Here’s a dirty secret about solving global challenges: good ideas are cheap. Everyone has a plan to fix climate change, cure diseases, or house the homeless. Everyone knows that famine and war are dangerous to children and other living things.

In short, global threats are not state secrets. We can generally perceive what is wrong. But how do we shape markets and transform unsustainable realities to make them right?

The hard part is how to pay for it. Governments seem stretched more than ever as they add new problems ranging from climate mitigation to rapid population aging to their portfolios. Philanthropy, for all its virtues, can’t scale to meet trillion-dollar problems. And private capital? It’s happy to show up — but only if someone can explain how investors will enjoy high, risk-adjusted returns in the process.

That’s the puzzle Milken-affiliated Financial Innovation Labs have spent 20 years untangling. Since 2004, we’ve convened over 100 Labs across six continents, bringing together the people who have money, the people who need money, and the people who know how to structure transactions that make both sides happy. Readers who have been generous enough to participate in our Labs understand the formula. The same if you are one of the 1,000+ students/fellows who have taken our classes on innovative finance or jumped in with both feet to wrangle financial resources into financial solutions.

The DNA of the Milken Institute along with the affiliated research and training programs it has launched are all are rooted in the incubation of financial innovation. Our Financial Innovation Labs (now led in the U.S. by the Milken Institute’s Caitlin Maclean) have synergized over $3 billion in innovative investments, not to mention funding policy reforms and the development of financing mechanisms reaching tens of millions of people. Not bad for a bunch of financial hackathons whose simple but ambitious aim was to bring practical answers to big questions.

And happily, the Institute’s enthusiasm is catching. These Labs have attracted direct support from a Who’s Who of benefactors including the Gates and Rockefeller foundations, the California State Teachers’ Retirement System, Citigroup and Morgan Stanley.

Bridging the Capex Gap (Without Falling In)

The fundamental challenge in development finance is what we call the “capex gap” — the yawning chasm in capital expenditures between what infrastructure, healthcare systems, food-energy-water projects and housing programs need upfront and what traditional financing can provide. Good ideas of business models, projects, and policy interventions addressed in our Labs can get lost in of “valleys of death” where nascent good ideas falter and often die.

Why? Governments can’t borrow enough. Donors get tired or confused. And banks want collateral that early stage startups and projects don’t have.

Aside from the capex gap, our Labs have found numerous other capital gaps: access gaps, affordability gaps, information gaps, time-mismatch gaps (short-term versus long-term capital), scale gaps, risk gaps — where markets fail because of uncertainty that traditional risk models cannot adequately price. These risks limit high-impact ventures and projects for more inclusive and sustained growth.

Financial Innovation Labs work by getting everyone who needs to be in the room in the room — policymakers, investors, and the occasional academic scientists or engineers — to make sure that we are forward-looking. We spend months on pre-Lab research so participants arrive ready to solve problems rather than to be stunned by them. Then we spend a day or two hammering out solutions that are specific enough to implement. 

It’s not glamorous work — there are no ribbons to cut. But the process works.

The trick is structuring deals that let different parties take on the risks they’re best suited to bear. Governments can absorb policy risk. Philanthropies can provide first-loss capital. Private investors can bring scale once a model is proven. Get the structure right, and suddenly projects that seemed unfundable become merely complicated, where stratified capital structures can reduce the weighted average cost of capital. 

Projects and businesses become investible even before they are perceived as mainstream investments. It is precisely through these underdeveloped channels that a combination of technological creativity and human capital enable the emergence of a more inclusive future.

Monetizing the Unmeasurable

Between 1995 and 2015, the share of asset market value that was intangible increased from 68 percent to 84 percent — and since Covid-19 that trend has only accelerated Some of the most interesting work in our Financial Innovation Labs involves intangibles, things everyone agrees are valuable but nobody knows how to price. Think cultural heritage sites, biodiversity, clean air, pandemic preparedness, genetic traits of climate-resistant seeds and more. Try getting a bank loan against your country’s archaeological treasures, and see how far you get.

Yet these intangibles have real economic value, and Labs have found ways to unlock it. Work on Israel’s cultural heritage led to a $100 million government program treating archaeological sites as development assets. Conservation finance labs in Southeast Asia designed mechanisms to capture the value of ecosystem services. A Lab on global early warning systems for pandemics — funded by the Rockefeller Foundation and suddenly quite relevant after 2020 — examined how to finance the avoided costs of catching outbreaks early. Our work on life-sciences financing and bio-convergence yielded considerable longer-term investments in drug development infrastructure.

And we haven’t even begun talking about avoided costs, the accountant’s version of counterfactual history. How do you value the pandemic that didn’t happen, the flood damage that was prevented, the species that didn’t go extinct? It turns out you can, if you’re creative enough about securities design. Sustainability-linked bonds, catastrophe bonds, outcome-based financing and pull mechanisms such as advanced market commitments all represent ways of packaging future benefits (or avoided harms) into present-day investment opportunities.

The AgResults Trust Fund, which emerged from our work with the Gates Foundation and mobilized $150 million for agricultural productivity in Africa, essentially securitized the avoided costs of crop failures and livestock disease. Not the sexiest pitch for investors, perhaps — but effective.

Greatest Hits (Selected)

Twenty years and a hundred Labs produce a lot of case studies. A few highlights: 

• California’s Green Bond Market Development Committee emerged from Labs that brought together Goldman Sachs, Morgan Stanley and state officials to create infrastructure for climate finance. 
• The Tel Aviv Stock Exchange demutualized and re-formed following Lab recommendations, with market capitalization growing from $250 million to $1.9 billion between 2019 and 2025. 
• Israel’s residential REIT program, born from affordable housing Labs, has delivered over 1,600 projects with 40,000 apartments targeted by 2040. 
• Lab work with the Wellcome Trust tackled the market failure in antibiotic development, because nothing says “misaligned incentives” like pharmaceutical companies abandoning drugs that could save millions of lives. 
• Long-term care financing Labs led to Congressional legislation (the TECH Act and PACE Plus Act) raising awareness on just how unprepared America is for its aging population.

Initiatives in nutrition may be our best example of compound returns. A 2013 Lab with the Children’s Investment Fund Foundation designed a pooled-donor fund that became the Power of Nutrition, which has now mobilized over $500 million.

Twenty More Years?

The challenges ahead, ranging from climate adaptation to post-conflict reconstruction are more capital-intensive than what we’ve tackled so far. The good news is that 20 years of Lab work have built methodology, networks and institutional memory. We know how to get the right people in the room. We know how to structure deals that align incentives across public, private and philanthropic actors.

Looking back, the Labs have demonstrated something simple but important: thoughtful convening plus rigorous analysis plus persistent follow-through produces results. From sovereign wealth funds to smallholder farmers, from green bonds to senior housing, the work spans everything that needs capital and can’t easily get it.

The fundamental insight remains as fresh as it was in 2004: government can’t pay for it alone, philanthropy can’t scale it alone, and private capital won’t show up without help in structuring the deal. Get the right people in the room, design the right securities, price the right risks, and suddenly impossible projects become merely difficult. Here’s to the next hundred Labs — and the problems they’ll help solve, one well-structured, high-impact deal at a time.