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Scaling Impact Investing Part 1: High Engagement Approaches

| Monday October 11th, 2010 | 0 Comments

The conversation at this year’s Social Capital Markets conference in San Francisco was “what’s next;” how do we bring impact investing into the mainstream?  During her opening keynote, Jacqueline Novogratz of Acumen Fund stated that while there have been 192 new social impact funds created in the last 3 years, impact investing is still a nascent sector and its growth will require continued development of metrics, policy and incentives to protect social goals and efficiencies.

Several panels at SoCap 2010 explored one of the major themes of this conversation, which is achieving scale.  Two key elements to getting there: infrastructure to facilitate investing and lower transaction costs for social investments on a global scale.  RSF Social Finance, Investors’ Circle, Toniic and Dasra are just a few of the organizations finding innovative methods to develop to facilitate high engagement at a low cost.  How are they doing it?

  • Investors’ Circle has created a community of angel investors that can access Investors’ Circle-screened investment opportunities as well as a network of co-investors that pool funds together.  In doing so the organization reduces transaction costs and helps investors pool risks as well as resources.
  • RSF Social Finance used to base their returns on LIBOR.  They recently decided to create their own community-based pricing, pulling together groups of borrowers and investors to discuss their respective intentions and set their own interest rate, affectionately referred to as “RSF Prime.”
  • Toniic, which was just launched last week, is building a high-touch, member-to-member network of angel investors that together seek to invest over $100M in social enterprises.  By leveraging channel partners and each investor’s knowledge and experience in their local markets, Toniic’s model creates transactional efficiency for individuals and groups to invest effectively without needing to be physically close to their investment targets.
  • Dasra understands that many nonprofit organizations have the potential to scale their impact, but cannot access funding to cover institutional costs such as systems and operational plans.  With that in mind, the organization combines funding with hands-on assistance through an international network of advisors, mentors and social entrepreneurs.

Why are these initiatives necessary?  According to these organizations, one reason is that while metrics have been developed to measure social returns, taking measurement mechanisms to the entrepreneur on the ground (particularly in the developing world) requires high-touch engagement as well as an understanding of the implications of metrics in the context of a business’s local environment.  Another reason is that in order to build scale, the market needs to have infrastructure in place that lowers the transaction costs and makes successful examples more widely available to institutional investors.  Transaction costs can be mitigated through syndication models where funds engage trusted partners on the ground to connect to each and every deal.

These networks are also a necessary tool to train investors in the space.  As the panelists pointed out, one of the biggest barriers to achieving scale is that investors are overwhelmed by the number of choices that are available.  In addition, financial advisers are frequently uninformed about the difference between valuing traditional vs. social investments.  Collaborative models like those created by RSF and Toniic are the vehicles that will facilitate this learning process.

Vale is a second year MBA student at Duke University’s Fuqua School of Business and is interested in how for-profit businesses are finding innovative ways to create social and environmental value and how capital is being driven towards those businesses. Prior to enrolling at Fuqua she was the Deputy Director at Empowerment Group, a non-profit microenterprise development organization based in Philadelphia. This summer she interned with B Lab, auditing certified B corporations and working on the organization’s policy and capital markets initiatives. Vale has a BA in Economics and Political Science from Swarthmore College.


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