An increased focus on impact objectives at the sector-level, rather than the general concept of “impact investing,” will more accurately enable us to reach the impact we are trying to make.
When markets reach a certain level of maturity, they fragment, and the most meaningful conversations occur in vertical segments, where traction gets deep. As investors have developed specialties within asset classes, sector-based investors (e.g. energy sustainability in East Africa, financial inclusion in the US) have created ways for enterprises reaching specific impact objectives to better scale in competitive markets.
We ask every entrepreneur, “What problem are you solving?” Impact investing doesn’t solve problems. Social impact bonds in Utah can provide needed capital to pre-K, Intellegrow in India can provide very rare working capital debt to growing companies, and VentureWell can provide prototype development capital to university entrepreneurs in the US. Recognizing this is a critical part of a “2.0” thinking for the sector.
An increased focus on impact objectives at the sector-level, rather than the general concept of “impact investing,” will more accurately enable us to reach the impact we are trying to make. Tweet This Quote
A Village Capital company, eMoneyPool, formalizes savings groups, a convention that 30 million Americans and over 1 billion people worldwide utilize to access capital, in a way that enables money pool customers to build formal credit. In a recent conversation, an investor asked the eMoneyPool CEO, “How do you know if you’re making a difference?” Fortunately, the CEO had quality metrics on the company’s performance, developed in conjunction with seed fund Accion Venture Lab, as well as benchmarks developed by the nonprofit Center for Financial Services Innovation on interest rates that customers were paying for alternative lenders to eMoneyPool. Last year’s Omidyar Network report, “Priming the Pump,” highlighted the importance of supporting firms at the sector-level, not the firm-level, and this eMoneyPool exchange highlights how an investor’s very valid question is only answerable with the activities of a specific entrepreneur (eMoneyPool), the research of a tremendous nonprofit (CFSI), and the hands-on support of a risk capital provider (Accion Venture Lab). The biggest barrier to impact investing—this question, “What kind of an impact are you actually making?”—is only answerable with cross-sector collective intelligence.
One example of how this plays out: Earlier in September, 10 Village Capital-Energy entrepreneurs presented at the Rice Alliance in Houston, the largest annual entrepreneur gathering in the energy industry. Sponsored by oil company strategics (e.g. BP, Chevron, Shell, Saudi Aramco), the Rice Alliance identifies the 10 most promising energy startups each year (impact or non-impact; the discussion included, for example, mapping software that increases oil extraction efficiency). Ten of the eighty entrants were Village Capital companies (all working towards a positive environmental and social impact in the energy industry); the judges were conservative, profit-oriented strategic players, and in the end, three of the ten companies selected for “Most Promising Energy Startups of 2014” were from the Village Capital cohort.
Chilton Capital, a partner of ours in Houston, has organized an amazing group of investors who are looking to more intentionally align their capital with their values, but don’t want to equate “impact” with “less effective than what I am currently doing.” The impact enterprises’ success at the Rice Alliance gave our investment opportunities a level of credibility with the attendees of the Chilton Renewable Investment Summit, a gathering of asset holders interested in impact investing, that we could not have manufactured without the industry’s approval.
To move the sector forward, GIIN could recognize that investors have generally accepted the concept of impact investing enough to be intrigued, and want to up-shift to the impacts that they (as a firm or individual) care about: livelihoods/job creation (what kinds of jobs are we creating, for whom, and where are more important than raw numbers); energy/environment, financial inclusion, health, and more. The GIIN’s contribution to date in creating a common taxonomy (IRIS) that we use to talk about metrics is a great first step—what if, in a 2.0 world, the GIIN were actively organizing investors and curating content around specific sectors, bringing in people from inside and outside the “impact investing” world? A GIIN financial inclusion advisory group that included people from Core Innovation Capital, Accion Venture Lab, CFSI, Omidyar Network, and eMoneyPool—to be sure—but MasterCard, eBay/PayPal, ICICI Bank, and Safaricom would yield an impact that would transcend metrics development. And the content this group could curate would capture the imagination of investors worldwide interested in these specific networks. And these networks aren’t just Fortune 500-global and Western.
This is the third post of a five-part series that focuses on leadership and the growing impact investing landscape.