Prizes help creators raise money – best path to big break-throughs

One of the most difficult ingredients for creativity and innovation is access to capital. Frequently the leading thinker or innovator of the group is forced to spend 80% of their time raising capital to cover salaries and access to resources rather than thinking and/or leading. Worse yet, those ideas which have the highest probability of producing true breakthroughs are the most novel and therefore the most difficult to prove and therefore fund.

Incentive prizes provide an environment which attracts a new “flavor” of money that has different objectives. Again the Ansari X PRIZE offers an excellent example. Before announcing the $10M purse, any team wishing to fund a private sub-orbital spaceship would need to approach an angel investor or venture fund for capital. Any sophisticated investor would immediately say “no” given the inherent risks, specifically: no proven market, regulatory risks (the laws to allow private human spaceflight did not exist), technology risk and risk of very visible public failure. As such, few investment funds flowed towards this technology development arena, and those who did invest lost significant amounts. It was space community expressed this thought with the following joke: “what is the best way to become a millionaire in the space business? Start as a billionaire!”

After the Ansari X PRIZE was announced, teams found it much easier to raise the capital and support. Rather than seek investment funds, these same teams were able to viably pursue to alternative sources of capital: sponsorship and private benefactor money.

Sponsorship funding which typically is in the $20 billion - $30 billion per year in the U.S. is looking for highly visible, unique opportunities. As the sporting work continues to be cluttered, incentive prizes offer a unique alternative. As Sergey Brin, co-Founder and President of Google said in a video address at the announcement of the Google Lunar X PRIZE, “I knew we never wanted to do something so conventional at Google, I thought if we were ever to sponsor something it should be something ambitious. Having seen the success of the Ansari X PRIZE, the fact of having many different entrepreneurs all competing to accomplish a goal is first more exciting, second more likely to actually achieve the goal and third probably less expensive overall.”

Private Benefactor money, which is sometimes called “ego money” is the same pot of funds that an individual uses to put their name on the side of a building, or to personally fund an America’s Cup team. It is money that gives them personal gratification or helps build a family legacy. A large audacious prize can help wealthy individuals transition from “Success to Significance. These levels of funding can run in the tens to hundreds of millions of dollars. The properly constructed prize can entice and attract funds to back a team. As Paul Allen, the vision backer of SpaceShipOne said at the Ansari X PRIZE post-flight press conference in October 2004, “A few years ago I was just browsing the internet and I came across this thing on the X PRIZE and I thought this is kind of interesting, who are the crazy guys trying to do this kind of thing...”