Approach
Impact Investing
For many years, philanthropy and venture investing have been thought of as separate disciplines–one championing social change and causes, the other a hardline pursuit of financial gain. The idea that the two philosophies could be integrated in the same deals—in essence, delivering a financial return while also doing social good—struck most philanthropists and investors as far-fetched. Not anymore.
The common definition of impact investing is what refers to investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return". Impact investing, which seeks to generate social and/or environmental benefits while delivering a financial return, is expanding as a promising tool for both investors and philanthropists.
Our approach to impact investing includes key elements such as:
Investment with return expectations
Range of return expectations and asset classes
Impact measurement
Executable Entrepreneurship
Our approach is different but is based on decades of experience across not only proven methodic approaches but executed events.
Risk
+
ACTION
=
Change
There are several accepted definitions and models for entrepreneurship, but our experience has led us to focus on entrepreneurship being defined more along the economic theories, which emphasizes the creation or extraction of value. With this definition, entrepreneurship is viewed as catalyst of change, generally entailing risk beyond what is normally encountered in starting a business, has an economic focus and priority, but may include other values than simply economic ones.
The second component that we deem necessary from our experience is that strategies need to be actionable and executable. Our deep analytic experience allows us to view opportunities at deeper and broader level, allowing us to have data and information to make decisions that others don’t consider. This helps us drive results in a proactive v reactive manner, allows for transparency in the analysis and provides a higher level of success.
Strategic Funding Approach
As in all things, you can blindly do, do or be more strategic about your approach.
Strategic funding considers the way different types of financing options meet the broader goals and objectives of an organization. This approach allows us to consider significantly more variables and it attempts to find an optimal mix of funding among the various options that is appropriate for the part of the business being financed and ultimately creates and maximized value.
We also have created a unique opportunity for donors to have the opportunity to not only contribute to the social good as with a general donation, but also to earn equity in the organization that are created and funded.
Our Impact Investment Thesis
As the problem’s societies face become more entrenched and complex, it’s clear that government and philanthropy can’t solve them on their own. A look at the amounts of capital this bears out - in the U.S. alone, philanthropy is approximately $390 billion, government spending is $3.9 trillion, and capital markets (all debt and equity investments) encompass $65 trillion. On a global scale, total investments are estimated at $300 trillion. Thus, a 1% shift in global capital markets towards impact investing–or investments that work toward social good–could cover the estimated outstanding $2.5 trillion annual funding gap to achieve the United Nations’ Sustainable Development Goals (SDGs). As this example shows, harnessing capital markets can have a huge societal benefit.
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Investment with return expectations
Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital. Impact investing comes with a specific intention and necessitates that investments be managed towards that intention. This includes having feedback loops in place and communicating performance information to support others in the investment chain to manage towards impact performance.
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Range of return expectations and asset classes
Impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity.
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Impact measurement
A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.
Investors’ approaches to impact measurement will vary based on their objectives and capacities, and the choice of what to measure usually reflects investor goals and, consequently, investor intention. In general, components of impact measurement best practices for impact investing include:
- Establishing and stating social and environmental objectives to relevant stakeholders
- Setting performance metrics/targets related to these objectives using standardized metrics wherever possible
- Monitoring and managing the performance of investees against these targets
- Reporting on social and environmental performance to relevant stakeholders
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Use evidence and impact data in investment design
Investments cannot be designed on hunches, and impact investing needs the proactive application of data analytic methods tools, and analytics combined with real-world evidence and data to drive intelligent investment design that will be useful in contributing to social and environmental benefits.
