By Penelope Douglas, Board President, Social Capital Markets
During the Fall of 2011, I stated in an interview that a sea change in impact investing will occur when two things happen. The first is when the conversation about wealth shifts, and the second is when the most powerful voices in the room aren't exclusively those with the money.
This was before the impact of the Occupy movement, and it was before the online blackout related to two pending pieces of "anti-piracy" legislation in U.S. Congress. Each of these has certainly put the question of economic imbalance squarely on the table. Big media money has for the first time been less powerful in the conversation than the online community.
And, there is evidence of a new order in what people value & consider as wealth.
Return on Investing in Social Enterprise
In just six months we have seen extraordinary events contributing to a game-changing shift. But more needs to happen as it relates specifically to impact investing.
The most important trend will be for investors to celebrate their riches based on actual returns on double and triple bottom line investments. The wealth conversation will shift when we show increased wealth for investors that balances economic gains with social gains. In other words, increased wealth will be determined by new standards.
If, for example, the expected returns from a social enterprise providing a cheap, effective solution for a health problem in a developing nation, is 3 percent financial return and 50 percent fewer deaths year over year from a chronic illness, and those returns are met, the investment is a winner for the investor’s blended value portfolio.
Three among many to mention: Evergreen Lodge (Yosemite, California), Husk Power Systems (Bihar, India) and Better World Books (Atlanta, Georgia) are exemplary examples of a blended value proposition set forth and then met, and are therefore advancing the wealth conversation shift.
The second important trend is that the successful entrepreneur has a more powerful voice. They are making their investors and employees wealthy by new wealth standards, and thus policy makers and power brokers will begin to invite them into the room. In short order, the makeup of these very policy makers and power brokers will also change to those who can lobby effectively for the new dynamic.
Successful Social Entrepreneurship
Why aren’t we hearing more of these success stories yet? My experience tells me that there are three key reasons:
- Social entrepreneurs need to be better disciplined about the creation of a clear blended value proposition and meeting these results.
- Investors need to be able to find more investible deals based on their portfolio interests.
- Investors, both large and small, need to think in portfolio terms about investing across a spectrum of financial, social and blended value return propositions.
What can we do to fill these gaps?
1. Multiple Value Creations:
Social entrepreneurs need to have the skills, discipline and business models to create and then achieve the double or triple bottom line. These skills are complex and new. The lasting social enterprise has to be built on a successful business model, with a talented team, and for not one but two or more types of value creation.
2. More Examples, More Data:
We must tell the rich stories of the tremendous value being created in the impact investing arena. This includes more data, and more examples made available to capital seeking investment for lasting economic and social change.
3. Building a Portfolio Value Proposition:
We must do more work to build a portfolio value proposition, versus a one by one deal making landscape. Therefore, intermediaries need to create portfolio opportunities, and connect education as well as advisory services to the new economy investor.