Pay for Success aims to measurably improve the lives of people most in need by driving resources toward better, more effective programs.
At its core, Pay for Success is a public-private partnership which funds effective social services through a performance-based contract. Pay for Success projects enable federal, state, and local governments to partner with high-performing service providers by tapping private investments to expand effective programs.
If, following an independent evaluation, the program achieves predetermined outcomes that benefit society and generate value for government, then government will make outcomes payments to investors. However, the government pays only at the level of outcomes achieved.
A Pay for Success project begins with a challenge the government is trying to address, such as improving maternal and child health, increasing educational attainment and employment, or strengthening family stability.
Here's how it works:
Repays investment if project achieves measurable outcomes
Develop and manage projects, mobilize capital, manage for results
Deliver high-quality services to improve lives
People in Need
With effective support, find opportunities to thrive
Measure participants' progress and social impact
Provide upfront funding and take financial risk
- Form partnership. Government defines the social issue and objective for the project. To achieve this goal, the government partners with an intermediary, like Social Finance, and high-performing service provider(s)—organizations with track records of success and evidence that their programs work.
- Develop project and mobilize capital. The intermediary works with government and the provider to design the Pay for Success project. As the coordinator and project manager, the intermediary drives the design, negotiation, and financial structure of the project and raises capital from impact investors and philanthropy to provide upfront, flexible funding to the provider, covering the full cost of scaling services and managing project performance.
- Deliver services. The provider delivers services to the target population, with post-launch support by Social Finance (including governance oversight, performance management, course corrections, and financial management and investor relations).
- Achieve outcomes. With the support of high-quality services, people in need achieve life improvements—by having healthy births, raising children ready for kindergarten, staying out of prison, and securing and keeping good jobs.
- Trigger outcome payments. An independent evaluator measures the impact of the project on predetermined outcome metrics. If the project successfully improves outcomes, the payor repays the impact investors, plus a modest return. If the program does not achieve its target results, government pays nothing.
Pay for Success: Who Benefits?
Receive high-quality services.
These services help them live healthier and more productive lives—by avoiding prison sentences, finding gainful employment, or managing their health.
Receive upfront, flexible funding.
This funding enables them to grow effective interventions and serve more people in need. Service providers can focus scarce time and resources to programmatic activities, rather than fundraising.
Only pays for results.
The risk of paying for programs that don’t improve lives is shifted to impact investors. Pay for Success funds preventative services, saving on remediation down the line, and improves social welfare by funding services that benefit all of society.
Amplifies impact by supporting sustainable services.
Philanthropies have always supported programs that address social challenges. Pay for Success helps connect foundation-social programs with government, offering the chance to scale effective solutions sustainably.
Put capital to work in service of society.
By investing in their communities and supporting high-quality programs, impact investors can meet the ultimate goal of achieving both a financial and social return.