Revolving Fund – Sustainability Plus ™

Been meaning to write about this for a while now and finally got down to it today. Just an idea to be refined and which has wide-spread applicability in the world of healthcare, green and climate funding and generally focused on meeting market failures while attracting private sector flows. It is a simplistic description to give an overview, using diagnostics as an example for its applicability.

With recent discussions about the efficiency of donor funds and ODA, as well as many examples of low or no accountability of the grant monies and “push” funds given, there has been a strong requirement towards sustainability. Governments and organisations such as BMGF cannot continue to fund SDG impact interventions at the scale needed. Thus attracting monies from the private sector in addition to using the ones given is going to be key. The idea of Sustainability+ was thus coined by myself particularly thinking about funding SDG impacts which have potential revenue streams (though the concept could be adapted for use with those without a revenue stream such as in AMR interventions by using CSR and SIBs for instance). The monies from the push mechanisms can be invested rather given as grants, and used to continually fund other interventions, or as subsidies for those with no revenue streams.

It isn’t perfect yet and one has to assume that there will be periods of market “irregularities” where during exclusivity periods, for instance, innovation may be stunted temporarily, though in order to attract investments to neglected intervention and areas this is something that must be considered as a necessarily temporary evil. Also, used in conjunction with other mechanisms these irregularities can be minimised in period and cost. More on that in other articles.

The concept of this is to meet two market failures and two market realities

1.    The lack of a diagnostic in existence

2.    Access to the diagnostic in terms of lower cost and better supply security

3.    Lack of investments into diagnostics 

4.    Diminishing ODA – need for efficient and sustainable use of available funds

Sustainable Plus™ mechanism will allow the market failures (1 and 2) to be addressed and attract private and donor funds (3 and 4) to the space

Effectively we will take a push mechanism and create a hybrid of a push-pull funding, alongside incentives that allow for the “investment” to grow in a sustainable way.

Our aim is to FIRST – get A diagnostic into the space using an AMC style incentive to create market exclusivity that can be used to increase the original investment made, and SECOND – to use the success of the diagnostic in terms of RoI (the hybrid Push mechanism would be an Investment into the equity of the manufacturer) – to investment in a variety of things – competitors to bring down the price and increase supply, other diagnostics, related interventions. 

The process is simple. A Dx Growth Fund (DxGF) would be created where push monies, donor funds and multilateral funds would be amalgamated and used to invest in the Dx Manufacturer with a higher probability of success. Investments would be in the form of equity and debt. Potentially private monies could also flow into the Fund. 

The manufacturer would be given exclusive rights by purchasers of the diagnostics for a certain period of time, if they meet WHO PQ standards and standards set by a to be established entity/ secretariat for diagnostics for instance. Thus the value of the company would grow as would the investment made by DxGF. When the manufacturer exclusivity runs out, DGF would have the right to sell its complete or partial stake, or “Put” its stake to the manufacturer at market value (expected to be higher than the principal originally invested – hence sustainability plus).

The increased monies would revert back to DxGF for investments into other diagnostics and interventions using the same methodology.

Over time DxGF as a Fund would have a diverse range of investments (for instance if it sells only part of its stake and retains some, in addition to the still running investments in the exclusivity period).

This would attract all manner of investors – from VCs to impact investors. Donors would be happy with the sustainability of its funds as well and the vehicle will be seen and a self-sustaining entity that encourages partnerships and works for SDG impact.