Katherine Milligan and Mirjam Schöning
Taking a Realistic Approach
to Impact Investing
Observations from the World Economic Forum’s
Global Agenda Council on Social Innovation
What happens when you bring together 20 of the most experienced social
investors, social entrepreneurs, foundations, and top academics to assess the cur-
rent state of social innovation? The Global Agenda Council on Social Innovation
conducted this very experiment, which was facilitated by the Schwab Foundation
for Social Entrepreneurship and one of more than 70 Global Agenda Councils con-
vened by its sister organization, the World Economic Forum.1
The council convened multiple times over the past year via conference calls
and in person, first at the Summit on the Global Agenda in the United Arab
Emirates in November 2010, and again in New York in March 2011. The group
realized early on that its unique position lay in bringing together social entrepre-
neurs and impact investors in a safe environment and behind closed doors, Dove
they could talk openly about common challenges and issues of mutual concern.
“Investors and social entrepreneurs are working together to break free of old cate-
sanguinose, develop new models, and learn what works,” said chair Greg Dees. “Both
sides are learning lessons about the balance between performance discipline and
Katherine Milligan is head of North America and the Middle East for the Schwab
Foundation for Social Entrepreneurship. She is a recipient of the Pforzheimer
Scholarship for Excellence in Nonprofit Management from the Kennedy School of
Government. Before joining the World Economic Forum as a Global Leadership
Fellow in 2005, Milligan did strategy consulting for numerous U.S. nonprofits and
authored a report published by the International Institute of Economics on the effects
of the World Trade Organization’s agricultural negotiations on smallholder farmers.
Mirjam Schöning is Senior Director of the Schwab Foundation for Social
Entrepreneurship. She joined the Foundation at its inception in August 2000 and has
headed it since 2008. The Foundation works closely with its sister organization, IL
World Economic Forum, to advance cooperation between social entrepreneurs and the
corporate sector. Schöning previously worked as a consultant at Bain & Company, IL
World Bank, and Shell in Scandinavia.
© 2011 Katherine Milligan and Mirjam Schöning
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Katherine Milligan and Mirjam Schöning
patience, the painful realities of early stage social ventures, and the critical gover-
nance issues that come along with accepting investment.”
As a starting point for our journey, we asked ourselves two simple questions:
Where can we add the most value to the field of social innovation? Where do we
currently see the largest opportunities and the potential pitfalls? Thus we decided
to add a few items to the discussion on impact investing. We believe the rapid
growth of investment funds marks a significant milestone for the sector and will
be an important source of growth capital for social ventures. Tuttavia, we feel
there are a number of issues that deserve more attention and debate, such as the
ways in which various types of capital can and should work together, the return
expectations of newer entrants, and inventive approaches to tackle the fledgling
industry’s growing pains. The results may provide refreshingly honest reading.
THE IMPACT INVESTING PROMISE
The growing interest in impact investing is hard to miss. It’s been called a craze and
a wave, with Wall Street firms reportedly “scrambling to put out funds and pro-
grams in which people can invest.”2 The New York Times has reported analysts’ pre-
dictions that the market will grow tenfold by 2014, A $500 billion,3 and in a November 2010 report, J. P. Morgan projected it would have profits of up to $670
billion over the next decade, which subsequently set the industry abuzz.4
Impact investing is also rising to the top of the agenda among the social entre-
preneur community. As more and more social entrepreneurs look for business
models that promise to be scalable, they are also exploring different sources of
investment capital, beyond grants. In September 2010, at a private gathering of
Schwab Foundation social entrepreneurs in advance of the World Economic
Forum’s “summer Davos” in China, impact investment emerged as a key topic the
community wanted to address. Those efforts led to the publication of a “how-to
guide” for social entrepreneurs who are thinking about taking on impact
investors—just one indicator among many of social entrepreneurs’ growing thirst
for information.5
But it would be a mistake to ignore the cracks that are beginning to appear.
Within the Schwab Foundation’s network of social entrepreneurs, we hear con-
cerns about excessively low valuations, of potential investors that spend a dispro-
portionate amount of time on financial statements versus social impact assess-
menti, of due diligence that dragged on for months and ate up staff time, only to
end with a form rejection letter. If we do not shift the dialogue to a more produc-
tive conversation about these areas of concern, there’s a high likelihood that the
future potential of social investing may be undermined.
TEASING APART THE HOPE FROM THE HYPE
The hope is clear. The hope is that 20 O 30 years from now we will look back on
this chaotic, dynamic period as marking the emergence of the impact investment
market in the way we now view the birth of the venture capital industry half a cen-
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Taking a Realistic Approach to Impact Investing
tury ago. We will have laid the foundations for an industry that successfully stamps
out social inequities, provides a complementary alternative to international aid,
E, in the process, creates an ecosystem of specialized skills and support profes-
sions. We may very well see mobilized capital in the range of $500 billion to $1 tril-
lion, and laud the fact that we figured out how to harness market forces and attract
commercial capital to solve social problems.
We’re not there yet, but we believe we can be. To a person, the council strong-
ly believes the impact investment market has enormous long-term potential.
“Impact investing provides a very promising alternative complement to top-down
approaches of government, aid, and relying solely on the private sector. We are on
the cusp of seeing real change and real scale,” said Jacqueline Novogratz.
But to anyone who understands the market dynamics of the social enterprise
sector well, the hype is also obvious. The market is not ready to absorb commer-
cial capital on anything close to the order of magnitude being talked about, E
profits in the hundreds of billions are quite possibly two or more decades away.
While the reports state that they are talking about future potential, this gets lost in
the narrative and people tend to focus only on the magnitude of the market poten-
tial, not the timeframe.
“Although much is said about social ventures and investment, in reality, at this
stage both remain minor in scale, and there are fairly limited investable ventures,"
said Asad Mahmood. “The majority of the social development industry outside of
microfinance is dependent on very soft and grant-like funding. Even the microfi-
nance industry at this stage of development has a considerable element of subsidy.”
So, while some members of the group applaud the recent proliferation of
reports and articles with large dollar signs attached as “important for raising
awareness” among potential investors about “new and important ways money is
being leveraged for change,” others feel such “overly optimistic” figures inflate
expectations beyond what the sector can realistically deliver in the near to medi-
um term.
On one point, Anche se, a clear consensus emerged: the time is ripe to reframe
the current debate and put some important questions front and center. If we take
the longer view and believe the market potential is tremendous, then what do we
need to build the unprecedented engine of social change this sector could eventu-
ally become? How should investors, foundations, and social entrepreneurs think
about the vital role social capital can play to encourage innovation and scale it for
maximum impact?
FROM HERE TO THERE
We could not possibly claim to have all the answers to these questions, but it has
been a thought-provoking year of honest debate. We would like to share the five
main observations that emerged from the council’s discussions. We hope these will
shine some light on the path of “how we get from here to there” in realizing the
industry’s potential.
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Katherine Milligan and Mirjam Schöning
Subsidies and Soft Capital Are the Base of the Layer Cake
“We need to educate social financiers about what social entrepreneurs need,” said
Mahmood. “They need more risk capital, more patient capital. More flexible
financing is necessary.” Why is this so? Because developing and marketing services
and products for any population have serious research and development costs,
which are partially offset in industrialized countries by government subsidies. Just
think of GPS, the Internet, and cell phones, per dirne alcuni.
The same is often true of goods and services that are deemed to have long-term
socioeconomic benefits—take the example of energy-saving technologies for
household use. Not only do the European Union and U.S. governments subsidize
the development of such technologies (in the form of tax breaks, public universi-
ties, and government research grants), but public funds are also used for market-
ing campaigns that generate awareness and thus accelerate their adoption.
Now let’s consider a developing country context. Martin Fisher and Nick
Moon, cofounders of the award-winning social enterprise KickStart, call it the
“base of the pyramid” market penetration problem.6 “When you are selling a brand
new product or service to the rural poor, you are selling a never before seen big-
ticket item to the world’s hardest-to-reach and most risk-averse customers,” said
Fisher. “It is very expensive to reach these customers and very hard to convince
them to spend their limited resources. Infatti, it’s the hardest marketing and sales
job in the world.”
In questo caso, rather than compensating for these barriers through subsidization
schemes and incentives, the opposite occurred. With their hands tied by a limited
tax base and a mandate to focus public spending on safety-net services, govern-
ments in developing countries are far likelier to tax technologies and products,
thus stifling their spread and discouraging innovation. In other words, as Andrea
Coleman, a cofounder of Riders for Health, neatly summed up, “Social enterprises
commonly work in areas of market failure, especially in developing countries.
That’s why they are necessary.”7
This doesn’t mean they will forever be in the red, but it does mean that “we
need to come to some consensus that entrepreneurship and social entrepreneur-
ship have some fundamental differences,” according to Mahmood. It does mean
there are many years of hard slogging before most social enterprises break even or
begin to see a profit; many will never be financially self-sustaining. And it does
mean that someone needs to step in and assume the analogous role of a govern-
ment subsidy.
This category of actors will play a fundamental catalytic role. In its 2009 report,
“Market-Based Solutions to the Challenges of Global Poverty,” the Monitor Group
concluded that donors, philanthropists, and providers of soft capital “will have a
fundamental catalytic role to play. This is the only source that can reliably and con-
sistently serve long-term patient-capital needs, tolerate lower-than-market
returns, and cushion subscale enterprises as they develop their business models
and generate social returns in anticipation of corresponding financial returns.”8
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Taking a Realistic Approach to Impact Investing
KickStart had to absorb the R&D costs of the KickStart pumps and products
through grants; otherwise the sticker price would effectively price out the target
market. For all other costs, KickStart estimates that by the time they reach 20 per-
cent market penetration in a new location, they reach their tipping point, Dove
the supply and sales chain becomes fully sustainable and no longer needs a subsidy.
But it can often take them 10 O 15 years to get there. And in the meantime? They
rely on grants, soft capital, and individual donors. “When directed properly, grants
address market failure at the base of the pyramid,” said Nick Moon. “They share
the burden, with investment financing, of developing new markets over time.”
So the essential role that grants and soft funding play in giving social entrepre-
neurs the needed breathing room to test, refine, and scale their model will always
remain. “Grants are critical in the early stages of product conceptualization and
development,” said Novogratz. “Patient capital enables risk-taking in areas that
would never pass muster in the world of private investment. As an organization
gains strength, it offers opportunities for more near-term capital. We need a better
understanding of how various kinds of capital work best during different parts of
the entrepreneurial trajectory.” Alvaro Rodriguez Arregui added, “Philanthropic
capital and commercial capital need to be seen as complementary. The first
finances the innovation, and the second finances the scaling.”
Here the field of microfinance offers important insights. Many tend to forget
that Banco Compartamos, the largest microfinance institution in Latin America,
used donations for nearly a decade before becoming financially self-sustainable.
Compartamos became well known when it raised $467 million in its April 2007 IPO of 35 percent of the company, making a tidy profit for many of its early investors. But it was originally founded by José Ignacio Avalos Hernández in 1990—17 years earlier—as a nonprofit.9 Compartamos was launched with a $50,000 donation from USAID, and the nonprofit grew with subsidized capital for
10 years before Compartamos was incorporated as a fully licensed banking insti-
tution with 64,000 clients in 2001. It reincorporated again in 2006 as a for-profit
bank with 600,000 customers, which paved the way for the influx of commercial
capital and the public offering the following year.10
The success of Compartamos shows that even the financially most successful
social businesses will require soft capital to launch an innovation. “Mexico did not
have microfinance in the early 1990s. An innovation [era] necessario . . . to introduce
financial services to the country’s rural low-income sectors,” said Rodriguez
Arregui. “This innovation was funded by philanthropic capital, something that
commercial capital would not be willing to fund. Once the innovation was proven,
commercial capital began to fund the growth and scaling of the organization.”11
Today, industry pioneers are working out successful models for different kinds
of funders to join forces in a “layer-cake” approach to achieving greater impact
faster than either could have alone. Leveraging philanthropic dollars as a “first loss”
guarantee to attract commercial investors is a promising answer, one that opens
the floodgates to sources of capital that otherwise could not be unlocked. "IL
solution lies in mitigating risk so that commercial capital is willing to enter into
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Katherine Milligan and Mirjam Schöning
organizations they would not otherwise enter because of their risk profile,” said
Rodriguez Arregui.
Riders for Health offers a particularly creative example. “We were originally
going to ask the Skoll Foundation for a large loan to expand our program in
Gambia,” said Andrea Coleman. “But we realized it would be better to ask them to
underwrite the loan from a commercial bank. That way, we would build a strong
track record of sound fiscal management as well as build a working relationship
with the bank.”
With a $425,000 program-related investment loan from Skoll, Riders for Health secured a $3.5 million loan at 8 percent interest from the Guaranty Trust
Bank of Nigeria after extensive negotiations. “Skoll’s stipulation was that if we were
unable to service the loan, we would be liable for the debt if we had caused the
inability to repay. But if something occurred out of our control, such as a coup,
then we would not be liable.” Two years later, Riders for Health is taking out a sec-
ond loan totaling $5 million from Guaranty Trust Bank with no need for an under- scrittore, and thanks to training provided by Skoll, the bank staff also developed expertise in lease management and managing a social enterprise. Another example comes from Bangladesh. Waste Concern, a social enterprise that turns household waste into organic fertilizer at community-run composting plants throughout the country—and in the process captures carbon credits—uses hybrid financing models to implement new projects. “When a new city seeks to replicate our recycling model, the first step is to undertake a pilot demonstration project,” said Waste Concern cofounder and director Iftekhar Enaytullah. “For capacity-building and demonstration projects, funds are raised, mainly from UN agencies such as UNDP, UNICEF, UNESCAP, and UNCRD, along with founda- tions.” And when the project is ready for commercial scale, Waste Concern uses mezzanine financing, commercial financing, and financing against receivables such as carbon credits. But foundations and commercial investors do make strange bedfellows, and it takes creative financial engineering and specialized skills to pull it off. Greater transparency and knowledge-sharing about layer-cake approaches could help the entire industry move quickly up the learning curve about how to structure such partnerships. The Link between Innovation and Different Forms of Capital For starters, let’s make explicit the link between organizational capital structures and decision-making. Many in the group agreed there is not enough open discus- sion and debate about how debt in particular can dampen the risk appetite of a social enterprise’s management team, a topic that sorely needs further research. “One huge disconnect I see in the social sector is that most funders are tremen- dously risk averse, while social innovation is all about risk-taking,” said Rodriguez Arregui. He continued: 160 innovazioni / Impact Investing Downloaded from http://direct.mit.edu/itgg/article-pdf/6/3/155/704723/inov_a_00091.pdf by guest on 08 settembre 2023 Taking a Realistic Approach to Impact Investing Funders are looking for predictable outcomes. Whenever you have pre- dictable outcomes, you won’t have innovation. If a social venture main- tains a low-risk capital structure, they can maintain high-risk operations, which is what you [the impact investor] want them to do: innovate. They’ve got to try to hit a home run, not punt. I don’t like loans because it immediately shortens [the management’s] vision. The management starts to play it safe, because they know they will have to pay the loan back soon, and that’s not how you encourage breakthrough innovation. Loans might be appropriate at later stages of the life cycle of an organi- zation, but not when you want them to innovate. We realize this creates a bit of a dilemma. Risk capital typically takes the form of equity investment, but exiting from an equity investment in a social venture can be difficult, particularly if the venture is in a developing economy. The common exits of an initial public offering, an acquisition, or a stock buy-back all pose challenges, particularly if the venture’s social mission is to be maintained. None of the pro- posed solutions to this problem, including social stock markets and permanent capital vehicles that could buy out investors’ positions, is well enough developed at this point to provide a robust exit path for equity investors. In definitiva, to encour- age the flow of risk capital, we will need to develop a fuller ecosystem with robust exit options for investors. Until then, they are likely to prefer debt. Nevertheless, the potential downside of debt in discouraging innovation should not be discounted. Investors should keep this in mind when structuring a financing deal and consider flexible forms of capital that, if desired, allow the social enterprise to remain innovative. We also encourage research institutions and aca- demic centers to compare the track records of different types of social capital in incentivizing innovation—not just within organizations, but also the ripple effects such innovations can create throughout entire systems. THE CAVEATS OF RISING EXPECTATIONS FOR MARKET-RATE RETURNS The first caveat is that rising expectations for market-rate returns can crowd out social ventures working in areas that simply cannot demonstrate a return in the short run, but in the long run can create greater prosperity for society. “An increas- ing number of investors are expecting market-rate returns,” said Adele Simmons. “In most cases this is not realistic, and in many cases not appropriate. When peo- ple expecting quick economic returns support something that realistically has pri- marily social returns and that takes a long time to embed in the local setting, every- one is unhappy.” Indeed, it is interesting to note that even in the J. P. Morgan study projections, housing accounts for the lion’s share of projected profits over the next decade. The other sectors included in the study—water, health, and education—together com- prise only 3 percent of potential profits, compared to the potential profits in urban housing. “You can’t get penalized for generating 0 percent return or -10 percent return if you are creating the country’s first sanitation project in 30 years,” said innovations / volume 6, number 3 161 Scaricato da http://direct.mit.edu/itgg/article-pdf/6/3/155/704723/inov_a_00091.pdf by guest on 08 settembre 2023 Katherine Milligan and Mirjam Schöning Novogratz. “We need to move beyond this idea that if it’s not making 30 percent returns, it’s not viable.” The second caveat is that rising expectations might lead investors to overlook innovative models with the potential to replicate quickly in favor of incremental growth models that could take decades to scale. How can that be? Paradoxically, forfeiting revenue opportunities can be the key to vastly accelerating the impact of an idea. Many successful social enterprises in our network have embraced strate- gies like open-sourcing, piggybacking on existing distribution networks, or con- verting underutilized resources into productive assets. Let’s look at an example. Child and Youth Finance International, founded by leading social entrepre- neur Jeroo Billimoria, seeks to ensure access to finance and education for one of the world’s largest and most vulnerable populations—low-income children and youth. When setting up the organization, Billimoria initially considered setting up a system of banks that provided child-friendly savings and banking products. But after studying microfinance institutions and mainstream banks, she concluded that going the route of building a profitable bank would take her 50 years to achieve her goal of reaching 100 million children in 100 countries, and it might not ensure that she would reach the poorest of the poor. Through her current nonprof- it model of piggybacking on existing banks, she hopes to reach her goal in just five years. Another example is Marc Koska, who spent the past 27 years working on a market-based solution to address the problem of reused or “recycled” syringes—a problem that is estimated to cause 23 million potentially fatal infections and more than one million lost lives each year. Koska and a partner started Star Syringe and designed the K1, an auto-disabled syringe that self-destructs after the first use so that it cannot be reused and hence transmit diseases such as hepatitis or AIDS. A dozen manufacturers from Vietnam to Nigeria currently license the Star technolo- gy for a nominal fee (approx 5 percent of the factory gate price) and together pro- duce just short of two million K1 syringes a day, a significant part of the 6 percent penetration across the developing world. “There are 600 factories around the world, and we need to get to a tipping point where 200 O 300 come forward and say, ‘This safety market has been devel- oped and it’s viable, so let’s start production,’” Koska explained. “Six percent of the world market isn’t going to change the problem. But I can’t lead that campaign because [I could be accused of] profiting.” Koska is currently exploring options to open-source his model and decommercialize his patents, which would enable pro- duction to scale dramatically from 6 percent to 60 percent of the world market within five years. The third caveat about the growing emphasis on near-term returns is one that’s hard to get people to talk about honestly: mission drift. Nevertheless, the group did discuss some of the difficult trade-offs and struggles that social ventures face as they transition away from dealing exclusively with the philanthropic world of grants and move into the realm of investment capital. We shared experiences with boards that included investors and “became infected by a profit focus,” as well as 162 innovazioni / Impact Investing Downloaded from http://direct.mit.edu/itgg/article-pdf/6/3/155/704723/inov_a_00091.pdf by guest on 08 settembre 2023 Taking a Realistic Approach to Impact Investing boards that didn’t. One spoke of the shock “upon entering this new investment landscape [and realizing] most of the mindset focused on returns and exit.” Yet another issued strong words of caution for social enterprises embracing capital markets: “You may not lose all of your social impact, but you’re not really serving [the poorest] anymore. You are forced to go upmarket.” While “upmarket” might still be below the poverty line and therefore still qualify as fulfilling an important poverty alleviation goal, it is important to be aware of the shift in target groups. Again, different types of capital are needed to reach different population groups. Infatti, some critics have suggested that some social enterprises might gradu- ally shift strategies and limit their impact (Per esempio, by phasing out programs that target the neediest or excluding rural areas, which are generally costlier to serve) in response to the changing marketplace that expects near-market returns.12 Apparently, that hypothetical is already starting to play out in some of the hotter emerging markets. “I am fighting this openly,” said Harish Hande, founder and CEO of SELCO Ltd., a pioneer in providing affordable energy access to families liv- ing below the poverty line in India.13 “The bottom of the pyramid is considered a huge market, and thus investors expect to scale enterprises very fast,” said Hande. “But there are various stages involved in creating an organization that serves the poor. New processes have to be built and implemented, and it takes time. Over the last few years, I have personal- ly seen how so-called social investors have sacrificed social and environmental sus- tainability by unnecessarily pushing for financial returns.” Hande’s view from the trenches should serve as a warning: When financial results are easier to measure than social impact, what kinds of safeguards can be put in place to ensure that profit-seeking and social impact are kept in a healthy balance? Can this be done with new legal forms of organization, such as the bene- fit corporation in the U.S. or the community interest company in the UK? With changes in corporate bylaws? Or with governance structures or stock-voting arrangements? It is worth some serious consideration. We Need More Investors Willing to Build the Pipeline When it comes to impact investment, there’s a “missing middle.” On the lower end of the spectrum, philanthropic capital and angel investors provide start-up financ- ing in the form of grants or loans below $100,000. And then? Where can a matur-
ing social enterprise get transitional funding in the $200,000-$2,000,000 range as
it navigates that treacherous period between start-up and scale?
Several members of the group expressed concern that the management fee
structure of many impact investment funds is forcing the industry to consolidate
toward larger deals, despite scattered improvements to collaborate on due dili-
gence as a cost-saving measure. “We’re a $100 million fund and my average invest- ment is $4 million,” said Rodriguez Arregui. “I cannot make more investments
than I do because I can’t have a 10 percent management fee, which would allow me
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to invest smaller amounts of $200,000 O $500,000, since those take the same
amount of time to manage as a $4 million investment.” Even an admittedly unscientific scan of the 94 funds that have created profiles on the Global Impact Investing Network’s online platform, ImpactBase, demon- strate a wide variation in the maximum and minimum size of a deal, with less than a third of the funds reporting an average deal size below $1,000,000.14 And while a
few players, such as Acumen Fund and Root Capital, excel at taking on younger,
smaller organizations and helping them grow—essentially building the pipeline
for large commercial investors—the need for funding in the $200,000-$2,000,000
range likely outstrips the supply. In a recent survey of Schwab Foundation social
entrepreneurs, who typically head some of the world’s largest social enterprises,
well over half of the respondents reported funding needs between $100,000 E $2,000,000.
The economics of this kind of investing and the intensive support these small-
er ventures need clearly deter modest six-figure investment deals, but they are
nonetheless necessary for the field to achieve its potential. This area could be ripe
for more formal collaborative ventures between philanthropy and commercial
capital, Per esempio, by comanaging niche funds that specialize in small deals.
Providers of More Than Capital: Partners through Thick and Thin
The investors on the council view their role as much more hands-on than simply
providing capital, and they particularly highlighted the importance of local knowl-
edge and the need to step in “as a partner,” should problems arise. “Social entrepre-
neurs work in some of the most difficult markets,” said Mahmood. “How do you
expand the business capacity of social entrepreneurs to scale their models and
business ideas? How do you link them to the right resources and the right partners?
How can you provide them the necessary support and clout that allow them to do
business unfettered or [A] collaborate with the government, as is often necessary?"
Rodriguez Arregui concurred:
These are the hardest environments in the world to work in. The only
certainty is that there will be trouble. How you help [your investees when
they are] in the dire straits is the key. If you ask me, “What do you do as
an impact investor?” that’s what I do. Only 20 percent of what Ignia pro-
vides is the capital; 80 percent is everything else. I work with my investees
as a partner. I open doors, help them to get out of trouble, create an
ecosystem to increase their probabilities of success. We have a vested
interest in their success.
The bottom line for investors is to focus on your strengths and pursue investments
in sectors and geographies where you can bring that 80 percent to the table. Ask
your investees what types of support they would particularly value. Cultivate an
open, trusting relationship so that when the going gets tough—as it inevitably
will—you will be perceived as an asset and a resource to be brought in early to help
navigate a problem before it spirals out of control.
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Taking a Realistic Approach to Impact Investing
It’s worth noting that the social enterprises do not entirely agree that the non-
financial services received by investors are as important as investors seem to
believe. A Keystone survey among investees of several leading funds showed that
fewer than 30 percent of investees typically seemed to be aware of receiving such
additional services in the first place, and where they were aware of them, Essi
ranked their utility rather low.15
For social entrepreneurs, this should be a key area of discussion with any
potential investors: What’s the “80 percent” they bring to the table? What local
knowledge does the investor have to help you navigate troubled waters? Receive
reassurances that you have a similar vision on how to handle crisis situations
before signing on the dotted line.
CONCLUDING THOUGHTS
Social investing has tremendous long-term potential. Tuttavia, if the issues we
have raised here are neglected, it could prove to be a passing fad. Without soft
finanziamenti, without true risk capital, without protections for the social mission, con-
out organizations dedicated to developing the pipeline of earlier stage organiza-
zioni, without high-quality technical and managerial support, the number of suc-
cessful deals and the profit potential could prove a dream. If everyone focuses on
the endgame, the mature deals promising strong profits and social impact, IL
game is likely to end very soon. High-end impact investing can exist only as part
of a much richer ecosystem in which social ventures are supported, field-tested,
and nurtured to a point where they become suitable for more commercially ori-
ented funding. Now that we have taken a glimpse at the rosy future of impact
investing, let’s get back to the present and build the foundation.
1. The group, chaired by Greg Dees, director of the Center to Advance Social Entrepreneurship at
Duke University and widely considered the “father of social entrepreneurship as an academic
field,” included impact investing pioneers with a decade or more of experience, leading scholars
in the field, and globally recognized social entrepreneurs: Jacqueline Novogratz, founder and CEO
of Acumen Fund, U.S.; Asad Mahmood, managing director of Global Social Investment Funds,
Deutsche Bank, U.S.; Andrea Coleman, cofounder and CEO, Riders for Health, UK; Alvaro
Rodriguez Arregui, cofounder and managing partner of Ignia Partners LLC, Mexico; Johanna
Mair, a scholar at the Center on Philanthropy and Civil Society at Stanford University, U.S.; José
Ignacio Avalos Hernandez, founder and CEO of Un Kilo de Ayuda, Mexico; Adele Simmons, pres-
ident, Global Philanthropy Partnership, U.S.; Rick Aubry, founder and CEO of New Foundry
Ventures, U.S.; Matthew Bishop, author of Philanthrocapitalism; Brizio Biondi-Morra, president
of AVINA, Costa Rica; Jed Emerson, founder of Blendedvalue.org, U.S.; Martin Fisher, cofounder
and CEO of KickStart International, U.S.; Ashok Khosla, chairman of Development Alternatives,
India; Helmy Abouleish, managing director of SEKEM Group, Egypt; Roberto Artavia, president
of VIVA Trust, Costa Rica; Kathy Bushkin Calvin, CEO of the United Nations Foundation, U.S.;
and Boris Nikolic, advisor to the Bill & Melinda Gates Foundation, NOI.
2. Available at http://www.secondact.com/2011/06/impact-investing-goes-small-time/.
3. Available at http://www.nytimes.com/2010/04/24/your-money/24wealth.html.
4. Available at
http://www.jpmorgan.com/cm/cs?pagename=JPM/DirectDoc&urlname=impact_investments_n
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Katherine Milligan and Mirjam Schöning
ov2010.pdf, P. 12.
5. For the full Social Investment Manual, Vedere
http://www.schwabfound.org/pdf/schwabfound/SocialInvestmentManual.pdf.
6. KickStart develops and promotes technologies such as irrigation pumps and seed presses that can
be used by entrepreneurs in Africa to establish and run profitable small-scale enterprises. Every
month, more than 1,300 new businesses are created in sub-Saharan Africa using KickStart’s prod-
ucts, which collectively generate new revenue equivalent to more than 0.6 percent of Kenya’s GDP
E 0.25 percent of Tanzania’s GDP.
7. Riders for Health, a social enterprise that has won multiple awards, partners with national gov-
ernments and UN agencies in seven African countries to maintain a large fleet of motorcycles that
enable health workers to serve rural populations more efficiently.
8. Ashish Karamchandani, Michael Kubzansky, and Paul Frandano, Emerging Markets, Emerging
Modelli: Market-Based Solutions to the Challenges of Global Poverty, Marzo 2009.
9. Jose Ignacio Avalos continued as non-executive chairman of Compartamos. The daily operations
were run by Carlos Danel and Carlos Labarthe.
10. See http://accionambassadors.wordpress.com/2011/06/04/a-new-advocate-to-the-commercial-
approach-of-microfinance/.
11. Alvaro continued, “Most will see this complementarity as a subsidy to commercial capital. È
non. It is simply roles being played at different stages of the evolution of the organization and
different levels of risk. One reason why this is interpreted as subsidy is because of the tradi-
tional structure of grants. If the project is successful, the grant funders enjoy no upside. Noi
need to be more creative and strict in cases where philanthropic capital funds innovations that
are at a pre-commercial stage [such that] when the project is successful, [the donors] will also
enjoy the upside. Taking the Compartamos example, those early funders should have enjoyed
the benefits of the upside at the time of the IPO. If we could do it again, I think we should
structure it that way, and this should be a lesson learned for all social enterprises.”
12. See www.nextbillion.net/blog/2011/05/26/the-dangerous-promise-of-impact-investingfrom-
ashoka-europe.
13. SELCO sells customized solar energy systems that provide clean electricity for home use. UN
standard system costs less than $400, which customers can pay off in monthly installments of $6 A $8 a month over five years.
14. See http://www.impactbase.org/database/browse-funds for the profiled funds; calculations are
author’s own.
15. See “Investee Feedback Report: CAF Venturesome,” Keystone Performance Surveys. Available at
http://www.cafonline.org/pdf/Keystone%20Performance%20Survey_CAF%20Venturesome_Fi
nal%20Report.pdf, pag. 19-26.
166
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