, then actually you get your money back. Because we use the same model that grant funders do with charities: which is payment by results.
In fact, the money is held in escrow until the charity achieves exactly what it says it will - and upon validation, the money is kind of drawn down from escrow and given to the charity.
Every project on Alice has a third-party validators and the validator is a kind of trusted institution. To give you an example, our pilot project was with St Mungos (which is a homeless charity in the UK). In that project it was the Mayor of London's office. It can be a team, a person or it can be a company that essentially says “yes, I've seen proof to say that this is taking place”. For instance, the proof may be a rental agreement. But what this does is it adds a layer of trust onto charitable giving so that every time you see impact you know that it's been authenticated by an independent third party.
So presumably the value of Alice is partly in not being a charity in your own right: you are effectively a networking backbone or infrastructure for any charity to be able to use to facilitate the kind of cultural and business shift?
Exactly. The role we take is also one of facilitating communication between the different actors.
We actually just ran a workshop together with Google at which 20 social funders and 20 charities (including Amnesty International and other very established charities) and actually one of the biggest findings was that there just isn't enough communication between funders and charities and between charities as well. So the impact measurement space ends up littered with duplications of frameworks - with each funder trying to create their own one for their convenience.
What this means is that an average, medium sized charity can have something like 20 different formats in which to send an impact report each year: which takes more and more time away from frontline work and really impacts the effectiveness of the charity.
So what we're trying to do is to facilitate that communication: starting by automating the impact reporting for them. We're making sure that, for the funder, they not only have the information they need for screening and due diligence, but also that the impact reporting is done on time. Charities, if they're under capacity, just won't have the ability to send their impact reports as quickly as the funder needs – and this is another problem. So by automating that process, we're allowing them to focus on the front-line work; on making sure that frontline work is taking place (and eradicating a different issue there with the proof of impact); while also changing the way that donors give.
Can we walk through the St Mungos case in terms of the nuts and bolts perhaps?
St. Mungos came to us and wanted to run a campaign to get 15 homeless people off the street. It was our first pilot project and so, more than the project itself, we were validating that the system worked.
They came to us with a guaranteed grant funding - so they wanted a grant funding as well as fundraising from donors - and what our system allowed them to do was to set up a project through us which used outcomes, in a similar sense to how they would structure them for a grant-funder.
In that project the milestones were getting somebody into temporary accommodation: with all of the sub-outcomes in between (so trying to help them with rental agreements, legal fees and things like that). But they were structured in a sense where it's quite a linear progression - from somebody going into temporary accommodation, finding permanent accommodation and then, one of the most important parts, checking 12 and 18 months down the line that they're still there. When they apply for grant funding, charities often don't have the resources and don't want to put down that they ought to check after the project is complete – to make sure that the impact is sustained. That can mean that actually, yes, you might get homeless people off the streets, but with that funding you don't know if they've stayed in the permanent accommodation 18 months down the line.
In terms of the actual mechanics of how this works, if I set up a project tomorrow and I'm the beneficiary (for example), I would say that my outcome is X if I get Y funding: is the interaction centralized through a website or is it more deployed on to apps? How does it work from a workflow perspective?
At the moment, any charity that starts a project has an appeal page on our website, basically giving the information as to the project details. We are currently building an API which will allow charities to integrate our system onto their own websites - but all of the back-end (all of the smart contracts, how the money moves and how the impact is done) is on the blockchain. So although validators have to log into our system to validate a certain outcome, all of the data is kept on the blockchain and all of the flow of funds is done through smart contracts on the blockchain as well.
This kind of leads us into exactly why we use blockchain and a public blockchain: the Ethereum network.
For us it is the fact that that information is one of the most valuable assets that comes from the project work being done. So the impact data is available for policymakers to see exactly what works; how effectively; and at what price. It's available to charities to see what's worked in the past and what hasn't: so that the charity sector doesn't have this taboo of failure, which can lead to it making the same mistakes over and over again. And for funders, it removes the issue of these siloed troves of impact-data that they keep (which they use for screening and due diligence), but which might actually be outdated or even wrong - and it allows them to make funding decisions from the same timely valuable information.
Presumably there are other parts of blockchain that also play to the objectives of Alice here?
Transparency is a key one. Anybody being able to go and audit the data, see what works, what doesn't.
But also trust is a massive factor and that's practically shown through our use of smart contracts. What we use smart contracts for is to automate the process where impact reporting results in donations being drawn down from escrow. As soon as somebody has said “yes, I've seen proof of impact”, then automatically the corresponding amount of funds are drawn down from escrow and sent to the charity. So there's no kind of paper trail or drawn out paper process between them where they have to send the proof, etc.
The security and the private aspect of information is also catered for. We've developed a solution for selective disclosure, which allows only certain amounts of personal information to be shown to the validator at any given point. For instance, if I'm looking at somebody’s rental agreement, I don't need to see their medical data as well. What we're able to do is define exactly what a validator needs to see in order to say “yes, that's actually happened”.
The blockchain sector is making strides with governance as well. One of the crucial elements of governance is that traditionally in the model of charitable giving, the beneficiaries don't have much of a voice. What we're hoping to build, on top of all of this ecosystem, is a number of different mechanisms for beneficiaries to be able to whistle-blow on a project that’s not actually achieving what it says it is. So even if there are instances of collusion between a validator and a charity, we are aiming to negate any potential impact of that by allowing the beneficiaries a voice - in a model that they've traditionally never really had a voice in.
Presumably putting the beneficiaries at the center of the ecosystem also runs deeper than just being able to whistle blow. In a Red Cross in Haiti context, you've got the donor organization or the NGO deciding ultimately on how best the money is spent. Whereas using an Alice-facilitated project, you're really talking about the beneficiaries deciding how the money is going to be best spent to get the right outcome?
Exactly. Where even through things such as design, we're trying to show that the journey that matters is that of the beneficiary.
Are you seeing any evidence of people actually being willing to donate more through the Alice platform, because of what you're achieving in terms of transparency?
Anecdotally we can definitely say that, when it comes to a repeat donation, for example, it's a lot easier to convert someone from being a one-time donor into a two- or more time donor, based on the fact that you have information to reengage them with. If we can prove to them that this is exactly what their money has done and then say that only a little bit more could do the same for another person - or that it could further this person's progression – then that will be a motivating factor for people to donate more.
Essentially, by becoming a kind of data engine, you rip out the costs of providing reporting back into institutionalized donors and then, on the other hand, you can use the same data to be able to actually run far more targeted fundraising on the B2C side?
Exactly. We're hoping that people's motivations with this increased transparency become a lot more honest and a lot more human and they actually begin to engage with the beneficiaries.
What about the issues that you've come across on the way? What are the things that has surprised you on the journey so far?
It's very difficult for us to nail down the design element. Although a traditional start up might have one particular audience which they target with all of their clout, we're in a situation where we have to target impact investors, grant funders, governments, individual donors, charities and so on. And as you can imagine, it starts to become quite complicated as to how to structure our website, how to structure an appeal, even how to structure the signup flows for these different audiences so that they get the information that they need as soon as possible.
We're trying to test everything and iterate everything. So when it comes to actually validating our assumptions as to why a certain audience responds well or not, we're really trying to test them so that everything goes from gut feeling to “well look, we've got the stats to say that's the way it is.”
So you have St.Mungos done, Cancer Research UK also coming soon and presumably then the new API opens up many new avenues in terms of potential cooperation. What does the next 12 months look like for you?
At the moment have a two live projects as well. One is run by AOKC, which is about helping people who've lost limbs in remote villages of Nepal – and having prosthetics provided to them. And a second project is run by Forgotten Animals, which is a charity that is opening the country's first wild-animal sanctuary in Russia. So two great projects and two very different audiences – and it's been interesting to work with them on making sure their appeals are targeted at the right audiences.
Over the next few months we’re going to be onboarding other charities and we’re currently speaking to a few social funders: so hopefully we'll have pilot projects opening up with them as well.
With the new API, we're then able then to start looking at much more established charities that might already have quite a simple flows through their own website and who might want to experiment with a certain audience segment for instance.
If a charity comes to us, for example, and says “we're very happy with how our donors are behaving from the age of 35 upwards, but we’ve found that actually we really don't perform well when it comes to younger people,” we can test whether something like the transparency that we offer might be a motivating factor for them. So we can help charities to test with different audiences and then fit us into their digital strategy.
That example is a very pertinent one. Presumably this platform appeals most of all to the younger generation. But I think the benefits that you’ve mentioned - the transparency around the donations; putting the beneficiaries in control; ripping out reporting costs to the industry; being able to provide a strong degree of best practice around outcomes; whistleblowing; and then the whole question of IoT for automated validation - you're talking about transformational change.
You started with the Red Cross example, building five houses for half a billion dollars. To build an industry with all of the benefits we just mentioned would surely go a long way towards restoring the single biggest thing that's missing: which is trust in the industry?
Obviously there are kind of difficulties and obstacles as well within the industry, because some charities that perform very well might not necessarily want to structure their projects through an outcome-based kind of systems for donors. Obviously there are understandable concerns about cannibalizing on donors that actually have formed a certain behavior.
But what we're trying to show is that even if it isn’t necessarily for those established donors, it might be that we're able to convert people who otherwise wouldn't donate. So making a bigger pie rather than a different portion of the pie.
Equally when it comes younger people - who might be more cynical and more used to the convenience of information-on-demand - the proof of impact might be the thing that gets them to buy back in and believe that a certain project really means business. Why would they kind of be open to transparency if they're not being honest?
Can you expand briefly on the point you made about cannibalization - because that's really interesting. Who wouldn't be interested in having this kind of outcomes-based transparency?
One of the obstacles that we've come across is that, whilst a lot of charities might be interested in having a new project run through Alice, when it comes to existing ones that are performing well, they're slightly concerned about whether they would want to feed their warm donors through us. If anything were to go wrong, they'd have to change a lot more than they would if they had just funneled their ‘colder’ donors who weren't likely to donate anyway. So it's a challenge that we've had: where it's difficult for us to prove conversion rates against committed donors (ie. that they already have) because often a charity might say “well, if this audience is one that we've got no use for anyway, let's try them with that list” and it's not very comparable segment with the ones that really do donate regularly.
If I understand right, Alice may just represent a certain amount of counterparty risk as a startup still. So the issue's not really associated with the actual concept of outcome-based giving, it's more associated probably with just how young Alice is. Is that fair?
Yes, that's probably half of the equation.
The other half is that there are obviously inefficiencies in the charity sector at the moment and there some who are benefiting from the lack of transparency. And that's not to say that all charities are corrupt or anything like that, but there are probably pockets of money being misspent and therefore those vested interests make it very difficult for a large charity to put everything through Alice.
But the more we change the donor's expectations of what giving is and the more the donors start saying “if you're not showing me proof that my money's done anything, I'm not going to give you the money” then slowly that will force charities to decide that transparency is clearly the answer and that donors won’t give to them unless they show their impact.
It's going to be fascinating just to watch, to track that billion dollars out there that that people are holding back on and to watch how that hopefully dissipates: as people see the transparency and buy back into the charity sector.
I think even a billion is a very conservative estimation. We've been talking with funds that have hundreds of millions that they might want to track the impact of. It's just a matter of funds saying “Wait, if there is an easier solution to replace what we already do (which is pay for a lot of accounting and legal support just to be able to do the same work), then why don't we kind of put the same money through something like Alice?”
We are working with a massive market in terms of potential. But I think the crucial element for us is changing behaviors and cultures. That's going to be the key aspect.
We are really quite hopeful that we can get to a point where donors are happy; charities aren't making any wasteful decisions (based on the fact that there is no taboo of failure); and funders are happy and making decent returns on their money - as well as attracting more impact investing to the space.
Fantastic. Well thank you so much Dani. Thank you for running through that as clearly as you have.
Perfect. Thank you very, very much.
I'm Barney Nelson and thanks for listening to this week's #Goodstart episode. Next week there'll be another amazing story about how blockchain is being used for good, and so make sure to join us. Then in the meantime, if you'd like to get involved, look us up on thevalueexchange.co/goodstart or on linkedin or Facebook. Thanks and see you next week.