I had a great time on Tuesday’s panel at the Global Philanthropy Forum with Matt Bannick, Maya Chorengel and David Bank. It was an opportunity for all of us to dig in, in a substantive way, to the “facts and fictions” of impact investing. My high-level takeaways from the panel were:
- We all agreed that just because there may not always be tradeoffs between financial return and social impact certainly doesn’t mean that there are never tradeoffs between the two. This was language that Matt Bannick used and I thought it captured very well the nuance that, it feels to me, the impact investing sector misses when you just read the headlines.
- While the impact investing sector has grown and there’s more money at play, there’s still very little risk capital available, especially for early-stage ventures. I include philanthropically-backed investment capital and enterprise philanthropy in the bucket of “risk capital,” and I’d say that, by and large, a year after the publication of the Blueprint to Scale report, as a sector we haven’t in any substantive way addressed the “Pioneer Gap” of early-stage, risk capital for entrepreneurs looking to solve old problems in new ways.
- A corollary of the previous two points is that we still haven’t mapped out a clear third way between “100% loss of principal” (philanthropy) and “market rate returns.” My view is that until we create an equilibrium point around what this third way is, and until we do a better job articulating the impact we are having (and on who), then we have come up short in creating a new sector and a new way to solve problems.
- We have to get the metrics right. If we can achieve breakthrough in how we quantify and understand impact, I believe we could change the whole game. We all agree that there are some tradeoffs between seeking returns and seeking impact, but because it’s so much easier to gravitate to what we can quantify – the financial returns – and so much harder to accept tradeoffs when you struggle to describe what you’re gaining when you take more risk, we keep on gravitating to financial returns as the best indicator of success. The onus is on all of us to articulate and quantify the increased impact you can have when you target harder-to-reach populations; when you dig into untested sectors like truly low-income housing or land rights or sanitation; or when put up risk capital on new, untested, potentially breakthrough ideas.
This panel was a conversation that wouldn’t have happened just a few years ago, and it’s a testament to how far we have come as a sector that we are able to delve deeper into the questions that underlie this work. Enough time has passed that we have real data from which to draw initial conclusions.
At the same time, I’m reminded of how early we are in our evolution as a sector. “Impact investing” as a term was coined in 2007, and each of the sectors in which we are investing – whether clean energy, agriculture, primary health services, etc. – are themselves nascent. It is early days, and we must continually remind ourselves that we are in a period of experimentation and learning. Indeed I fear that in an age where information and ideas flow so rapidly, we have rushed to conclusions far too quickly relative to the time it takes to actually build businesses on the ground. We must ask ourselves: what changes can be accelerated by better information flows, better technology, more appropriate risk capital, and what changes necessarily come more slowly? I know that if we retain a spirit of inquiry and openness, if we allow ourselves to continue to learn and evolve, rather than getting boxed in to old, narrow of what success looks like, then I believe we can really get there.
In case you missed the livestream, here’s the video of the panel. Enjoy.