Impact Investing: Under the Hood
hosted by SVMN
Event Recap by Colette Kessler, SVMN Volunteer
“This is your network and I want to be responsive to your needs,” said Kate DeYoe, introducing her first event as the Director of the SVMN. The subsequent panel certainly exemplified this commitment. Impact investing is an increasingly popular approach to financing poverty alleviation because it
also aims to achieve financial return. As such, we are all interested in understanding the innovations, ideologies, and struggles of its practioners. September 18th’s conversation, “Impact Investing: Under the Hood,” provided some clarity.
Moderated by Maya Chorengal- Managing Director and Co-Founder of Elevar Equity, the assembled panel included Tim Freundlich- President of Impact Assets, Michelle Kreger- Senior Director of Strategic Initiatives for Kiva, Arjuna Costa- Investments Director of Omidyar Network, and Keely Stevenson- CEO of Bamboo Finance. Sitting atop their table, having foregone the chairs, they described the roles of their organizations in the impact investing space. Said Michelle, “We’re taking what we’ve built and pushing it.” True of Kiva’s own strategies, the phrase also appropriately describes the relationship between impact investing and microfinance.
Within impact investing, however, the goal is not necessarily to create the next hot trend, says Arjuna. Instead, Omidyar Network innovates by relying upon its founders’ personal philosophies. Seeking to move whole sectors (property ownership, financial services, education, transparent & accountable government, and consumer information), Omidyar invests in places that have their own influence agendas for each space. This method, Arjuna explains, allows you to “start to see where the gaps are.” Innovations follow.
For Kiva, some innovations stem from the necessity to fill an immediate need – one that others simply can’t or won’t fill For example, though acknowledged as potentially unsustainable for the organization, Kiva may pursue direct lending in the $20,000 range. In fact, Michelle believes that innovation is trending and that over time the majority of catalytic loan programs will come from alternative channels; traditional institutions will lag in their adoption by 5 years.
At Bamboo Finance, which uses private equity funds in a commercial approach to improve the lives of low-income people, Keely is seeking large scope innovation. To the head nods of the other panelists, she described the need for a “system change” to illustrate that “these markets are viable.”
Meanwhile, Tim is looking inward- organizationally- for innovation. Reflecting on the idea that moving money differently requires linkages, he emphasized, “it’s all about integrity.“ And then he posed this question: can you assess impact capacity at a managerial level?
With both mission and profits on the line, capacity isn’t the only question. What results have we seenproven thus far? Keely says it’s still too early to tell. Bamboo Finance has had one exit at a 23% IRR. But impact, “ingrained in the people in [their] team,” remains the first funnel they use to determine partners. And for now she sees good indications in some student loans and health organizations. Chiefly, Keely maintains that “synergy is where social impact is intrinsic to the business model.”
But one audience member pointed out that there could be distinct challenges in creating impact when financial returns are required. Arjuna contests this conflict, instead insisting that some terms of impact are only possible with the for-profit model. For example, at Omidyar Network measuring impact means looking at the following factors: is the project highly scalable, with direct impact, and innovative in business or technology? Still, Bamboo Finance has taken some precautionary measures in mandated portfolio percentages, local partnerships, and options that require refunds on investment upon mission drift. And even so, Keely concedes that a diverse portfolio creates many different types of impact and requires many different types of measurements.
Another audience member reflected on risk aversion and cost reduction as additional indicators of impact. In response, Michelle pointed to Kiva’s crowd-funding model as well as their practice of actively looking at individual cases to find opportunities for lower administrative costs. One challenge for them is council: Kiva needs to find a way to advise with less liability and more sustainability, particularly with local partnerships.
Perhaps these varied conclusions are why Tim is adamant that a lot of what can be measured doesn’t matter and vice versa:
“We’re comparing apples to oranges, but people can’t figure out what they’re counting… They’re not even eating fruit.”
So what do the financiers of and participants in impact investing even want and will their needs change? In the current climate, Tim reveals, “the rarest breed of investor says I’m going to approach the world with everything I’ve got.” And even though seasoned entrepreneurs, assures Keely, are moving away from VC funding for their 2nd or 3rd businesses, Tim jokes that to change the tide of the people in this space, “it’s going to take a long time and my strategy is for them to die.” Of course, young people will eventually age too, but he has faith in the millennial generation to be more complete in how they connect their money, time, skills, and passion. Their institutions, too, will catch up. Tim predicts that within the next ten years, undergraduate programs will respond to the current “change in the zeitgeist” by adopting the social entrepreneurship curricula that graduate programs have championed.
As growth within the social capital marketplace continues to accelerate, we can take a note from a panel that sits atop their table: innovate at every opportunity.