I’ve been thinking about how to solve the problem of “how do we accelerate progress” and wanted to share a potential way I’ve been thinking about it.
I sort of see 2 main problem areas as far as research funding today:
- The funding model (90% of funding from the government, allocated via grant funding) is broken.
- Rewards incremental research that’s legible to a grant committee
- No long-term budgets for specific projects or people, only grants to push a given area of research over the line but no further
- The personal incentives in the academic research model are broken
- Postdocs generally aren’t valued (salary-wise or work wise), and spend much of their time working under a Principal Investigator who already has a grant
- Principal Investigators are often older and have funding secured for a given area of research, so few opportunities for a young Postdoc to take research in a new or interesting direction
- Individuals are incentivized to publish at all costs and aim for prestige rather than breakthroughs, in order to secure future funding and tenure.
- Scientists spend most of their time writing grants or managing a lab – not doing science!
- Between 25-50% doing grants – https://www.vox.com/future-perfect/2019/1/18/18183939/science-funding-grant-lotteries-research
- More here – https://danco.substack.com/p/can-twitter-save-science
Those are the two core problems holding back basic research and scientific progress as I see them today.
Now, my proposal to address these issues is twofold: a better way to fund science, and a better way to align and fund breakthrough researchers.
Better model for funding science
Similar to the proposal to use charitable private donations to fund very early stage research: the stuff that’s highest risk and has the lowest potential commercial return.
That said, I would structure the funding of this research slightly differently. The funding organization would want to solve for 3 conditions:
- Give funding to researchers quickly, not the multi-month grant process researchers currently go through.
- Get the maximum amount of high-impact research done for the lowest cost.
- Create incentives to pull in external investor capital to accelerate commercialization and also (later) refills the pool of funds aimed at basic research.
What I’m envisioning would combine 2 separate groups with different aims – venture investors and philanthropic foundations.
Philanthropists would commit funds to a for-profit research vehicle via a Program-Related Investment (PRI). These funds would be structured 80% as a low (or zero) interest loan, only to be repaid on a 10+ year time horizon if the research ends up being commercially viable. The other 20% of the funds would be structured as an equity investment in a vehicle at a predetermined, low valuation that falls within IRS PRI guidelines.
As basic, risky research progresses, most of it will fail and amount to nothing. In those circumstances, the philanthropic foundation will write off its grant/loan as a tax-deductible grant.
However, what’s interesting about PRIs is they allow for philanthropic capital to go to for-profit entities, as long as the primary purpose of the funds’ use are not for profit. Ie they can fund for-profit research companies with low likelihood of success, etc.
This approach allows philanthropic donors to both deploy capital and meet their foundation’s minimum annual outflows, but also allows for the possibility of their capital coming back (in the form of a loan repayment) and – possibly – a windfall for their foundation if they end up funding breakthrough science that leads to a successfully commercialized company.
Note – I need to do more research into exactly how to structure PRIs for maximum impact, and am actively looking into this area. Can also play with the 80/20 spilt, that’s just my initial suggestion.
Philanthropic donors would thus fund basic research, and have close ties to the venture investment community to quickly fund and scale promising therapies or approaches. It could work something like this (note – some ideas proudly stolen from the Milken Institute and their proposal on funding high risk medical research):
- There would be 2 classes of participants (VCs and donors) with different payout waterfalls, with the idea being that donors de-risk some of the early stage funding for venture investors.
- Once there’s promising research to further fund, a foundation could put up half the funds to further explore it. Venture investors could put up the other half of the funds.
- When the entity starts generating funds (or sees a liquidity event like a larger fundraise, sale or other exit), the returns would waterfall something like this:
- First, the market investors and would recoup their investments and earn up to a 3 percent internal rate of return (IRR) before the philanthropists got back any of their capital.
- Next in line on the revenue waterfall, philanthropic investors would get their capital back. But they would accept a below-market return thereafter – perhaps 1 percent – so that market investors could look forward to more upside. Finally, the residual returns would flow to market investors.
- Lastly, via its equity ownership in the entity, the foundation has a chance to see a windfall gain that it can use to fund further basic research in case something goes tremendously well.
This model protects against capital loss for investors (thus giving them higher odds of positive financial returns) and allows foundations to fund high-risk research when it’s least clear whether an innovation will be successful. It also gives foundations the opportunity to recycle more capital, and helps create a faster path to commercialization via the early involvement of venture investors.
That’s how I think research funding could be improved. Separately, the research organization I’m envisioning would structure research differently.
Better individual incentives
Based on my readings around how famous innovation labs (PARC, DARPA, etc) were run and structured, I’d recommend the above approach to research funding be applied with two unique angles:
- Fund people, not projects – choose the most promising researchers and scientists in a field and give them funding to pursue what’s of greatest interest to them
- Give the best people long-term grants to pursue an area of research, and minimize the amount of time they spend on non-core research. Ie no grant-writing, no teaching. And give them help with basic management skills if they run a team of other researchers.
- Focus on milestones, not goals
- Ensure long-term funding and budgets committed to certain individuals and milestones
With relatively little initial funding ($3-5mm), I believe you could fund a team of top scientists and researchers to follow an interesting research rabbit hole and likely make quite a bit of progress following the above principles.
In conclusion, by bringing together a novel way of funding research and ensuring it was structured in such a way that researchers could do their best work, I think you could likely unlock a ton of latent potential that’s stifled in the current academic system.
Would love your thoughts on the above proposal, as I truly feel like it could properly align incentives and create a step-change improvement in how research is funded and conducted.
Other interesting organizations with novel approaches to research and commercialization:3