By: Kim Kastorff
Impact Investing and Venture Capital (VC) often take off and form superhero powers when in sync and mission-aligned. We may see truly magical power when social impact scales over walls, cities and across foreign lands. Yet, these successful missions may give the impression that one cannot exist without the other. Truth be told, VC firms are helping fund the Impact Investing industry, but should they get ALL the credit? Are VC firms the new superhero of the modern world? Or, are other groups deserving recognition?
First, we want to thank the VCs for their enormous impact. For example, SJF Ventures raised $90 million along with its third fund to deliever social impact growth investments. Mainstream banks were among the investors into the fund - Citicorp and Deutsche Bank, along with insurance companies, foundations, and wealthy families and individuals (http://www.businessweek.com/articles/2013-05-02/one-bright-spot-for-vcs-impact-investing).
What this demonstrates is that impact investing also collaborates among many non-profit and for-profit sectors, to include: mainstream banks, non-governmental organizations (NGOs), pension funds, private and family foundations, insurance companies, high net worth individuals, grant making, social venture capital funds, private equity, debt providers and social impact bonds (Mulgan et. al, 2011).
Collectively, impact investing creates jobs among bottom of the pyramid (BoP) communities, increased sustainability and more diverse and innovative solutions as compared to “NGOs or other donor-driven programs” (Ruttmann, 2012). Thus, impact investing is requiring more proactive solutions and measurement approaches, and long-term sustainability among these communities. Occasionally these firms and investments are seeking a greater social impact and a longer term horizon, which may not always be compatible with some VCs or investors and further necessitate the involvement with other for-profit and non-profit entities.
Thus, impact investors are open to a variety of sectors, investors, entities and asset classes as long as the mission is a long-term solution considering both financial + social impact. For example, as opposed to throwing money at the problem or other such short-term solutions, impact investing seeks to build the communities and business to become self-sustainable in the long-term. Mission alignment becomes more important, and terms such as ‘collective impact’ are more commonly used in this space.
While there are a variety of collaborative impact investing institutions, we are seeing rankings and clear leaders who are scaling the field. Impact Assets developed the “IA50”, providing the top 50 funds globally, including: Acumen Fund, Bridges Ventures, Calvert Social Investment Foundation, Grassroots Business Fund, Habitat for Humanity, IGNIA Partners, LeapFrog Investments, Root Capital, RSF Finance, SJF Ventures, and Triodos Investment Management. So, not only the VC funded ventures are achieving scale but a wide variety of collaborations, both for-profit and non-profit.
Amid the economic crisis, certain banking institutions have risen to be leaders in offering significant socially responsible and transparent solutions for social change. For example, Triodos Bank originating in the Netherlands, is considered the #1 social bank and is consistently growing year after year despite the global credit crisis. In Oakland, California, One Pacific Coast Bank offers loans to individuals that previously wouldn't qualify and utilizes a graduated system. This program gives the consumer a chance and the opportunity to establish a credit rating, and eventually the person or firm will become self-sustainable or have a sufficient credit rating to apply for standard products, along with the other creditworthy members of society. Even traditional banks are now adopting microfinance, social responsibility, or impact investing practices, which may generate growth and expansion from these demand-side product offerings and socially acceptable practices.
A true superhero- Muhammad Yunus received the nobel peace prize in 2006 for his contributions in developing the Grameen Bank and promotes the notion of ´banking for the poor´, which later became known as micro-credits (www.muhammadyunus.org). Overall, microfinance institutions (MFIs) may range from very small non-profit associations to large commercial banks, both serving a mission to help the poor, unemployed or entrepreneurs who cannot obtain standard bank products. Among the MFIs we may see foundations, cooperatives, credit unions, non-bank financial institutions and commercial banks (Martin, 2011).
Social entrepreneurship institutions also have achieved scale based on their innovative and practical approaches, long-term sustainability focus on social issues (e.g. poverty). Entrepreneurial firms may grow in size, and become known as SMEs (small and medium size enterprises), which trigger further innovation, job creation, and economic growth. SMEs are common institutional forms in emerging economies, possibly subject to different laws and regulations, depending on size and social purpose.
Collectively, these various institutional types have created significant global social change, and consequently greater awareness and momentum. In the last few years, we have seen more actors, change agents, opinion leaders and network connectors for the impact investing field, including the influential investors network - Investor´s Circle and Toniic. The GIIN Investors´ Council is another “leadership group” comprised of more than 50 impact investors ranging from banks, pension funds, foundations and family offices and across various geographies, with a goal of advancing the learning and growth of the field (www.giin.org).
Together as these institutions implement impact investing products and approaches, we will see many more superhero missions and powerful institutional forces coming to the rescue. Along with our collective efforts, we want to show our gratitude to all the mission-aligned VC firms for their social good, and to the many other superheroes who are fearless and persistent in conquering the evils in our world. Together, may we rise above the doom and gloom era and strive for better communities that consider financial sustainability and also our social and environmental impact.
'Doing good makes good business sense' - Kimpacto (kimpacto.com).
9/26/2013 06:26:58 am
I find the article very interesting. Generally speaking most VCs invest in for-profit institutions and expect to realize profit from capital gain. However, with the emergence of socially aware (with dual objective, for-profit and non-profit/social) VCs and their success in recent years it definitely proves "'Doing good makes good business sense".
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Kim Kastorff has 15+ years of international finance experience and two Masters degrees - MBA and a Masters of Research in Impact Investing. Specific areas of expertise are in banking, financial and investment services, energy and sustainability, consulting, and financial education. Years ago, I told my students the purpose of business is to "Maximize shareholder returns." Today, it seems that stakeholders care about both "Maximizing financial + social impact." So, I am dedicated to helping impact investors and entrepreneurs adjust and remain competitive in this new environment. My goal is to promote impact investing and financial inclusion as we collectively strive for a more educated and financially sustainable global environment.