The third sector and startups are often thought of as unlikely collaborating partners due to a number of barriers – institutional, financial, legal, cultural – that undermine or even prevent them from working successfully together. Yet, there is much to gain when the two worlds align. By tapping into startups’ innovative ideas and ways of working, third sector organisations can explore novel ways to achieve impact that are vital to remaining fit for purpose.

Featuring examples from UNICEF, Save the Children, Friends of the Earth and others, our latest report highlights various ways in which the third sector can overcome barriers to successful collaboration with startups, despite their unlikely match. From co-working spaces to accelerator programmes and investment funds, there are many ways for the third sector and startups to work together. Here are three sector-level changes that could facilitate their partnership.

Third sector organisations struggle to fund collaborations with startups. Relatively small budgets are one part of the problem – to illustrate, the top ten UK corporate R&D spenders spend more on R&D alone (£13.6 billion per year) than the largest 51 UK charities spend in each year in total (£11.1 billion). A lack of flexible capital in the third sector poses an even greater challenge. Money is often earmarked (when projects are grant- or legacy- funded, for example) and therefore cannot easily be allocated to startup collaboration. By law, it is also difficult to fund for-profit startups because charities need to demonstrate that sufficient public benefit can be derived. As a result, promising collaborations often fail because there is no dedicated budget behind them.

Third sector organisations alone are unlikely to fill the gap, so they should take steps to pool funding from multiple third sector organisations. Where additional budget providers are required, they need to broker multi-party collaborations that could include the government or corporates. There may also be an opportunity to set up a government-backed venture fund to help third sector organisations invest in innovation and startup collaboration.

The private sector has seen a surge in collaborations between corporates and startups in the past decade. This is partly because incentives are easier to align; corporate investors typically take an equity stake in return for supporting startups, allowing both parties to financially benefit if the value of the startup grows. In the third sector, it is relatively rare to negotiate equity – or any other return mechanism, such as a share of any arising intellectual property (IP) – in exchange for supporting startups, as long as the collaboration is expected to increase the third sector’s impact. Many third sector organisations deliberately do not take equity or IP because it implies a risky, long-term commitment that needs to be managed, or because they lack the legal and commercial expertise. There may also be an ideological opposition to seeking any returns other than impact. However, in the absence of clear, measurable return mechanisms, there is less incentive to commit substantial resources to startup collaboration. It also undermines the sector’s ability to re-invest any returns to make collaboration programmes with startups commercially sustainable.