A Different Kind of Funding: How Catalytic Investments Lead to Exponential Impact

In July 2024, Illai Gescheit, serial entrepreneur and member of Ashoka’s Entrepreneur-to-Entrepreneur Network, published an open letter to the tech and media community called “Let’s cover grants and catalytic funding as if they were venture capital deals.”

A seasoned founder and investor himself, Illai called out the stark difference between media attention for venture capital (VC) investments in startups, and attention for other forms of funding, such as government grants, philanthropic investments, and fellowship stipends like the Ashoka Fellowship.

Where VC deals typically lead to flashy headlines, the media very rarely reports on entrepreneurs who secure these other types of funding, which Illai calls “catalytic funding.” In his letter, Illai points out that this is a huge missed opportunity — for media outlets themselves, but also for entrepreneurs. We at Ashoka agree; in this post, we’ll explain why.

Visualizing the Effect of Catalytic Funding: the ‘Ashoka Bump’

Illai’s choice of words — catalytic funding — is apt. At Ashoka, we believe that the most powerful force for change is a new idea in the hands of a social entrepreneur, and we have been investing in this belief for over 40 years. Our global Fellowship includes some 4,000 of the world’s most powerful changemakers.

While they are the ones creating the impact, it is safe to say that Ashoka’s investment in our Fellows, in the form of fellowship stipends as well as other, non-financial support, have indeed helped catalyze their collective impact.

This catalytic effect is visible in what we call the ‘Ashoka Bump’: the growth in our Fellows’ organizational budget — and, by extension, their impact — that happens after their election into the Ashoka Fellowship. Compared to their peers who do not get the Ashoka Fellowship, Fellows grow 2.5x over the 10 years after they join the network (based on a sample of 130 organizations in the U.S., see graph below).

Notably, this growth in budget is magnitudes greater than the size of the stipend Ashoka provides. In other words, it leads to a consistent, exponential return on investment — in the form of organizational growth and impact — that would spark any investor’s envy.

Why Catalytic Funding is so Effective — and Important

There are several reasons why catalytic investments, like the Ashoka Fellowship, are so effective. Before we explore those reasons, let’s recognize first why this type of investment is so critically important.

The Ashoka Fellowship was originally launched specifically to address the funding gap between for-profit entrepreneurs and social entrepreneurs. The vast majority of Ashoka Fellows achieve their impact through non-profit organizations (regardless of whether or not they generate revenue, which many Fellows do).

This means that, unlike for-profit entrepreneurs, these social entrepreneurs do not have access to VCs, incubators, and other types of dilutive, profit-seeking funding. In other words, catalytic funding like the Ashoka Fellowship addresses a hugely important need — without it, most social entrepreneurs would be unable to grow their impact.

So why does this type of funding have such an exponential rate of return? In Ashoka’s case, there are at least three clear reasons: the timing of the Fellow’s election, the ability of the Fellow to focus full-time on their organization, and the support with transitioning into becoming financially self-sustainable.

Ashoka tends to elect Fellows at a point where their idea has proven successful and scalable, but they are still early in its implementation (47% of Fellows say the Ashoka stipend is their first significant source of funding). This is a critical inflection point, where catalytic investments are particularly effective.

A significant part of that effect comes in the form of paying for the Fellow’s salary. Before election, many Fellows are unable to financially sustain themselves from their work and are in need of additional sources of income. By contrast, in our latest impact study, 80% of Fellows say they are able to dedicate themselves to their work full-time thanks to the stipend.

One key element that sets the Ashoka Fellowship apart from many other sources of funding — and that makes it particularly catalytic —

is that it specifically aims to support the Fellow in becoming financially self-sustaining. The Fellowship includes a three-year stipend, depending on the Fellow’s financial needs. The disbursement is heavier at the start, and Ashoka provides support with developing a sustainable financing strategy (through continued grant funding and/or earned revenue).

The effect of this is clear: 10 years after election, no less than 90% of Ashoka Fellows are still working on their idea.

A final note: Ashoka’s stipend is unrestricted, meaning there are no reporting requirements or stipulations on how to use it. Although decreasingly so, this is still quite rare for grant funding, and it makes a huge difference in the funding’s efficacy — not least because the entrepreneur can focus fully on their work, rather than spending time and energy on reporting on it.

Why We Need More (Attention For) Catalytic Funding

As Illai Gescheit pointed out, the lack of media attention for these types of funding is a huge missed opportunity, for both media and entrepreneurs. Due in part to a lack of media attention, founders often miss out on these diverse funding opportunities, simply because they don’t know they exist.

We couldn’t agree more. While we are proud of our Fellows and the ‘Ashoka Bump’, the truth is probably that most non-Fellow organizations could also achieve this growth if they had access to the same kind of unrestricted, catalytic funding and non-financial support. More of those resources are necessary, but so is more awareness of the opportunities that do already exist.

We encourage mainstream media and those focused on startup reporting to take a leaf out of the book of media organizations like Ashoka Fellow David Bornstein’s Solutions Journalism Network, or PBS’ Brief but Spectacular, which often features Ashoka Fellows. As per Illai Gescheit’s suggestion, they focus not only on grabbing headlines but also on stories of real impact.

This article was originally posted on Ashoka's Medium page.