If investing = sexy…

If investing = sexy, and if sexy = better = innovative = how we’re going to solve all the world’s problems…well then, Houston, we have a problem.

There’s huge momentum around using investing capital to solve social problems.  The question isn’t whether this is a good thing (it is!); the question is, how do we do this in a way that doesn’t devalue grant funding, that doesn’t inexorably end up at the conclusion that if you’re getting your money back (and then some), you win, and if you’re the grantmaker, you’re doing something that’s not as important/innovative/worthwhile.

What a shame that would be.

What happens when we build large-scale enterprises that serve tens of millions of people, but the service still remains out of reach for many?  Is the grant funder who provides capital to makes the service more affordable doing anything less noble, less valuable, less impactful than the equity investor?  What about the person who put up the first $500,000 with no expectation of ANY return so that the whole thing could get off the ground?

The thing that’s in scarce supply isn’t investing capital – heck, there are trillions of dollars fleeing the European fixed income market and looking for a place to alight.  What’s scarce is risk capital that will take a bet on a person or an idea and help it scale; and high-impact capital, which will take a powerful, existing infrastructure and make it accessible to those who can’t afford it…all in a way that doesn’t distort the market.

In the US, there’s no notion that the person who puts up $15M to fund cancer care for the poor is somehow doing something less important or less impactful than the bondholders who financed the initial construction of the hospital itself.  If anything, the donor is MORE celebrated.  Different tranches of capital are all playing their roles in an attempt (not completely successful nor a complete failure) to provide high-quality heathcare.

We’re obsessed with “building the market” for investing in enterprises that solve large-scale social problems.  That’s good.  But let’s not confuse that with making the world safe for investors to get their money back.

We’ll know the market is functioning not by measuring how much money is swirling around, how many funds there are, and their total capital under management.  We’ll know it’s functioning by measuring how many new blueprints for social change we’ve created; how many people’s incomes have increased; how many people no longer need a permanent handout.

 

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