Dave Algoso recently wrote up an overview of One Acre Fund’s performance dashboard that got me again thinking about how we can create dashboards to both support performance management and communicate value to donors and partners. I have a lot of respect for One Acre Fund’s work, it’s efficiency, impact, and, as Dave notes, emphasis on evidence-based program development. Certainly, from the outside, it appears that the bundled services have been well chosen to meet the needs of farmers while minimizing the subsidy required. Read the rest of this entry »
The cost-effectiveness of impact investing is unclear due to both poor impact measurement and hidden costs. As I have addressed the former issue in the discussion note, “Cost-effective Impact Investments for the Impact Investor,” this note will explore the cost of impact investing, specifically the subsidy intrinsic in the investments.
Impact investments are generally a hybrid of equity and/or debt capital and subsidy, and likewise have two types of returns, financial and social. To understand the cost-effectiveness of impact investing it’s necessary to not only better quantify the social returns, but also isolate the subsidy. Only after clarifying the subsidy component of the investments can one assess the financial and social performance of the two components of the investments. Read the rest of this entry »
While Mission Markets and Impact Investment Exchange Asia have pioneered private platforms for sourcing and channeling deals to investors, GATE Impact now plans to provide a trading platform that will allow investors to trade shares of the companies listed, much like any other stock exchange.
President William Davis is focusing on investors—mostly big institutions—that can bring their impact investing portfolios onto the platform with them. At launch, Davis says, GATE Impact will list available impact investment deals of between $500 million and $1 billion. By comparison, the social enterprises on Asia IIX’s Impact Partners platform have sought to raise a total of about $70 million. [Source]
But do impact investments need “hot money”? It’s hard to know what the trading behavior would be like on such an exchange, but there is an advantage to being a private company, the ability to look long- rather than short-term chief among them.
I do think a secondary market will be very important to the industry, especially given the fear of many that there will be limited opportunities for exits. At the same time, I wonder if what the industry needs is an active private equity secondary market, with secondary buyers purchasing stakes in existing investments or funds themselves, allowing the initial investors to achieve at least partial exits.
Given the concern about exits, I would think that a secondary buyer could play a catalytic role in the industry, increasing the confidence of concerned potential investors and providing exits for initial investors that will allow them to make additional investments in the space. The role of the secondary buyer is indeed to provide an exit for the initial investor before the investment itself achieves an exit (e.g., M&A, IPO, etc.), and given the patience required for “patient capital” impact investing, the off ramp provided by secondary buyers could prove crucial to getting mainstream institutional investors on board. Unlike the proposed stock exchange, it won’t expose the businesses themselves to hot money.
In addition to a secondary private market, capital could be channeled through a trading exchange that listed social investment funds rather than the investments themselves. There are legal concerns given the non-profit status of many social investors, but it’s an idea worth considering.
The $400 billion to $1 trillion question is how to translate investor interest into active investments. An active secondary market and a platform for funding the funds may help (responsibly) tap those resources.
If you have any thoughts or comments, please send me an email at: cdp283 at nyu dot edu.
Previous Posts on the challenge of Social Performance Measurement:
This long post is available as a PDF.
Impact investors can better estimate their impact on growing businesses and, in turn, the impact of supported businesses on communities without a significant increase in evaluation cost. While impact investors rightly regard randomized controlled trials (RCTs) as inappropriate for day-to-day performance measurement, impact investors can use low-cost alternatives (specifically, control groups and Best Alternative Pro Formas) to construct counterfactuals in order to estimate what would have occured in the absence of their investment. While these methods will not meet the standard of RCTs, they can offer a significant and meaningful improvement in the measurement and management of social performance. Read the rest of this entry »
This post addresses two questions raised in the recent discussion on impact evaluation and investing: to what extent is the burden of proof lower for impact investing than traditional philanthropy, and what type of analysis does the industry itself need to separate social enterprises with goods intentions and significant social impact from those that struggle to translate the former to the latter.
Acumen Fund’s Sasha Dichter recently responded to Dean Karlan’s critique of the lack of rigorous analysis of social investments by differentiating between the social investment and the “purely philanthropic intervention”:
No matter what scale a pure philanthropic intervention reaches, the total marginal cost of delivering the nth “thing” (any intervention) is always positive, so you’re in the business of figuring out how the impact relates to that cost and how the impact relates to other similar interventions. Not so if you find the “next cellphone” – except it’s not a cellphone, it’s safe drinking water or a bio-mass powered light on a mini-grid or a safe and affordable place for a mother to give birth. Read the rest of this entry »
In a recent interview with Fast Company, Dean Karlan noted:
The social entrepreneurship world is in a weird spot, to be honest with you. It’s a world full of rhetoric about impact investing, yet I have very rarely seen an investor actually take that seriously. When you look at the actual analysis it lacks rigor.