Prize Money and Innovation

The last post “Less Obvious Sources:  Prizes and Water” on October 23, 2018, focused on the Skywater Alliance and its innovative system to generate potable water.  As part of an effort to help solve the growth problem of inadequate water supplies around the world, architect David Hertz and his partners have developed a system to snatch water right out of the air.  The Skywater system creates rainstorms in a container by heating wood chips to the right temperature to cause condensation of moisture in the air and the organic fuel.  As the condensation is collected ozone is pumped through the water to purify the water before storage. 

Prize Money

Hertz’s group sought financial support from an unusual source.  The group entered the Xprize for Water Abundance competition, edging out over 90 other inventors for $1.5 million in prize money.  The XPrize Foundation awards seventeen different prizes in nine categories aimed at bringing about a safer, healthier and more sustainable world.  Since inception in 1994, Xprize has awarded over $140 million in prize money. 

Turns out the Xprize Foundation and its program of prizes to encourage innovation is not so unusual.  McKinsey & Company, a business consultancy, found that such award programs have shifted in emphasis from recognition of excellence to a means to encourage innovation and social change.  Prizes related to science, engineering, aviation, space and the environment have proliferated, while prizes for the arts and humanities have dwindled to less than 10% of private grant monies.

The Hult Prize offers $1.0 million in seed money to student entrepreneurs with for-profit enterprises that help solve social problems.  The 2019 awards will be in celebration of the organization’s tenth anniversary and challenges applicants to create jobs for 10,000 youth over a decade.

The idea of supporting social change through practical solutions with a market-based approach is not unique to the Hult Group.  The Roddenberry Prize initiated by Star Trek creator Gene Roddenberry to encourage disruptive innovations that challenge convention.  The 2018 round sought applications related to climate change, in particular food waste, plant-rich diets, girls’ education, and women’s rights.   Winners will receive a generous $1.0 million for ideas that could be effective in slowing the pace of global warming through the use of resources that are often overlooked by other financing programs.

The Skoll Foundation has invested over $470 million around the world in social entrepreneurship.  Awards of $1.25 million are given to winners with ideas that improve economic opportunity, health, education, environmental sustainability, or human rights.  Winners in 2018, included the Angaza financing options for renewable energy products, Callisto alternatives for reporting sexual assault, Code for America digital services accessibility, Global Health Corps health professional placement, myAGRO microsaving application and investment platform for farmers, and SELCO decentralized solar energy in low income India.   

Changing Sentiment

Prizes can have an interesting impact not only on the future of the recipient, but on the fate of an entire industry or social concept.  Most notable of the X Prizes was the Anzari X Prize for $10 million, which was won in 2004 by the Tier One Project using the experimental space plane SpaceShipOne.  The award spurred new interest in space travel and ultimately led to increased private investment.  Commercial space companies received $3.9 billion in 2017, including money from 120 different venture capital firms.

It is not the first time that a prize played a role in effecting long-term social and economic change.  The Orteig Prize of $25,000 was awarded in 1919, to aviators to fly across the Atlantic Ocean.  Charles Lindbergh ultimately won the award after flying this aircraft the Spirit of St. Louis to from Long Island, New York to Paris, France in 1927.  The flight inspired others like explorer Richard Byrd to pursue regular, transoceanic flights.  A number of people lost their lives, including Amelia Earhart, but dollars many multiples of the Orteig Prize were invested in the new aviation industry.

The power of the prize has been recognized some of the wealthiest people in the world today.  The widow of Apple, Inc. founder Steve Jobs, Laurene Powell Jobs, has announced a $50 million prize called Super School Project.  It is aimed at innovation in high school education.  In what seemed like an odd choice, Microsoft co-found Paul Allen had teamed up with the U.S. Department of Transportation on creating Smart City contest aimed at traffic reduction ideas.  Allen offered to put up $10 million to match the government’s $40 million to award a city with a plan to reduce greenhouse gas emissions.  Fate of the $50 million kitty is uncertain since Allen’s recent passing.

Rick Perry Visiting NREL Facility

Even the government is trying to get in on the act.  The U.S. Department of Energy under the leadership of Rick Perry has launches prize competition to boot domestic solar manufacturing.  The problem is only total of $3.0 million has been budgeted for the prizes, which will each be $50,000.  The U.S. domestic solar manufacturing sector is already generates well over $200 million in economic activity each year.  The sector employs 370,000 people in the fifty states.  The most pressing difficulty the sector faces today is eroding demand as a consequence of tariffs imposed Mr. Perry’s boss in the White House.  The industry has widely opposed the imposition of tariffs as harmful to the domestic solar manufacturers.  It is doubtful $3.0 million will make up for the losses.

How successful Rick Perry, Laurene Jobs or Paul Allen’s family will be in their particular efforts remains to be seen.  However, if history is repeated, innovation awards  -  even those poorly planned or inadequate in scope  -  will have an influence on the shape of our society and economy.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.